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And Just Like That, The Bad Faith Vanished - How Insurance Companies' Long Game Strategy to Influence Unjust Outcomes Paid Off

Insurance can be complex, but the overall idea is simple. Insurance companies are gamblers. They place bets. The bet is that you pay them a premium for insurance coverage, and they pay you money for damage if your property is damaged by a covered event. The insurance company is betting they will earn more money in premiums than they will pay out in claims.

Don't be fooled. Behind the Super Bowl commercials to "bundle and save," or that you're covered by those "good neighbors," you are just a number, and insurance companies don't make money by paying claims. To increase their odds, and their bottom line, insurance companies use their money and connections to influence legislation in many states, including Texas.

A prime example is HB 1774, also known as Section 542A of the Texas Insurance Code. The sponsors of this bill have consistently received money from Texans For Lawsuit Reform, a PAC run by super wealthy elites that have their hand in more investments and connections than most of us can fathom. This Bill changed how weather related insurance claims are governed, including how much a policyholder can recover in attorney's fees they were forced to incur because of an insurance company's bad faith.

The Bill was poorly written. It's vague language has been litigated thousands of times since its enactment in 2017. Judges have grappled with how to interpret it, often leading to differing conclusions along political party lines. But on February 2, 2024, the Texas Supreme Court dealt a massive blow to the rights of policyholders in Rodriguez v. Safeco Insurance Company of Indiana. The ruling essentially provides insurance companies a road map to avoid paying any attorneys fees or endure a jury verdict for bad faith, even if they knowingly acted in bad faith.

At the heart of the case is a provision in nearly every property insurance policy known as "Appraisal." The certified question the Texas Supreme Court was asked to answer was "In an action under 542A of the Texas Prompt Payment of Claims Act, does an insurer's payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney's fees?" The Court stated that the answer is yes, sticking to the poorly worded statute. It matters not that the legislature did not consider these ramifications when they passed the bill (which we know is true after speaking to those who were there). Only the legislature can fix the issue now. But just how bad can it be?

Consider what happened to the Rodriguez family. A tornado caused significant damage to their home. The insurance policy they purchased from Safeco required Safeco to pay them for the damage caused by the tornado, minus their deductible. Following the loss, Safeco issued payment of $1,295.55 for damage to the house, but the damage was significantly more than that. After being given the run-around, Rodriguez was forced to hire a lawyer. His lawyer complied with the notice requirements of 542A and told Safeco that at least $29,500 was still owed on the claim. Safeco refused to pay another dime. Rodriguez was forced to file suit.

After suit was filed, and discovery was initiated, the parties went to mediation. When the case did not settle at mediation, Safeco asserted its right to invoke the appraisal provision, nearly two years after the lawsuit had been filed. The appraisal panel found that the damage to the house was valued at $36,514.52, more than twenty-eight times what Safeco had represented to Mr. Rodriguez. Can you imagine your insurance company deliberately underpaying you more than $30,000 on damage to your home that is covered under your policy? Unfortunately, it happens all the time.

Following the appraisal award, Safeco issued payment to Mr. Rodriguez for the full amount of damage, and sent $9,458.40 in interest for its admitted violations of the Texas Prompt Payment of Claims Act. Instead of also paying Mr. Rodriguez' attorney's fees, which were entirely necessitated by Safeco's bad faith conduct, Safeco asked the Court to dismiss the lawsuit entirely, claiming that because Safeco had paid any and all amounts that could be owed under the policy, Texas Insurance Code 542A.007's mathematical equation for an award of attorney's fees would always equal zero.

Sadly, the Texas Supreme Court agreed with Safeco and has punted the issue to the Texas legislature to fix the poorly worded insurance code section. Even though this result was never intended or even contemplated by the legislature, your insurance company can now use appraisal, even years after you have filed a lawsuit, to prevent you from ever recovering attorney's fees you incurred as a direct result of your insurance company's bad faith. This horrid result means that some of the money you need to go towards repairing your home must go towards paying your attorney. This is the intended effect insurance companies wanted - to deter you from suing them because you will have to come out of pocket in paying your attorney; and deter attorney's from taking a case in which they can never recover their fees.