Author: Andrea M. Palmer, JD, Director of Coverage & Litigation, Higginbotham
Homeowners insurance policyholders and construction contractors should be aware of a new statute affecting payment of deductibles in Texas. Texas homeowners are likely familiar with advertisements from construction companies promising “free roofs” with “waived” deductibles for repairs after storms. When the repairs are complete, the construction company accepts as payment the amount from the insurance proceeds and waives the deductible amount. The new statute makes clear that this is not allowed in Texas and gives teeth to the deductible requirement.
The statute asserts that it is a requirement for insureds to pay the deductible when they receive payment on a claim against their insurance policy (Tex. Ins. Code § 707.002). This has, of course, always been the law. However, now certain contracts will now need to include a notice, in 12-point bold font, that states:
“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 person or business paid wholly or partly from proceeds of a property insurance claim to knowingly allow the policyholder to fail to pay, or assist the policyholder's failure to pay, the applicable insurance deductible.” (Tex. Ins. Code § 707.004)
The notice requirement (Tex. Ins. Code § 707.004) applies when:
- The contract is for a “good or service”;
- It is reasonably expected the good or service will be paid for “proceeds of a claim under a property insurance policy”; and
- The contract price is $1,000 or more.
The statute gives insurers and the state two ways to enforce these requirements. First, insurers may now “refuse to pay a claim for replacement cost” until the insured provides proof of payment of the deductible (Tex. Ins. Code § 707.005(b)). Second, it will now be a Class A Misdemeanor to violate the statute; both the service provider and the insured are subject to potential violations (Tex. Ins. Code § 707.006).
The requirements, signed into law by Texas Governor Abbot on June 14, 2019, are found in House Bill 2102. The statute goes into effect on Sept. 1, 2019, as Insurance Code Chapter 707.
Expect to hear a lot about this statute in the coming months. This will likely result in changes to the way some contractors do business in Texas. Homeowners should be aware of their rights and requirements under this statute when using insurance proceeds to fix their home.
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