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New Texas Law Could Limit Penalties Paid By Insurers In Harvey-Related Disputes

Martin do Nascimento
Flooding along the Colorado River in Bastrop on Sunday.

As Texans brace for the damage done by Tropical Storm Harvey, a new law is set to take effect Friday that limits damages insurance companies are responsible for if there’s a dispute with a policyowner.

Rene Sigman, litigation manager for the Merlin Law Group in Houston, said House Bill 1774 – commonly referred to as the “blue tarp law” – lowers the penalty insurers would have to pay if they are found to underfund or are slow to pay a claim.

“Currently, under Texas law, there is an 18 percent penalty if an insurance carrier wasn’t too timely to pay you on a claim or basically pay you what you’re owed under your claim or your insurance policy," she said. "On Sept. 1, that's reduced down to 10 percent.”

Wendell Ware, executive director of Texas Watch, a nonpartisan citizen advocacy group, said the law doesn't bode well for Texas property owners.  

"Insurance companies already had the upper hand in these disputes and now they have even more power,” he said.

In a statement, Texans for Lawsuit Reform, a conservative-minded nonprofit that supported the bill, said it discourages "the feeding frenzy by lawyers and contractors following natural events" in Texas.

Lucy Nashed, a spokesperson for TLR, said a rash of suits over the last nine years after Hurricane Ike and a series of hailstorms prompted lawmakers to write the law.

“We saw unnecessary lawsuits," Nashed said. "Lawsuits that did not need to be filed against these insurance companies that were jamming up the system, that were making insurance rates skyrocket for people.”

She said a majority of insurance claims will be made and awarded without incident and Texans still retain the right to sue if that becomes necessary.

Property owners who file Harvey-related claims before Friday would be paid at the higher penalty should a dispute arise, Sigman said. If the policy owner must file a suit, she said it’s important to vet the attorneys and firms because there are a number of new steps they must do to file.

“Not that many attorneys or law firms were aware of the changes in the law,” Sigman said. “Not many of them fought against it. A lot of people don’t know it intimately, so they’re going to need to really do their homework.”

Jimmy is the assistant program director, but still reports on business and sports every now and then. Got a tip? Email him at Follow him on Twitter @maasdinero.