Insurance companies lobby lawmakers to make it harder for homeowners to sue

Texas Legislature will convene, discuss issue in January

HOUSTON – As the Texas Legislature gets ready to convene in January, a lot is at stake for Houston homeowners.

Insurance companies are lobbying state lawmakers to pass laws that would make it difficult for homeowners to sue these companies if they underpay a claim.

Consumer expert Amy Davis has details of the latest battle between attorneys and insurance giants that has consumers caught in the middle.

The hail that hammered the Alvin area in 2012 was relentless, but it was nothing compared to the headaches Dorris Knippa got from her insurance company when she filed a claim to repair her leaking roof.

"I felt so stupid because I trusted the insurance company to take care of us," Knippa said.

Knippa sued when her insurance company denied her claim. She's not alone. In 2014, 10,901 Texas homeowners filed lawsuits against their insurance companies.

"The lawyers of this state have figured out how to use the insurance code to sue insurance companies," said Lee Parsley, an attorney with Texans for Lawsuit Reform, testifying before the Texas Senate Business and Commerce Committee in October.

The insurance industry says it's a racket, a shakedown costing consumers millions in higher premiums to make up for the cost of fighting the lawsuits.

Consumer advocates counter that greedy insurance companies raise rates even when claims and lawsuits are down.

"Year after year after year, premiums are increased," said Brian Blevins with the Texas Trial Lawyers Association. "When deductibles go up and coverage is static, premiums should go down and they're (going) up."

Both sides have pleaded their cases to lawmakers in recent months.

"Insurance companies don't need more laws and rules to help them. Texans do," said Houston attorney John Black.

"Unnecessary litigation against insurance companies following hail and windstorm events is the worst lawsuit abuse we've seen in Texas in years," countered Parsley.

In June, KPRC 2 News told you how one insurance company, Texas Farm Bureau, was trying to add an arbitration clause to its contracts that would prevent its customers from suing for any reason. After the story, Texas Farm Bureau dropped the idea when challenged by the nonprofit group Texas Watch.

"We stood up and we beat them," said Texas Watch Executive Director Ware Wendell. "But we know that they're coming again."

Parsley told Channel 2 they want to take away incentives attorneys have for filing hundreds of cases against insurance companies, like how much they can collect. Right now consumers can sue without paying attorneys fees. If they win, the insurance company foots the bill, no matter how much the homeowner is awarded. For example, if a homeowner believes they are owed $5,000, but a jury awards them only $100, the homeowner's attorney can collect thousands more for their work on the case. TLR wants lawmakers to change the law to a sliding scale so that the attorney who sues can only be awarded a portion of their attorney's fees in relation to the amount awarded to the homeowner. They say the way the current law gives attorneys incentive to bring dozens or hundreds of cases, because attorneys know they can collect thousands in fees even if their client only gets a small amount. 

"We need to restore some balance to the system for everyone to be protected in the process," said attorney Steve Badger, who represents insurance companies in hailstorm disputes. "Yes, including the insurance companies."

But Wendell said the average homeowner can't afford to hire an attorney and pay fees upfront to dispute a claim.

"So it's important for everyone to stand up and tell the insurance industry, 'You're not going to take our rights. You take too much of our money right now. You're not gonna get our rights,'" Wendell told Davis.

The Texas Department of Insurance tried to put the flurry of litigation into perspective. It found that in 2010 and 2011, less than 1 percent of all claims filed involved an attorney or public adjuster. In 2012, those claims shot up between 3 and 5 percent. Still, Texas Watch said insurance companies are hardly hurting. Each year, Texas carriers have made millions more in profits while paying out fewer claims to customers.

"We weren't out to make any money," Knippa said. "We just wanted to get paid what was rightfully ours."

After three years in court, Knippa's insurance company settled and finally paid her the amount she originally needed to repair her roof, plus all of the court costs leading up to that point.

The Texas Department of Insurance discovered that when attorneys are involved in claims, like Knippa's, they cost insurance companies on average between $25,000 and $30,000 compared to just $8,000 when the claim is settled without an attorney.

Texas senators who heard the testimony from insurance lobbyists and consumer advocates are recommending that consumers be required to give insurance companies more notice before they file lawsuits, in order to give insurers an opportunity to pay their claims in a timely manner without  the added expense of court costs.

We'll be following the issue when lawmakers head back to the capital in January.