BILL ANALYSIS

C.S.H.B. 4194

By: Perez

Insurance

Committee Report (Substituted)

BACKGROUND AND PURPOSE

An appraisal provides a method for resolving a dispute when an insurer and a policyholder do not agree on the amount of loss for an insurance claim. Currently, Texas law does not clearly outline the process for such appraisals, and this uncertainty can lead to a lengthy process for policyholders who dispute the amount of loss determined by insurers—sometimes lasting months or years depending on how long the parties involved take in each step of the process. C.S.H.B. 4194 seeks to make the appraisal process more timely for policyholders and insurers by prescribing deadlines, specific process standards for the appraisers evaluating a loss, and the responsibilities of each party involved in the appraisal process.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to commissioner of insurance in SECTION 1 of this bill.

ANALYSIS

C.S.H.B. 4194 amends the Insurance Code to establish an appraisal process for disputed losses with respect to an insurer writing a personal automobile or residential property insurance policy, including a capital stock insurance company, a mutual insurance company, a county mutual insurance company, a Lloyd's plan, a reciprocal or interinsurance exchange, a farm mutual insurance company, an eligible surplus lines insurer whose home state is Texas, and the FAIR Plan Association. The bill expressly excludes from the application of its provisions the Texas Windstorm Insurance Association or a commercial insurance policy. The bill establishes that any appraisal provision contained in an insurance policy written by the applicable insurers must comply with the bill's provisions. The bill further provides the following:

· a policyholder or insurer may provide a written demand for an appraisal to the other party if the policyholder and insurer fail to agree to the amount of loss covered by the policy;

· the policyholder may not demand appraisal after the policyholder files a lawsuit asserting the claim that is the basis for the appraisal demand;

· the insurer may not incorporate a demand for appraisal after filing the insurer's original answer to the lawsuit;

· the insurer may incorporate a demand for appraisal with the insurer's original answer to the lawsuit; and

· if the policyholder files a lawsuit and the insurer subsequently demands appraisal, the lawsuit may be abated until the appraisal process is complete, provided that the insurer has not denied the claim or reserved the right to dispute coverage following the appraisal process.

C.S.H.B. 4194 requires the policyholder and insurer, not later than the 20th day after the appraisal demand, to each select a competent and impartial appraiser and provide written notice to the other party of the appraiser's identity. The bill requires the appraisers to do the following:

·  appraise the loss that is the subject of the appraisal not later than the 30th day after the date both the policyholder and insurer have selected an appraiser and provided notice of the selection;

· if the appraisers agree on the loss amount, issue their award and provide written notice of the award to the policyholder and insurer;

· if the appraisers fail to agree on the loss amount, select a competent and impartial umpire; and

· after the umpire is selected, provide written notice to the umpire and the other appraiser that includes the appraiser's determination as to the loss amount, any supporting documentation, and an itemized list of the disputed differences between the appraisers regarding the loss amount.

The bill authorizes the appraisers to extend the loss appraisal deadline for a period limited to 30 days on written agreement by the appraisers, policyholder, and insurer. If the appraisers do not agree on an umpire after the 20th day after the deadline, the umpire must be selected by a policy provision, if applicable, that provides for the method of selecting an umpire or on written request by either party to a district court, county court at law, or constitutional county court in the county in which the policyholder resides or where the property is located. A policy provision may provide that a competent and impartial umpire be selected by a judge of such a court. The bill requires a party requesting court appointment of an umpire to provide the other party with 10 days' written notice of the intent to submit the request. The bill prohibits the appointment from being made on an ex parte basis without both parties having an opportunity to appear before the court.

C.S.H.B. 4194 requires the umpire, not later than the 30th day after the date the umpire receives the submissions of both appraisers, to determine the loss amount by selecting one of the amounts submitted to the umpire or an amount in between the two amounts submitted to the umpire. The umpire may extend that deadline for a period up to 30 days on written agreement by the appraisers, policyholder, and insurer. The bill requires the umpire, on deciding the loss amount, to issue a written appraisal award that states the amount of loss and is signed by the umpire and at least one appraiser. Such an award expressly does not prevent either party from pursuing its rights under the policy or law. The bill prohibits the umpire from altering any valuation or any portion of the amount of loss on which the appraisers agree.

C.S.H.B. 4194 requires the policyholder and insurer to equally divide and pay the umpire's expenses, as applicable, and all other appraisal expenses, except each party must pay their own appraiser. The bill sets out the following with respect to termination of the appraisal process:

· if a party's appraiser materially fails to comply with the deadlines and the other party makes a good faith effort to address the failure and continue the appraisal process, the other party may terminate the appraisal process, seek recovery of the party's reasonable hourly appraiser expenses incurred in the appraisal process, and invoke the appraisal process for the dispute at issue, but the party employing the noncompliant appraiser may not invoke that appraisal process;

· if the umpire materially fails to comply with the deadlines after making a good faith effort to address the failure and continue the appraisal process, the policyholder, the insurer, or both may terminate the appraisal process and seek recovery of their reasonable hourly appraiser expenses from the umpire, and the policyholder or insurer may invoke the appraisal process for the dispute at issue; and

· the appraisers for the policyholder and the insurer and the umpire must be paid on an hourly or flat-fee basis, using a reasonable hourly rate and based on the estimated number of hours reasonably necessary to complete the appraisal process, and may not be paid on any basis other than that hourly or flat-fee basis, including a contingent or success basis.

The bill establishes that the appraisal does not affect any applicable policy terms and that the amount of loss determined by the appraisal process is binding as to the policyholder and the insurer and that the use of the process is not a condition precedent to bringing an action for a violation of Insurance Code provisions, for a breach of contract, or for any other common-law or statutory remedy. If the disputed loss is the result of a weather-related catastrophe or major natural disaster, as defined by the commissioner of insurance, the applicable appraisal deadlines imposed by the bill are extended for an additional 30 days.

C.S.H.B. 4194 establishes the following:

· its provisions control over terms of an insurance policy and other law only with respect to the specific issues addressed in the bill;

· all other terms and conditions of the appraisal process remain subject to the policy's terms and applicable law;

· its provisions are not the sole provisions that may be included in an appraisal process provided in an insurance policy and a policy may include any other provision not in direct conflict with the bill, subject to any other provision of law; and

· the bill expressly does not alter or provide an exception to the prompt payment of claims deadlines.

The bill requires the commissioner to adopt rules necessary to implement the bill's provisions.

The bill applies only to an insurance policy delivered, issued for delivery, or renewed on or after January 1, 2024. The bill expressly does not require an insurance policy form providing for an appraisal process that is in use on September 1, 2023, and otherwise compliant with the bill, to be filed with the Texas Department of Insurance as a consequence of the bill.

EFFECTIVE DATE

September 1, 2023.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 4194 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

Whereas the introduced applied to an insurer writing a property or casualty insurance policy, the substitute applies to an insurer writing a personal automobile or residential property insurance policy. The substitute further revises the bill's applicability by including a capital stock insurance company, a mutual insurance company, and an eligible surplus lines insurer if Texas is the insured's home state, which did not appear in the introduced, and by omitting the Texas Automobile Insurance Plan Association, which was in the introduced. Whereas the introduced excluded the Texas Windstorm Insurance Association (TWIA) or an area for which either a state or local state of disaster has been declared and for a disaster caused by a wildfire, flood, hurricane, or tornado or a wind, ice, or snow storm from the bill's provisions, the substitute excludes TWIA and a commercial insurance policy.

Whereas the introduced required an applicable insurance policy to contain an appraisal procedure in compliance with the bill, the substitute requires any appraisal provision contained in an applicable insurance policy to comply with the bill. The substitute includes provisions that were not in the introduced establishing the bill's relationship with conflicting statutes and with the terms of an insurance policy, other provisions that may be included in an appraisal process, and a provision specifying that the bill does not alter or provide an exception to the prompt payment of claims deadlines.

The substitute includes provisions that were not in the introduced prohibiting the policyholder and insurer from demanding appraisal after the policyholder files a lawsuit asserting the claim that is the basis for the appraisal demand or the insurer files its original answer to the lawsuit, respectively, and authorizing the insurer to incorporate a demand for appraisal with the insurer's original answer. The substitute includes an authorization for the lawsuit to be abated until the appraisal process is complete under certain conditions, which did not appear in the introduced.

While both the introduced and the substitute provide for the selection of a competent appraiser, the substitute specifies that the appraiser must also be impartial, and the introduced did not.

Whereas the introduced authorized the appraisers to extend the appraisal deadline for a period not to exceed 60 days on agreement by the appraisers, policyholder, and insurer, the substitute authorizes the appraisers to extend the appraisal deadline for a period not to exceed 30 days on written agreement of those parties. The substitute revises a provision in the introduced regarding the process for selecting an umpire by replacing the introduced version's provisions requiring a judge of a court in the county in which the policyholder resides to select an umpire on the request of the policyholder or insurer with the substitute's provisions requiring the umpire to be selected by a policy provision providing for the selection method or on written request by the either party to a court for the selection to be made by a judge of a district court, county court at law, or constitutional county court in the county in which the policyholder resides or where the property is located. The substitute includes provisions not in the introduced requiring each appraiser to provide to the other appraiser the written notice that is provided to the umpire, which notice is required by both the introduced and the substitute, and requiring that notice to include an itemized list of the disputed differences between the appraisers regarding the amount of loss.

Whereas the introduced required the umpire to determine the loss amount by selecting one of the amounts submitted to the umpire, the substitute gives the umpire the option to determine the loss amount in that manner or by selecting an amount in between the two submitted amounts. Whereas the introduced authorized the umpire to extend the deadline for determining the loss amount by 60 days on agreement by the appraisers, policy holder, and insurer, the substitute authorizes the umpire to extend the deadline by 30 days on written agreement by those parties. Whereas the introduced required the umpire to provide a written determination to the policyholder and insurer that sets the loss amount and is signed by the umpire and the appraiser whose appraisal amount is selected, the substitute requires the umpire to issue a written appraisal award that states the amount of loss and is signed by the umpire and at least one appraiser. The substitute includes a provision that was not in the introduced prohibiting the umpire from altering any valuation or any portion of the amount of loss on which the appraisers agree.

The substitute includes provisions that were not in the introduced requiring each party to pay its own appraiser, setting out provisions with regard to the termination of the appraisal process for an appraiser's or umpire's material failure to comply with the bill's deadlines, and establishing the manner in which appraisers and the umpire must be paid.

The substitute includes a provision that was not in the introduced establishing that, if the disputed loss is the result of a weather-related catastrophe or major natural disaster, the applicable appraisal deadlines are extended for an additional 30 days.

The substitute includes a provision that was not in the introduced establishing that the bill does not require an insurance policy form providing for an appraisal process that is in use on September 1, 2023, and is otherwise compliant with the bill's provisions to be filed with the Texas Department of Insurance as a consequence of the bill.