Mike Huddleston. Courtesy photo

Texas lawyers have some crucial advice for victims of Hurricane Harvey: Notify your insurance company of home or business damage before Sept. 1 or suffer the consequences of a new state law that reduces the penalties insurers pay for delaying or denying claims.

The law, also known as the “Hailstorm Bill,” goes into effect on Friday and reduces the 18 percent penalty insurers pay for unlawfully delaying or denying “forces of nature” claims down to about 10 percent. That tort reform law, which was signed by Texas Gov. Greg Abbott on May 27, was aimed at plaintiffs attorneys who have filed $340 million in hailstorm claims against insurance companies since 2012.

It’s an issue that’s already on the minds of numerous attorneys of the state who have lit up social media warning of the impact the new law will have on Harvey’s victims.

“Without this law, and as the law currently is until Friday, I think insurance companies would be more responsive to claims,” said Dallas attorney Kirk Pittard, whose Facebook post about the new law’s impact has already been shared 250 times. “After Friday, there won’t be the incentive because the penalty for delays have been reduced.”

Texas State Bar President-elect Joe Longley has advised fellow lawyers that to avoid the change to the “prompt pay” penalties in the Texas Insurance Code, policyholders should send a written message or email their insurance company directly with references to their claim dated before Sept. 1. “Telephone messages will not suffice to give written notice,” Longley wrote.

The law has many other provisions which will impact Hurricane Harvey insurance litigation. That includes a provision requiring policyholders to give their insurance companies 60 days notice before they are allowed to sue. The law also makes it more difficult for policyholders to recover attorney fees against insurance companies and makes it easier for insurance companies to funnel the state law policy claims into federal court.

“The only issue you can impact by giving notice on Sept. 1 is the interest rate that will be paid on an unlawfully delayed claim,” said Jeff Raizner, a Houston attorney who represents policyholders in insurance coverage disputes. “That entire cocktail of changes goes into effect for any lawsuit filed after Sept. 1 — which is every single lawsuit arising out of Harvey.”

Altering the prompt pay interest penalties will be significant for Harvey’s victims, he added.

“At 18 percent, a claim that is delayed for two years would carry an interest penalty equal to 50 percent of the value of the claim. The penalty after four years doubles the value of the claim at 18 percent interest,” Raizner said. “When you reduce the rate to 10 percent, it takes seven years to double the value of the claim. It’s a huge difference. And so, that’s the math problem that I am most concerned about with the new law.”

The law is sure to present a host of challenges for Texas attorneys who file litigation against insurance companies over Hurricane Harvey, he said.

“I think what we’re looking at is a situation where it’s much more complicated and there are many more tricks and traps than there were before,” Raizner said.

Hurricane Harvey cases are sure to overwhelm Texas federal courts, which currently lead the nation with 11 U.S. District Court judicial vacancies.

“Texas has the most backlogged federal courts of any federal courts in the country. And the legislature just dumped the overwhelming majority of the claims into an already backlogged system,” he said.

Mike Huddleston, a Dallas attorney who represents commercial cleints in insurance coverage disputes, said the new law may be a wake-up call to Texas’ tort-reform supporting business community that the legislature has finally gone too far.

“The legislature was told how this would impact people, and they did it anyway. It’s not just people, its people and businesses,” Huddleston said of the new law. “It’s appalling. For a state that is so favorable to business, this is going to be devastating for business and individuals.”