There were more severe weather events that exceeded $1 billion in damages from January to March of 2017 than any year since the National Oceanic and Atmospheric Administration (NOAA) started collecting this data in 1980.
These weather-related losses are putting pressure on insurance rates across the country. The impact of the losses is an increase in the exploitation of bad faith statutes, lawsuit abuse and contractor fraud.
Bad faith and lawsuit abuse battles
States with extreme exposure to catastrophic weather events are well aware of the need to mitigate losses, but they are also plagued by contractors and lawyers who abuse the legal system.
Colorado is seeing an increase in litigation by third-party insurance adjusters and contractors who sue on behalf of homeowners, even though the claims were already settled to the satisfaction of the homeowner. Under Colorado law, roofing contractors are allowed to sue their customer's insurance company whether the customer is happy with the repairs or not.
Additionally, Colorado's unique bad faith statute allows for up to triple recovery and attorney's fees, creating incentives for third parties to bring lawsuits. Not surprisingly, Colorado is seeing an increase in litigation by roofing companies.
Property Casualty Insurers Association of America (PCI) and the industry sought legislation (SB 204) to eliminate the ability of a third-party entity to sue the insurer for "bad faith." The bill passed the Colorado Senate; however, it did not advance out of committee in the House.
In Texas, the prevalence of hail and other storms has created a lucrative business for roofing contractors, public adjusters and plaintiffs' attorneys who go door to door in communities hit by storms and encourage homeowners to sue their insurance companies. Although the number of hail events and claims has remained relatively stable over the last 10 years, the number of lawsuits has increased 1,400%.
The Texas Legislature passed HB 1774 this session, intended to curtail property claims lawsuit abuse in Texas, and the bill has been sent to the governor. The law would also require an enforceable 60-day notice of suit, and stop personal lawsuits against insurance company employees and agents while continuing to make insurance companies pay a tough penalty for failing to make prompt payments. Gov. Greg Abbott is expected to sign the bill.
Victory on contractor fraud
In Wyoming, to stop unscrupulous contractors from manipulating homeowners into signing contracts before insurers can approve the claim, or doing shoddy work and leaving the victim with no recourse, PCI and its industry partners were successful in enacting SF 127. The bill, which contained the National Conference of Insurance Legislators storm-chaser model legislation, was enacted in time to protect homeowners for the 2017 severe weather season.
In the next legislative sessions, the industry will again make advocating for consumer protections fraud reforms a top priority.
Chris Hackett, JD, MBA, CPCU, is director of personal lines policy for the Property Casualty Insurers Assn. of America (PCI). He can be reached at 847-553-3812 or at christopher.hackett@pciaa.net.
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