The following is for general informational purposes only. In no way is it intended to be construed as legal advice. We recommend you consult a lawyer if you want legal advice.
Some will view it that the Texas property insurance lobby machine had a huge win following the recent 86th legislative session in Texas. Texas Governor Greg Abbott signed HB 2102 into law on June 14th, 2019 and the law takes effect September 1st, 2019.
What this means to homeowners affected by a loss that is covered by your insurance policy:
– A contractor cannot represent that you paid your deductible when you in fact did not, or assist the property owner in any way to avoid paying the required insurance deductible associated with a property insurance loss claim. Doing so is now a criminal offense as a Class B misdemeanor.
– Insurance companies can require proof of deductible payment before paying out the depreciation, or holdback, dollar amount of your claim once the repair work is completed.
The new law reads in part:
Sec. 707.002. PAYMENT OF DEDUCTIBLE REQUIRED. A person insured under a property insurance policy shall pay any deductible applicable to a first-party claim made under the policy.
Business & Commerce Code.
Sec. 707.004. REASONABLE PROOF OF PAYMENT. An insurer that issues a property insurance policy with replacement cost coverage may refuse to pay a claim for withheld recoverable depreciation or a replacement cost holdback under the policy until the insurer receives reasonable proof of payment by the policyholder of any deductible applicable to the claim. Reasonable proof of payment includes a canceled check, money order receipt, credit card statement, or copy of an executed installment plan contract or other financing arrangement that requires full payment of the deductible over time.
SECTION 2. Section 27.02, Business & Commerce Code, is amended to read as follows:
Sec. 27.02. GOODS OR SERVICES PAID FOR BY INSURANCE PROCEEDS: PAYMENT OF DEDUCTIBLE REQUIRED.
(a) In this section, “property insurance policy” has the meaning assigned by Section 707.001, Insurance Code.
(b) A contract to provide a good or service that is reasonably expected to be paid wholly or partly from the proceeds of a claim under a property insurance policy and that has a contract price of $1,000 or more must contain the following notice in at least 12-point boldfaced type: “Texas law requires a person insured under a property insurance policy to pay any deductible applicable to a claim made under the policy. It is a violation of Texas law for a seller of goods or services who reasonably expects to be paid wholly or partly from the proceeds of a property insurance claim to knowingly allow the insured person to fail to pay, or assist the insured person’s failure to pay, the applicable insurance deductible.”
(c) A person who sells goods or services commits an offense if the person:
(1) advertises or promises to provide a good or service to an insured under a property insurance policy in a transaction in which:
(A) the good or service will be paid for by the insured from the proceeds of a property insurance claim; and
(B) the person selling the good or service will, without the insurer’s consent:
(i) pay, waive, absorb, or otherwise decline to charge or collect the amount of the insured’s deductible;
(ii) provide a rebate or credit in connection with the sale of the good or service that will offset all or part of the amount paid by the insured as a deductible; or
(iii) in any other manner assist the insured in avoiding monetary payment of the required insurance deductible; or
(2) provides a good or service to an insured under a property insurance policy knowing that the insured will pay for the good or service with the proceeds of a claim under the policy and, without the insurer’s consent:
(A) pays, waives, absorbs, or otherwise declines to charge or collect the amount of the insured’s deductible;
(B) provides a rebate or credit in connection with the sale of the good or service that offsets all or part of the amount paid by the insured as a deductible; or
(C) in any other manner assists the insured in avoiding monetary payment of the required insurance deductible.
(D) An offense under this section is a Class B misdemeanor.
The Sponsors of TX HB 2102 that Created New Law
Representative Giovanni Capriglione [R]
How this Affects Homeowners
Insurance deductibles are a cost sharing mechanism that has the policy holder on the hook for a portion of the cost to recover from a loss incurred that is covered under an insurance policy. More importantly, deductibles serve as a mechanism to make an insured person think twice before filing a claim with the consideration of the cost they may incur out of pocket.
This may seem like a reasonable proposition. The issue is the various methods used by property insurance companies that are riddled with variables that place the insured in a position to be taken advantage of. It is popular with insurance companies to provide policies that equate your deductible for loss claims to the dwelling coverage amount. For example, if a home’s dwelling coverage is $300,000 and you have a 2% deductible for hail or wind damage, the resulting claim approval will require a $6,000 deductible to be paid out of pocket. That $6,000 is deducted from the estimate that your insurance deems the cost of repairs will be, and you receive the remainder as your claim payment. Insurance companies claim to base the dwelling coverage amount provided in a policy on data that represents how much it would cost to cover a total loss of the dwelling. The accuracy of the estimation for a dwelling coverage dollar amount, and the never ending annual increases of dwelling coverage automatically applied to policies, allow the insurance company to steadily shift the potential cost burden of a claim onto the policy holder.
Very few homeowner insurance property claims represent total losses. Think about it as a home burning to the ground or a home having a direct impact from a tornado that is destroyed. That is a very rare occurrence in relation to the number of homes insured. So this leaves the more common losses from things like storm damage being the most likely reason you may ever need the assistance of your homeowners insurance policy. Things have steadily been moving in the direction of homeowners shouldering a growing portion of the cost of those type of claims.
When you add in the shift of insurance companies aggressively marketing homeowners insurance policies that are based on Actual Cash Value payment for losses you have the perfect combination for insurance to collect your growing premiums while simultaneously reducing claims payments. Most homeowners that have an Actual Cash Value policy don’t even realize it or understand what that involves. A claim made toward an Actual Cash Value policy allows the insurance company to adjust your claim based on what they view to be the depreciated cost of what they are covering. Based on the estimated age of an item (such as your homes roof) the insurance company is able to reduce the amount they are liable for by coming up with a value that represents the reduced value that comes with aging. They refer to this as depreciation and they pay nothing for the aged portion.
Those that have a Replacement Value policy are typically in a little better position. In the event of a loss, and subsequent claim, the insurance company will pay a claim based on the actual cost to repair an item to like new condition. Policy premiums are typically higher for this form of coverage, but can leave you with less out of pocket to restore a loss. Although the deductibles on a Replacement Value policy are still being gamed by the same strategies described above to continuously shift the burden for common claims to the homeowner.
Last but not least is the topic of cosmetic damage waivers or exclusions. A tool used by insurance companies for homeowners policies to further reduce claims, by denying claims as cosmetic only damage. In the instance that you have visible damage, some homeowner policies provide the insurance company a path to denying the claim by determining that the damage is cosmetic in nature and doesn’t affect the performance or protection that a damaged item is intended to provide. Think of a roof, gutters or siding that has been damaged by a hailstorm. There may be various forms of visible damage, but an insurance company has the right to say that the damage is solely cosmetic. Here again, many homeowners don’t realize when they have this category of exclusion in the coverage that they are paying for.
The property insurance industry is astronomically profitable. They spend fortunes on advertising telling us why we can trust them and how they will be there in the greatest time of need. They also spend a fortune on lobbyist that play a huge roll in financing candidates in elections. It is very hard to see the recent actions by Texas lawmakers as anything other than returning a favor to those that contribute massive amounts of money to their campaigns, among other untold perks.
The property restoration and roofing contractor industry is largely unregulated in Texas. This comes with some pitfalls and occurrences of unscrupulous contractors harming homeowners. It would be wonderful if our lawmakers would address the topics that allow those harmed by contractors to face stiff criminal penalties. The reality is that the greater community of Texas storm restoration contractors perform to very high standards and help our state recover from catastrophe very quickly when needed. The absence of politics and red tape is what has always allowed us to efficiently recover from perils for decades. The news loves to report on the bad actors and make a show of when people are harmed. Unfortunately they never report on the hundreds of thousands of homeowners that are well cared for in an efficient and professional manner.
This law does not address anything that benefits or protects homeowners. It simply added to the bureaucracy that benefits the insurance industry. People avoiding out of pocket costs and failing to meet deductible obligations involved with property claims is definitely an argument for the ethics debate. Although, if you weighed all of this together, it would be many years of debate over the ethics involving the insurance industries position before we would ever get to the topics covered in HB 2102.