Texas policyholders can no longer cut deals with storm repair contractors to pocket their deductibles for storm repairs. The Texas Legislature has amended the Texas Insurance Code and Texas Business & Commerce Code, targeting construction companies that offer “free roofs” and “waived deductibles” as enticements to policyholders. Previously, for example, contractors would reach an agreement to perform work for a policyholder, but waive or absorb the portion of the repair cost equal to the deductible. This waiver or absorption could occur through numerous paperwork tricks. Now, the policyholder must pay its deductible, otherwise the insurer can refuse to pay certain claims and the contractor can be charged with a crime.
Texas Insurance Code §707.702 provides:
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.
Texas Insurance Code §707.704 sets forth the insurer’s remedy for non-payment of the deductible and the satisfactory proof of payment of the deductible:
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.
Texas Business & Commerce Code §27.02 requires notice of these new standards in contracts for “goods and services” over $1,000.00 when the “goods and services” will be paid for by insurance proceeds. The notice in the contract must state the following in 12-point bold font:
“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.”
This provision is located within the Texas Business & Commerce Code’s fraud provisions. The Texas Legislature continues to crack down on predatory and unethical conduct by parties involved in insurance claims after storms. The Code establishes that it is a Class B misdemeanor for a person to do any of the following:
(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.
The new laws are already in effect. Some commentators have praised the new laws as pro-consumer, protecting policyholders against unscrupulous contractors who undercut legitimate contractors with low bids and then perform shoddy work. Other commentators have complained that the new laws discourage policyholders from filing claims in the first place because they cannot afford to pay the deductibles, and that the new laws allow insurers to avoid releasing depreciation. Tropical Storm Imelda caused more than $2 billion of damage in southeast Texas only a few weeks after these new laws took effect. It will be interesting to see what, if any, case law arises regarding the new laws.