81R11555 TJS-F

By: Eiland H.B. No. 2539

A BILL TO BE ENTITLED

AN ACT

relating to a disaster recovery insurance claims mediation program.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Chapter 542, Insurance Code, is amended by adding Subchapter H to read as follows:

SUBCHAPTER H. DISASTER RECOVERY INSURANCE CLAIMS MEDIATION PROGRAM

Sec. 542.351. PURPOSE. This subchapter establishes a nonadversarial mediation program to promote effective, fair, and timely handling of unresolved residential property insurance claims arising from damage caused by hurricanes, cyclones, tornados, or other disasters in an area designated a disaster area by the president of the United States.

Sec. 542.352. GENERAL DEFINITIONS. In this subchapter:

(1) "Administrator" means the department or its designee.

(2) "Business day" means a day other than a Saturday, a Sunday, or a holiday recognized by this state.

(3) "Insurer" has the meaning assigned by Section 801.001.

(4) "Mediator" means an individual designated by the administrator to mediate disputes under this subchapter.

(5) "Party" means an insured or insurer that participates in mediation under this subchapter.

(6) "Program" means the disaster recovery insurance claims mediation program established under this subchapter.

(7) "Residential property insurance" has the meaning assigned by Section 2301.002, and includes coverage under:

(A) an industrial fire insurance policy, as described by Section 912.310;

(B) a residential windstorm and hail insurance policy under Chapter 2210; and

(C) a policy issued by the Texas FAIR Plan under Chapter 2211.

Sec. 542.353. CLAIMS. (a) For purposes of this subchapter, "claim" means a first-party insurance loss that is disputed or for which the insurer has denied payment.

(b) A claim is limited to a loss that is:

(1) covered under a residential property insurance policy that is in effect at the time of the loss; and

(2) incurred as a result of a declared disaster.

(c) The total amount of a loss under Subsection (b) must be at least $1,000. The difference between the positions of the parties must be at least $500 after any applicable deductible is applied.

(d) A claim includes a dispute regarding the cause of a loss that may be resolved through a forensic mediation conference in which experts on meteorology, engineering, geography, and construction present information regarding:

(1) the extent of damage caused by wind or other peril;

(2) the structural soundness of the property before and after the disaster; and

(3) the cost of repairs.

Sec. 542.354. APPLICABILITY OF SUBCHAPTER; EXCEPTIONS. (a) This subchapter applies only to first-party claims resulting from damage to property located in this state that is covered under residential property insurance issued by:

(1) an insurer;

(2) an eligible surplus lines insurer;

(3) the Texas Windstorm Insurance Association; or

(4) the Texas FAIR Plan.

(b) This subchapter does not apply to:

(1) a policy issued under the national flood insurance program;

(2) a commercial insurance policy;

(3) a private passenger automobile insurance policy; or

(4) liability coverage under a residential property insurance policy.

Sec. 542.355. GENERAL POWERS AND DUTIES OF DEPARTMENT AND COMMISSIONER; RULES. (a) The department may designate and contract with a person to serve as its administrator to develop and oversee the program.

(b) The commissioner may adopt rules as reasonable and necessary to implement this subchapter.

(c) The commissioner shall enforce this subchapter.

Sec. 542.356. REPORTING REQUIREMENTS. (a) In the biennial report submitted to the governor and the legislature under Section 32.022, the commissioner shall report regarding the status of the program, including:

(1) statistics about the number of cases suitable for mediation, the number sent to mediation, the number of mediations accepted, and the number of mediations rejected; and

(2) other similar information concerning the operation of the program.

(b) At three-month intervals, the department shall collect from any administrator with which it contracts for services under this subchapter information regarding:

(1) the number of persons to whom mediation was offered;

(2) the number of insurers that accepted and declined mediation;

(3) the number of settlement offers;

(4) the number of completed settlement agreements and the amounts initially claimed and ultimately settled;

(5) the number of settlement agreements offered but rescinded during the rescission period; and

(6) any other information required by the commissioner.

(c) Not later than the fifth day after the conclusion of a mediation conference, the mediator shall file with the administrator a status report indicating whether the parties reached a settlement. If the parties reached a settlement, the mediator shall include a copy of the settlement agreement with the status report. The settlement agreement is subject to the confidentiality requirements of Section 542.371.

Sec. 542.357. PROGRAM IMPLEMENTATION. (a) After a disaster is declared by the president of the United States, the commissioner, by order, may implement the disaster recovery insurance claims mediation program under this subchapter.

(b) The program is available to a party only after the party has had adequate time, as determined by the commissioner, to inspect the damaged property, assess the damage, obtain information, and attempt to resolve a claim without resorting to the program.

(c) Mediation is not required under the program with regard to a claim that:

(1) based on agreed facts between the parties concerning the cause of the loss, is not covered under the policy; or

(2) the insurer has alleged to be fraudulent and has reported as fraudulent to the department.

(d) The commissioner's order must include a termination date for requests for mediation regarding losses incurred because of the declared disaster. The commissioner may extend the termination date by order.

Sec. 542.358. NOTICE TO INSUREDS OF RIGHT TO MEDIATION. (a) Each insurer shall provide, in the manner prescribed by commissioner rule, notice to its insureds of their right to mediate claims following an order of the commissioner under Section 542.357.

(b) The insurer shall send the notice to a policyholder:

(1) whose reported loss under a policy issued by the insurer has not been paid as of the effective date of the order; or

(2) who has disputed a denial or partial denial of a claim during the mediation period established by the commissioner's order.

(c) Notice under this section must be in the form prescribed by the commissioner by rule, and must include instructions about how to request mediation, including the address, telephone number, fax number, and Internet website for requesting mediation through the administrator. The notice must state that, except as provided by Section 542.363, the administrator may schedule a mediation conference not earlier than the 21st day after the date of the notice.

(d) The commissioner may by rule require additional information to be included in the notice.

Sec. 542.359. REQUEST FOR MEDIATION. (a) An insured may request mediation by completing a request form prescribed by the department for that purpose and delivering the form to the administrator.

(b) The insured must include in a mediation request form:

(1) the name, mailing address, and telephone numbers of the insured, including a cell phone number, if any;

(2) the location of the property that is the subject of the dispute, if different from the mailing address provided;

(3) the name of the insurer, the claim number, and the policy number of the insured; and

(4) a brief description of the dispute.

(c) If an insurer receives a request for mediation from an insured, the insurer shall:

(1) instruct the insured to call the department's toll-free number as established by Section 521.051; or

(2) provide the insured with the mediation request form not later than one business day after receiving the request for mediation.

(d) The administrator shall notify the parties on receipt of a completed mediation request form that mediation has been requested. The administrator shall use an electronic notification process to inform insurers of mediation requests, mediation conference schedules and locations, and statistics relating to participation in mediation. The administrator shall provide parties notice of the date, time, and location of a mediation conference not later than the 14th day before the date on which the conference is scheduled.

(e) An insurer may reject a mediation request if the dispute does not involve a claim as described by Section 542.353. If the insurer rejects the request, the insurer shall notify the insured and the administrator in writing of the rejection and specify the reasons for the rejection.

Sec. 542.360. FEES. (a) Except as provided by Subsection (c), the insurer shall pay reasonable fees for scheduled mediation conferences. The total fee for mediation under this subchapter is $350, with $300 paid as the mediator fee and $50 as the administrator fee.

(b) The administrator shall bill insurers separately for mediation fees and administrative fees. The administrator shall bill insureds for mediation fees as provided by Subsection (e) and Section 542.365.

(c) If the parties reach an agreement before the mediation conference is scheduled, no mediation fee is owed.

(d) If the mediation conference is canceled for any reason by the insured or the insurer after the conference has been scheduled, the insurer shall pay the mediator $100 as the mediator fee and the administrator the entire $50 administrator fee, except as provided by Subsection (e).

(e) If the insured fails to appear at the mediation conference and does not show good cause for the failure to appear, the mediation conference shall be considered to have been held, and the insurer shall pay the fees in accordance with Subsection (d). If the insured wishes to schedule a new conference after failing to appear without good cause, the insured shall pay the fees for the new mediation conference. A new mediation conference may be rescheduled only on the insured's payment of the mediation fees in the amounts specified under Subsection (a).

Sec. 542.361. PAYMENT OF EXPENSES. Except as provided by Section 542.365, any expenses associated with participation in a mediation conference, such as travel, telephone, postage, meals, lodging, facilities, and other related expenses, shall be borne by the party or other person incurring the expense.

Sec. 542.362. SELECTION OF MEDIATOR. (a) The administrator shall select mediators from a list created by the administrator of qualified mediators. To be qualified, a mediator:

(1) must meet the requirements under Section 154.052, Civil Practice and Remedies Code;

(2) must follow the standards provided by the ethical guidelines for mediators promulgated by the supreme court;

(3) may not be the subject of an administrative action by another agency or governmental entity, regardless of whether the action relates to mediation; and

(4) may not have been found guilty of or have plead nolo contendere to a felony or a crime punishable by imprisonment for one year or more under a law of any state or country, without regard to whether a judgment or conviction has been entered by the court having jurisdiction of the case.

(b) The administrator, in the administrator's sole discretion, may remove a mediator from the list of qualified mediators. The circumstances in which the administrator may remove a mediator from the list include:

(1) alleged instances of dishonest, incompetent, fraudulent, or unethical behavior on the part of the mediator;

(2) an instance in which the mediator allegedly failed to respond promptly and completely to requests from the administrator, or in which the acts or omissions of the mediator are counter to the standards provided by this chapter; or

(3) a determination that the mediator does not meet the requirements of Subsection (a)(3) or (4).

(c) Each mediator shall be selected in a manner determined by the administrator. In the notice regarding the scheduling of a mediation conference sent under Section 542.359(d), the administrator shall provide biographical information about the mediator to the parties. In selecting a mediator, the administrator shall consider the costs associated with travel to the mediation conference for the mediator and the parties. A mediator serves at the sole discretion of the administrator.

(d) Each party may object once to the appointment of a mediator without showing cause why the mediator should not serve. If a party objects to the appointment of a mediator, the administrator shall dismiss that mediator and appoint a replacement mediator.

(e) A party may request that a mediator be disqualified for good cause without exhausting the party's right to object to a mediator under Subsection (d). A request under this subsection must be submitted to the administrator in writing at any time before the conclusion of the mediation conference. A party may show good cause by demonstrating that:

(1) there is a conflict of interest between a party and the mediator;

(2) the mediator cannot competently handle the mediation conference; or

(3) other reasons exist why the mediation conference would be impaired under the continued service of the mediator.

(f) A complaint regarding a mediator must be submitted to the administrator in writing.

Sec. 542.363. SCHEDULING OF MEDIATION CONFERENCE; RESOLUTION PERIOD BEFORE CONFERENCE. (a) Not later than the 30th day after the date the administrator receives a request for mediation, the administrator shall contact the parties and schedule a mediation conference. If practicable, the administrator shall schedule the conference to occur not later than the 45th day after the date on which the administrator receives the mediation request form.

(b) If a residential property insurance claim remains unresolved, the administrator shall notify the parties that the dispute will be referred to a mediation conference if the parties do not resolve the dispute not later than the 21st day after the date of the administrator's notice. The administrator, for good cause, may extend the resolution period under this subsection for an additional seven days.

Sec. 542.364. MEDIATION CONFERENCE LOCATION. To the extent practicable, the mediation conference shall be located in or near the area that was the subject of the disaster declaration by the president. The administrator may designate within a particular county multiple locations for mediation conferences.

Sec. 542.365. DUTIES OF PARTIES; EFFECT OF FAILURE TO APPEAR. (a) Each party to a mediation conducted under this subchapter must negotiate in good faith and must have the authority to settle claims, subject to the rescission period under Section 542.367.

(b) An insurer that fails to appear for a scheduled mediation conference at which the insured appears shall pay:

(1) the insured for the insured's actual expenses incurred in attending the conference, plus the value of any lost wages; and

(2) the total fees for the rescheduled conference.

(c) An insured who fails to appear for a scheduled mediation conference for good cause may reschedule once for a time set by the administrator. If the insured subsequently fails to appear, that insured loses the insured's right to mediate the claim under this subchapter, and shall pay all the fees charged by the administrator up to the time of the conference at which the insured failed to appear.

Sec. 542.366. CONDUCT OF MEDIATION CONFERENCE. (a) An insured is not required to retain counsel to participate in a mediation conference. The insured or the insured's representative shall inform the administrator if the insured will be represented by counsel at the mediation conference not later than the seventh day before the date the mediation conference is scheduled to occur.

(b) The administrator shall inform the insurer as soon as practicable if the insured will be represented by counsel. If the insured is represented by counsel at the mediation conference, the insurer's counsel may also be present. If the insured is not represented by counsel, the insurer's counsel may not be present.

(c) A party may have the assistance of persons at the mediation conference who may assist in the presentation of the claim, including public insurance adjusters, contractors, engineers, and interpreters. A party who wishes to use the assistance of such a person must notify the administrator not later than the seventh day before the date the mediation conference is scheduled to occur.

(d) Representatives from the department may be present to observe the mediation conference but are not parties to the conference.

(e) Video and audio electronic recordings of mediation conferences are prohibited.

Sec. 542.367. MEDIATION NONBINDING; RESCISSION PERIOD. (a) Except as provided by Subsection (c), mediation conducted under the program is nonbinding, and the insured and the insurer are not required to accept an agreement proposed during the mediation.

(b) If the parties agree to a settlement for the disputed matters resolved as a result of the mediation, the insured may rescind the agreement until the end of the third business day after the date of the settlement if the insured has not, in relation to the settlement agreement:

(1) cashed or deposited any check or draft disbursed to the insured; or

(2) agreed in writing to accept an electronic funds transfer.

(c) If counsel for the insured is present at the mediation conference and the parties concur in a settlement agreement that is signed by the insured's counsel, the agreement is immediately effective on the insured and may not be rescinded.

(d) If the insured rescinds a settlement agreement, the agreement may not be admitted in evidence or disclosed unless the insured and all other parties to the agreement expressly agree to its disclosure.

(e) If the settlement agreement is not rescinded by the insured, the agreement acts as a release of all specific claims for damages that were known at the time of the mediation and were presented and agreed to at the mediation conference.

(f) This section does not affect rights under existing law for residential property insurance claims for damage that was undetected as of the date of the mediation conference.

Sec. 542.368. OTHER DISPUTE RESOLUTION. If the insured elects not to participate in mediation, or, if after participating in the program the parties do not resolve the claim, the parties may proceed:

(1) under the appraisal process, if applicable, in the insured's insurance policy;

(2) by litigation;

(3) by any other dispute resolution procedure available under the laws of this state; or

(4) by unmediated private negotiation.

Sec. 542.369. EFFECT OF INSURER REFUSAL TO MEDIATE. (a) In addition to any other remedy available under Chapter 82, the commissioner, on a determination that an insurer has engaged in an arbitrary or unreasonable refusal to mediate, may enter an order requiring that the insurer participate in mediation in all cases determined by the commissioner to be appropriate for mediation under this subchapter.

(b) An insurer that the commissioner has ordered to participate in mandatory mediation under Subsection (a) may seek judicial review of the order not later than the 30th day after the date the order was entered by the commissioner. The commissioner's order to participate in mediation may not be stayed during the pendency of a judicial proceeding for more than 60 calendar days after the date the order was entered. The basis of the commissioner's decision to require an insurer to mediate may not be made public unless judicial review is sought.

(c) An arbitrary or unreasonable refusal by an insurer to participate in mediation under this subchapter is a deceptive trade practice under Chapter 541 and an unfair claims settlement practice under Subchapter A.

Sec. 542.370. EFFECT ON LITIGATION. (a) Referral to mediation or the pendency of mediation under this subchapter does not operate as a basis to prevent or stay the filing of civil litigation arising wholly or partly out of the facts that are the basis of the mediation.

(b) Any applicable statute of limitations or limitation on the insured's right to sue is tolled, beginning on the date the insurer was notified of the mediation conference under Section 542.363 and ending on the date:

(1) mediation is completed or declined;

(2) the insured loses the right to mediate because of a failure to appear; or

(3) if a settlement agreement is completed, the rescission period established under Section 542.367 expires.

Sec. 542.371. CONFIDENTIALITY REQUIREMENTS. (a) Statements made by the parties, negotiations between the parties, and documents produced during a mediation conducted under this subchapter are confidential.

(b) Mediation documents, including settlement agreements, obtained by the department are confidential and are not subject to disclosure under Chapter 552, Government Code. This subchapter does not affect the discoverability or admissibility of documents that are otherwise discoverable or admissible.

(c) The confidentiality required under this section does not restrict department access to documents or other information the department seeks in order to evaluate the program or to comply with reporting requirements.

SECTION 2. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2009.