A new law went into effect on September 1, 2017 that affects homeowners insurance policyholders attempting to file a lawsuit against their insurance companies for paying claims too slowly or not paying enough in claims. When insurance companies must pay damages, the law reduces the amount of penalty interest from 18% to 10%.

Under the new law, plaintiffs’ attorneys must now also provide much greater detail when giving notice of intent to sue. The amount of attorneys fees homeowners can recover if they fail to estimate within 80% accuracy the amount of damage to the property has also been reduced.

Supporters of the law claim it will reduce the number of frivolous lawsuits filed against homeowners insurance companies while opponents say it weakens consumer rights in Texas while doing less to deter insurance companies from acting in bad faith with policyholders.

Texas consumers who filed a notice of claim against their homeowners insurance provider before the law went into effect can receive 18% interest when the insurer does not pay, pays too slowly, or does not pay enough.

The new law does not affect flood insurance, only private homeowners insurance companies.

The legislative change comes on the heels of Hurricane Harvey, which caused an estimated $180 billion in damage in Texas, which is more than any other natural disaster. Estimates show 70% of the home damage from the hurricane will not be covered by homeowners insurance. Only a small number of the homes in the path of Harvey were covered by flood insurance. A standard homeowners insurance policy will cover damage from the high winds of the hurricane, but not damage caused by flood water and rain.

Fraud is certainly a concern when it comes to homeowners insurance in Texas. In 2013 alone, Texas investigated over 550 insurance fraud cases with more than $10 million in fraud identified and referred for prosecution. According to the Texas Insurance Commissioner, insurance fraud is on the rise in Texas. Cases of homeowners insurance fraud tend to swell after major storms such as Hurricane Harvey.

Severe weather events are sometimes used by attorneys, contractors, and public insurance adjusters to manipulate a profit. The most common form of fraud begins with canvassers who go door-to-door in storm-ravaged Texas neighborhoods to convince homeowners they are entitled to more compensation from their homeowners insurance provider than they received.

Homeowners are then told to sign a contract to allow a public adjuster and lawyer to facilitate a claim. The lawyer then files a lawsuit based on the adjuster’s inflated damage estimate. In these cases, the attorney settles the lawsuit without discussing the settlement or damages with the lawyer. The award is then divided with the adjuster, attorney, contractor, canvasser and other parties receiving a disproportionate share compared to the homeowner.

Texas already has strict laws governing homeowners insurance fraud and insurance schemes. This example is considered criminal barratry under the law, which prohibits lawyers from recruiting clients immediately after a natural disaster. Texas laws also make it illegal for someone to act as a public insurance adjuster without a license while making it more difficult for contractors to illegally solicit homeowners.