The Texas legislature passed a Draconian “Hailstorm” Bill in the last full session. The bill was aimed at limiting significantly so-called abuses by some plaintiff’s attorneys in South Texas. The end result is a bill that will take significant tools out of the hands of Texas policyholders. Those suffering from Hurricane Harvey will be immediately affected by the bill.

Be warned, policyholders should give written notice of a claim before the end of the day on the 31st of the fact they have and are suffering damage from Hurricane Harvey and the aftermath. It will be difficult to communicate with anyone in Houston and South Texas at this point. This at least allows potential assertion of the old 18% penalty rather than the new drastically reduced penalty amount. Unless actual suit is filed before September 1, 2017, which is impossible on Harvey claims, the remaining portions of the bill will apply regardless, including those dealing with formal notice of an insurance code and/or extra-contractual claim, the agent election and attorney’s fees reduction provisions.

Set out below is a brief discussion of the major provisions of the bill and their impact on Texas insurance claims, including those of homeowners and commercial policyholders.

Agent Election

Before notice or suit, the carrier may elect to be liable for any of its agents, which is defined as “an employee, agent, representative, or adjuster who performs any act on behalf of an insurer.” If the election is pre-notice, suit may not be brought against the agent and, if it is, it is subject to dismissal with prejudice. If an insurer elects to accept the agent’s liability after a lawsuit is filed by the claimant, the court dismiss the action against the agent with prejudice.

Impact: Direct claims against agents often defeated diversity jurisdiction because the agents were from Texas. The new law allows the carrier to make the election and thus defeat any non-diverse claim against agent/s. The net result is that federal diversity jurisdiction is then assured, funneling cases to the more conservative federal court system.

Attorneys Fees

Pre-suit notice is a pre-requisite for recovery of post-suit fees. In addition, the “Hailstorm” Bill provides: (a) If less than 20 percent of damages claimed pre-suit are recovered, no attorney’s fees are recoverable; (b) if 20 to 79 percent of damages claimed pre-suit are recovered, then the corresponding percentage of attorney’s fees are recoverable; (c) If at least 80 percent of damages claimed pre-suit are recovered, 100 percent of attorney’s fees are recoverable.

Penalty Interest Under 542

For cases involving the forces of nature, ie hurricane, windstorm, etc., interest is a formula. Simple, annual interest determined by adding 5% to the interest rate under 304.003 of the Finance Code (which has a floor at 5% and a cap at 15%).

Effective Date

The “Hailstorm” Bill applies to all actions filed after Sept 1, 2017. But, the interest provisions do NOT apply to any “claim” made before Sept. 1, 2017. Claim means a first-party claim that is made under an insurance policy providing coverage for real estate and improvements, that must be paid by the insurer to the insured, and that arises from damage or loss resulting from forces of nature.

A jury in Columbus Georgia awarded damages of $4.05 million against a property manager for the death of someone who was a late night visitor to a party at the property and not an actual tenant. The liability insurance carrier for the property manager rejected an offer to settle the case for $780,000. The carrier also rejected an additional demand for the $1 million policy limits. The largest amount offered for the defense was $25,000. As a result of the rejection of the offer, the claimants may also be entitled to attorneys fees from the date of the offer under Georgia’s fee shifting statute. It should be noted that $2.5 million of the award was for punitive damages.

The property manager apparently had been dealing for some time with a number of problems at the unit where the party and the incident occurred. A 60 day eviction notice had been issued to the residents for late night visitors and activities. There had been a previous shooting at this unit involving three men wounded by gunfire.

Property managers and owners are seeing an increased number of claims related to criminal activity present on leased premises. There appears to be an evolving notion that property managers and owners have some sort of duty to evict those suspected of criminal wrongdoing potentially dangerous to other tenants. Where a tenant involved in criminal activity could be evicted for any number of possible violations of the lease agreement, claimants will argue injurious incidents would have been prevented by enforcing the lease.

The insurance carrier here clearly believed that the case had no value because the decedent was himself suspected of criminal activity and had a troubling background. Some of that evidence was admitted at trial, but the jury still awarded damages more than 25% greater that the best offer from the plaintiffs. The carrier will have a difficult time defending its decision as reasonable given the opportunity lost here.

This case is reported on at

It is always nice to rediscover valuable internet resources. One of the best general resources on the web, especially for Texas lawyers, is http://www.nationslawlinks.com/. Howard Nations has gathered an incredible array of information, including detailed links for each state’s legislative and regulatory laws and provisions, general legal resources and codes, practical trial information, etc. It will take more than one visit to get a real appreciation for all that is set out here for convenient use.

Many practicing lawyers are unaware that the State of Texas has something called the “Office of Public Insurance Counsel.” (“OPIC”.) This group is tasked with representing “the interests of Texas consumers in regulatory matters involving auto, residential property, and title insurance” and participating “in rulemaking proceedings for life and health insurance” and working “with the Texas Legislature and interested stakeholders to advance the interests of Texas insurance consumers.” The website for this group has a great deal of helpful information, including copies of recent legislation relating to insurance, policyholder resources available elsewhere and insurance news information. OPIC represents consumers as a class on matters involving rates, rules, and forms affecting various personal insurance forms such as auto, residential property, title, and credit insurance, and on matters involving rules and forms for life, accident, and health insurance. “OPIC advocates for insurance consumers primarily before the Texas Department of Insurance (TDI). OPIC also produces a number of brochures and reports to assist consumers in better understanding the insurance products they purchase.”

The OPIC website has a great deal of helpful information on the lines of coverage upon which it focuses. OPIC “has prepared a Consumer Bill of Rights for Personal Automobile Insurance that provides a summary of various rights afforded to you by rule or state statute concerning personal automobile insurance.” A list of citations to the statutes and rules upon which the Bill of Rights is based is available at the OPIC website.

 Georgia, Sweet Georgia

The Eleventh Circuit has affirmed an amazingly pro-policyholder District Court decision regarding carrier liability for amounts in excess of the policy limits for negligent or bad faith failure to settle. Camacho v. Nationwide Mut. Ins. Co., No. 16-14225, slip op. (11th Cir., July 7, 2017)(Georgia law). The Eleventh Circuit rejected sub silencio a number of extreme attacks on “set-ups” of liability carriers asserted by the carrier, Nationwide, and the Georgia Chamber of Commerce (amicus curiae). We will sort out terminology, and then we will turn to the District Court decision, which is an amazing catalog of evidence of bad faith in refusing to settle. Camacho v. Nationwide Mut. Ins. Co., No. 1:11-cv-03111-AT (N.D. Ga. May 25, 2016)(Georgia law)(Tottenberg, J.).

Terminology

A “set-up” often refers only to the technical process of giving the insurance company the opportunity to refuse to accept a reasonable offer within limits. In Texas, we refer to this process as a Stowers demand, a process first discussed in Texas in G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544, 547 (Tex. Comm’n App. 1929, holding approved). In Georgia, such demands are known as “Holt demands,” named after the decision of the Georgia Supreme Court in Southern General Ins. Co. v. Holt, 416 S.E.2d 274.

“Sweetheart deals” are a different part of the process, but they are sometimes confused with “set-ups.” Once the demand has been made and the carrier has rejected it, the question then is how the exposure of the insured and the insurer is to be determined, by an agreement or a judgment after actual trial or some other process. These agreements sometimes involve the use of covenants not to execute to protect the insured from execution on any judgment while the claim is pursued against the insurer. In addition, an assignment of rights against the carrier is usually involved. Allowing the use of covenants and still finding the insured is damaged by the judgment is considered by many to be a legal fiction, assuming damages when there really are none. Some say that there is no fiction because the policy and rights against the carrier are assets and that if they are subject to execution, the insured is damaged, independent of the protection of other assets. In any event, public policy favoring protecting the insured from being left in the ditch by the carrier is the justification for the process.

These agreements similarly have taken on a number of names, most derived from cases where the agreements were first allowed or approved. See, e.g., Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969)(“Damron or Morris agreements”); Coblentz v. American Surety Co. of New York, 416 F. 2d 1059 (5th Cir. 1969)(“Coblentz agreements”); Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982)(“Miller-Shugart agreements”).

Camacho

The Eleventh Circuit was recently asked to address the propriety of so-called “set-ups” or Holt demands in the case of Camacho v. Nationwide Mut. Ins. Co., No. 1:11-cv-03111-AT (11^th Cir., July 7, 2017)(Georgia law). The carrier attempted to attack the use of Holt demands as a key cause of a recent epidemic of bad faith litigation in Georgia. They were joined in these efforts by the Georgia Chamber of Commerce, which filed a spirited amicus brief supporting Nationwide. While “sweetheart” deals have long been a favorite target of attack by the carrier and defense bar, the Camacho briefing in the Eleventh Circuit presents the twist of similar arguments being made as to the settlement demand process itself.

Facts of Camacho

In Camacho, the insured offered to settle with a release that protected the insured from the claims of the Camacho family, excepting out any other insurance coverage that might be otherwise available to the Camacho family. The carrier demanded a general release with a promise to repay Nationwide if any claims were made against them by lienholders. Nationwide and the Chamber of Commerce argued that this offer created a “gotcha moment” under Holt and should not be allowed. Nationwide, of course, ignored the fact that they asked for a general release in a communication to the claimants that was provided after the settlement deadline. After trial of the Comacho suit, a judgment was awarded for $5.83 million in damages.

After an assignment of rights from the policyholder to the Comacho family in return for a five-year stay of execution, suit was brought against Nationwide for negligent and bad faith failure to settle. The jury found both negligence and bad faith. The District Court entered judgment for $5.73 million in excess judgment damages, $2.4 million in underlying interest damages, post-judgment interest, and attorneys fees (to be determined) based on the failure of Nationwide to accept an offer of judgment 25% less than the ultimate judgment.

Judge Tottenberg’s Post-Verdict Order and Judgment

The District Court rejected Nationwide’s arguments that it could not accept the offer as made because (1) the party making the offer was not authorized to make it because an estate still needed to be established, and (2) a complete release was not offered. The offer provided that settlement would have to be approved by the probate court for the estate. The court found that this fact was known to Nationwide and should not have made a difference. The District Court also noted that Nationwide had made an early offer to settle for less than the policy limits, before the claimants hired counsel, “based on the precise same facts and legal posture of the case.” (DC Opin. At 5.) The court noted the expert for the Camacho’s testified “that insurance companies are accustomed to settling cases with the understanding that the formalities of setting up an estate are in progress or not yet set up.” (Id.) Moreover, the court noted Nationwide had failed to provide any authority supporting its position “that an estate claim cannot be settled unless an administrator has been appointed.” (Id. at 6.) In any event, the court found that counsel for the claimants had full authority to settle on behalf of all claimants, including the estate. (Id. at 8.)

The District Court emphasized that there was no evidence the estate issue was a basis for its refusal to accept the offer. This is the second recent decision emphasizing that technical attacks on settlement demands/offers will not succeed if they are based on defenses that were not on the mind of the carrier when the offer was refused. See OneBeacon Insurance Company v. T. Wade Welch & Associates, 841 F.3d 669 (5^th Cir. 2016)(affirming finding of knowing misconduct supporting treble/additional damages where the carrier relied on a defense at trial that was not a defense considered when they denied the claim).

The District Court also found evidence of bad faith. The evidence showed a complete failure to communicate or respond during the time limit period for accepting the offer. Importantly, no attempt was made to communicate with the insured regarding the offer until it was too late to accept it. (Id. at 13.) The court noted several decisions holding that the failure to inform the insured of the offer was evidence of bad faith. (Id.)(discussing State Farm Mut. Auto. Ins. Co. v. Smoot, 381 F.2d 331, 333, 340–41 (5th Cir. 1967) (noting that it was “[o]f great significance that the insured was not informed of settlement offers and refusals”); S. Gen. Ins. Co. v. Holt, 409 S.E.2d 852, 856 (Ga. Ct. App. 1991) rev’d in part on other grounds, 416 S.E.2d 274 (Ga. 1992) and vacated, 421 S.E.2d 346 (Ga. Ct. App. 1992) (finding persuasive case law indicating that insurer’s failure to inform insured of a settlement offer as demonstrating bad faith or negligence in the refusal to settle a claim within policy limits).)

The adjuster mis-calendared the response for what she thought was the last day. She did not even deliver a response until after business hours. This combined with the carrier’s knowledge that there was clear liability and damages exceeding the limits evinced a failure to consider the interests of the insured. (Id. at 12.) The court also pointed to evidence the carrier had “jacked around in their settlement negotiations,” noting the below limits offer of $100,000 despite having already determined liability was clear and damages in excess of limits. The adjuster also noted in the claim notes that she thought the limited release should have been accepted, but her superiors demanded the general release. (Id. at 12 n.8.) In any event, demanding a broader release had previously been found evidence the jury could consider in determining whether the carrier acted in bad faith. The court concluded getting a limited release prevented harm and thus was preferable to rejecting the offer and going to trial. (Id. at 15-16 (noting that the claimants’ expert stated: “[Y]ou can’t always get what you want, the general release. Sometimes you get what you need, which is the limited liability release.”.)

Eleventh Circuit and the Attack on “Set-Ups”

The decision of the District Court was affirmed by the Eleventh Circuit in a brief two-page opinion. The court described the final order of Judge Tottenberg to have been “thorough and well-reasoned.” The briefing of the carrier and amicus curiae presented a pointed attack on the settlement demand process that appears unprecedented and likely to be attempted again.

Nationwide’s focus of attack was broadly stated:

This case exemplifies an acute and escalating problem in automobile insurance law that needs to be addressed: Opportunistically contrived claims for “bad-faith” failure to settle where either an acceptance or rejection of a claimant’s time-limited demand by an insurer can lay the foundation for an extra-contractual bad-faith lawsuit. There is no doubt that multi-million dollar personal injury judgments are diminished if the only liable party is an insolvent (and often criminally culpable) insured who cannot satisfy the entire judgment. Collection in such a case generally is limited to the value of the insurance policy, minus any outstanding hospital liens. But, to an enterprising plaintiff’s attorney seeking to circumvent the limits of an insurance policy, there is a huge financial incentive to recast a contract case as a tort case involving bad faith and thereby seek a settlement or judgment (and contingency fee) orders of magnitude greater than what would otherwise be recoverable under the insurance contract’s express limits.

[T]he siren song of large payouts has swayed some unscrupulous attorneys to ignore whether there was actual bad faith by an insurer, and to devise schemes that entrap insurers into artificial bad-faith liability . . . If no settlement is reached, the claimant can then pursue a claim as assignee of the insured that the insurer acted in “bad faith” by “refusing” to settle the claim. If successful, plaintiffs’ attorneys argue that the insurer is liable to the insured for the entire excess verdict, even where the claimant would never have otherwise collected the judgment.

.. . . .

To exploit this unintended opportunity for mischief, “lecturers at continuing legal education seminars have given advice on how to ‘set up’ insurers for bad faith claims” . . . Such opportunistic schemes are referred to as “set ups” because they make it impossible for insurers to act in the best interest of their insureds, and expose insurers to bad-faith claims whether they accept or reject the catch-22-style demands.

(Appellant’s Brief at 2.) Placing the case in question in context, Nationwide stridently argued:

This case involved a set-up, not actual bad faith. Charles McAleer, an attorney acting on behalf of Jesus Camacho (and purportedly the estate of Stacey Camacho (“Estate”)), sent Nationwide Mutual Insurance Company (“Nationwide”) the set-up demand letter attached as Exhibit A to this brief. The letter reflected no serious intent to settle McAleer’s client’s claims because it contained contradictory language, offered to settle only part of the claims arising out of the insured’s underlying accident despite discussing all potential claims in the letter, did not include documents necessary to show that McAleer’s client was the proper claimant to collect, and, if accepted, would have exposed Nationwide’s insured to personal liability exceeding his policy limits . . . Accordingly, this case presents an opportunity for this Court to recognize Georgia’s policy that has consistently prohibited fictional claims for bad faith, and continues to curtail attempted set-ups.

(Id. at 2-5 (emphasis added).)

Nationwide made a number of vituperative complaints about the fact that there was no evidence that the insured “would ever have paid any portion of that judgment.” (Id. at 7.) Nationwide also asserted that the trial could not have been adversarial because the insured was impecunious and would never have to or be able to pay any judgment against him in excess of limits. (Id. at 16 n. 9.) Of course, this ignores the fact that the policy obligations regarding indemnity do not change because the insured is poor. It is a liability policy. Actual payment or ability to pay is irrelevant.

Both Nationwide and the Amicus urged that the decision in Holt did not allow recovery of amounts in excess of the limits based on mere negligence on the part of the carrier. (See, e.g., Amicus at 3.) The parade of the horribles urged by Amicus consisted of the following:

It is the Chamber’s well-founded concern that adverse consequences may result from these cases, if their expansion is left unchecked. Most notably, if policy limits are rendered effectively unenforceable by such strategies, insurance companies in Georgia will be forced to underwrite the inevitability of excess verdicts into their calculation of premiums. The predictable result of such underwriting will be that Georgia consumers- both individuals and businesses alike-will be left to bear· a heavy burden of increasing premiums.

. . . .

These recurring “bad-faith-failure-to-settle” actions-brought primarily.to recover excess verdicts against liability insurance providers-present critical policy concerns beyond the individual merits of this appeal.

(Id. at 4.) The Amicus urged “Georgia has recently experienced an epidemic of bad-faith litigation founded upon the premise that the insurer can be found liable for an excess verdict premised solely upon a claim of simple negligence in failing to settle a time limited demand.” Amicus urged three points:

First, the imposition of a negligence standard, sounding in tort, in contract cases such as the present one, has rendered the bargained-for limits of an insurance policy largely illusory. Second, this ambiguous hybrid of a tortious contractual duty risks drastic manipulation of the state’s insurance market that will burden Georgia’s citizens, business community, and economy-at-large with the cost of the litigious pursuits of a small minority of its citizens. Third, and finally, a negligence standard ignores the availability of contractual protection to all consumers through additional insurance, mitigating the specific risk of insufficient policy limits and thereby negating the position of claimants’ lawyers that bad-faith actions are the claimant’s sole route to recovery.

(Id. at 5.)

The Eleventh Circuit affirmed the conclusion of the District Court regarding the applicability of a negligence/bad faith standard and the sufficiency of the evidence to support the jury’s finding of negligence. The District Court appeared to equate negligence and bad faith. In any event, it found sufficient evidence of both. The court certainly appears to have found the arguments of Nationwide and the Amicus to be strident and unpersuasive. This is not the end of this approach by carriers. As we will see in the next post, some elements of these arguments have already been used in connection with so-called “sweetheart deals.”