Important Insurance Coverage Considerations for Losses Caused by Hurricane Harvey
While the full extent of damages caused by Hurricane Harvey is unknown at present, the storm has already caused unprecedented damage in Texas. That damage arises in the midst of pending legislative change that may affect significantly losses governed by Texas law.
Specifically, for losses governed by Texas law, a recent change in Texas law thrusts an immediate decision upon policyholders. The Hailstorm Bill signed into law earlier this year and effective September 1, 2017, will thereafter apply to all first-party claims under a policy providing coverage for real property or improvements to real property that “arises from damages to or loss of covered property caused, wholly or partly, by forces of nature, including …a hurricane.” While the Hailstorm Bill contains many substantive changes,[1] a notable change is the reduction in the 18% penalty under Chapter 542 of the Texas Insurance Code (the “Prompt Payment Statute”) if an insurer fails to timely pay a covered claim. Any claim made before September 1, 2017, however, is governed by the current law, including the 18% penalty in the Prompt Payment Statute. Thus, for claims governed by Texas law, policyholders must file a claim on or before Thursday, August 31, in order to benefit from the current 18% penalties (and other provisions) provided under pre-September 1, 2017 Texas law.
As policyholders begin to evaluate their losses, careful consideration will need to be given not only to direct damage or destruction of insured property, but also from the interruption of business resulting from that property damages, contingent business interruption caused by damage to the property of important suppliers, customers, and other business partners; extra expenses incurred to resume normal operations; lack of access to property due to damage to buildings, roads, docks, etc.; interrupted electric, gas, and water services; and other circumstances depending on the particular business involved.