Since Texas Governor Rick Perry issued a proclamation on September 20, 2005, declaring a disaster as a result of the effects of Hurricane Rita, the Texas Commissioner of Insurance, Mike Geeslin, has issued several bulletins regarding emergency measures that alter or reinforce existing insurance law. Issuance of bulletins that suspend existing statutes and regulations is not without precedent. The Florida Department of Insurance issued nearly forty emergency bulletins in the aftermath of Hurricane Andrew.²

Governor Perry’s disaster proclamation of September 20, 2005, was good for thirty days but could be extended. On October 20, 2005, the Governor extended the disaster proclamation for an additional 30 days.

Suspension of Premiums

In Bulletin No. B-0050-05, The Texas Department of Insurance (TDI) called upon carriers to suspend the requirement that insurance premiums be paid as a condition to continued coverage. A carrier also may not charge interest, penalties, or other fees as a result of the suspension in payment of premiums. Automatic debits for premium payments can continue unless a policyholder presents a hardship.

Non-Resident Claims Adjusters

The Insurance Code §§4101.002(b) and 4101.101 authorizes carriers to immediately use nonresident adjusters to handle claims in a catastrophe. Bulletin No. B-0051-05 urges carriers to utilize nonresident adjusters and all available means to provide prompt relief for policyholders.

Reclassification of Risk or Rate Increases

Bulletin No. B-0053-05 reflects that the Commissioner of Insurance took the position that actions by an insurer to re-rate, cancel, non-renew, or refuse to provide coverage to a policyholder solely because they were a victim or evacuee of Hurricane Rita was unreasonable. This prohibition includes changing rating classifications or raising rates based on an insured’s status as a hurricane victim or evacuee. The TDI reminded insurers that the Insurance Code requires rates to be fair, just and reasonable.³

The Insurance Code also permits the use of credit scoring in the issuance of personal lines of insurance.⁴ Section 559.103 addresses “extraordinary events.” This section provides that an insurer can provide reasonable exceptions to its rating classifications or underwriting rules for a consumer whose credit information has been negatively impacted by a catastrophic illness or injury; the death of a spouse, child, or parent; temporary loss of employment; divorce; or identity theft. In such circumstances, an insurer may only consider credit information not affected by the event, or shall assign a neutral credit score. Section 559.103(c) provides that an insurer may require written and independently verifiable documentation of the event before granting an exception.

The TDI in Bulletin No. B-0052-05 reminded carriers of their obligations in underwriting insurance for Texas residents affected by the hurricane. The TDI also urged carriers to avoid placing additional burdens on Hurricane Rita victims. For example, pursuant to §559.103(c), an insurer might require that their insured make requests to them in writing. TDI advised carriers to accept verbal requests instead of written ones, in light of their insureds’ circumstances.

Calculation of Claims Handling Deadlines

In Bulletin No. B-0063-05, the Commissioner invoked §542.059 of the Insurance Code to provide additional time for claims handling of weather-related claims in certain Texas counties.⁵ However, §542.059 only provides an additional 15 days of the previous claims handling deadlines.⁶ Calculation of claims handling deadlines is already subject to interpretation because the Code requires that an insurer must accept or reject a claim by the fifteenth business day after the date that it receives all items, statements, and forms that it required to secure a final proof of loss.⁷

Disputes often arise between the carrier and its insured on when this deadline has been satisfied. Many times a carrier will have gotten all of the information it could from the insured but is waiting on information from some third-party before it can make a determination as to coverage. Another common complaint by the insured is that the insurer made additional requests for information during the pendency of the claim. The insured will argue that these requests are unreasonable and just a delay tactic, however, the insurer will likely have discovered the need for additional information in the course of its investigation.

Data Reporting Requirements

The TDI also issued a mandatory call for data to all insurers, their agents, and representatives to report data in accordance with the Insurance Disaster Reporting System.⁸ The 10 day time period for making responses was extended to facilitate full compliance with the reporting requirements. TDI will monitor compliance. A link to the IDRS Memorandum can be found at http://www.tdi.state.tx.us/bulletins/pdf/naic-ritamemo.pdf.

Violations of Fair Claims Handling Practices

On October 10, 2005, the TDI began examination of certain carriers to ensure regulatory compliance. The TDI was prompted to monitor compliance because it received various complaints from policyholders. These complaints included policyholders being told there were gray areas in their coverage, that they had to travel to various areas of the state to pick up their checks, that insurance claims handling office are closed for the evening while a policyholder is waiting for relief, or that property cannot be inspected although there are means available to find out the condition of the property, such as satellite pictures or contacting civil authorities. The TDI also expressed frustration with insurers claiming that they cannot inspect property in situations where the condition of the property is not relevant to the payment of the claim. Interestingly, the TDI has also advised insurers to avoid outright denial of a claim without viewing the property because of the possibility that an insured will have a covered cause of loss.

In a particularly egregious move, some insurance adjusters were approaching people whose homes had been damaged by wind and/or storm surge and offering checks for living expenses in return for the homeowner’s signing an acknowledgment that the claim was for “flood damage.” The obvious harm here is that flood damage is not covered by a standard homeowner’s policy. Instead, a separate flood insurance policy must have been purchased. Such flood insurance is administered by the federal government through FEMA or by one of a few private insurance carriers. By contrast, wind damage usually is covered by homeowner’s insurance.

Additional Living Expenses (ALE)

The TDI in Bulletin No. B-0059-05 addressed such conduct and reminded carriers that they have both a statutory duty and common law duty to deal fairly and in good faith with their insureds. The TDI Bulletin also reflects, “Homeowners policies that provide coverage for additional living expenses do not require a policyholder to acknowledge coverage under any particular policy before being eligible to receive benefits.”

Some insureds have been interpreting this to mean that they do not need to show covered property damage before being eligible for additional living expenses (ALE), but this is incorrect. Standard Texas Homeowner’s Insurance Policy language for loss of use reads as follows: If a loss caused by a Peril Insured Against under Section I makes the residence premises wholly or partially untenantable, we cover:
A. additional living expense. . . .
B. fair rental value. . . . ⁹

The clear policy language reflects that the carrier is not obligated to pay loss of use or additional living expenses unless it is for a loss that was insured against. Thus, if the loss is the result of a cause that is not covered, such as flood waters, then there is no coverage for the ALE either. This lack of coverage for the ALE further demonstrates why the adjusters in the scenario above were not acting in good faith. If the property damage resulted from flooding, then there would be no obligation to pay them the ALE checks they present.

Public Adjusters

Also, in response to complaints of contractors holding themselves out as public adjusters, the TDI issued Bulletin No. B-0060-05 which reminds the public that public insurance adjusters must be licensed by the state.

The Insurance Code defines a public adjuster.¹⁰ Contractors are not exempt from the licensing requirement if they seek to negotiate the insured’s claim with the insurance company. However, the Insurance Code does not prohibit a contractor from providing estimates or discussing technical information with an insurer or its adjuster.

Health Insurers

In Bulletin No. B-0054-05, the Commissioner urged all health insurers and HMO’s to waive any contractual restrictions that require insureds to obtain preauthorization, referrals, and medical necessity reviews for the health care or dental services throughout the pendency of the disaster.

Further, the TDI recognized that many Hurricane victims or evacuees would be without their medicines or health equipment. The TDI issued the opinion in Bulletin No. B-0055-05 that health insurers and HMO’s should, throughout the duration of this disaster, authorize payment for necessary medical equipment, supplies and services regardless of the date they were most recently provided.

Workers’ Compensation

The TDI has also issued bulletins specific to continuing workers’ protections to receive workers’ compensation. To complicate matters, however, some of the terminology concerning the relevant agencies to contact has changed since Texas recently completely revamped its workers’ compensation system. The Division of Workers’ Compensation (DWC) has now replaced the Texas Workers’ Compensation Commission. The DWC is a division of the Texas Department of Insurance. A new state agency, the Office of Injured Employee Counsel was created to represent the interests of injured workers.¹¹

Emergency Orders Concerning Non-Resident Attorneys

As a final matter, the Supreme Court of Texas issued an emergency order permitting displaced lawyers to continue practicing from temporary offices in Texas. The deadline for qualifying attorneys to register for temporary practice from Texas was November 7, 2005. Such attorneys are permitted to practice in Texas until May 31, 2006.

Conclusion

Overall, the emergency orders are intended to protect the insureds from unfair claims handling practices. Insurers should be mindful to avoid unfair claims handling and settlement practices as set forth in §§541.051, 541.060, and 541.061 of the Insurance Code (formerly Art. 21.21). Insurers should also be cognizant of the deadlines for the prompt payment of claims and recognize that the deadlines are only extended by 15 days.

Disclaimer

The purpose of this article is to provide a brief overview of the recent bulletins issued by the Texas Department of Insurance and other developments in the law. In no way does this article constitute legal advice. Please contact an attorney if you have specific questions concerning the law.