New Texas Statutes Enforce Payment of Deductibles by Homeowners

By Andrea M. Palmer, JD, Director of Coverage & Litigation, Higginbotham

Homeowners insurance policyholders and construction contractors should be aware of new law affecting payment of deductibles in Texas. Texas Insurance Code § 707 is new, and Texas Business & Commerce Code § 27.02 is revised. The statutes became effective September 1, 2019.

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 law makes clear that this is not allowed in Texas and gives teeth to the deductible requirement.

Section 707.002 of the Texas Insurance Code explicitly requires insureds to pay the deductible when their carrier pays a covered claim. This has, of course, always been the law. However, now certain contracts will 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.

The notice requirement (Tex. Bus. & Comm. Code § 27.02) 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, the state can prosecute offending contractors. Revised Section 27.02 in the Texas Business & Commerce Code had previously prohibited a contractor from “knowingly charg[ing] an amount for the good or service that exceeds the usual and customary charge . . . by an amount equal to or greater than” the deductible. But the amended statute is less strict, requiring essentially that the contractor assist the insured to avoid paying the deductible without the insurer’s consent. Along with the less strict threshold, the criminal penalty was lowered from a Class A misdemeanor to a Class B misdemeanor. Only the vendor is subject to potential violations (Tex. Bus. & Comm. Code § 27.02(d)).

The new requirements, signed into law by Texas Governor Abbott on June 14, 2019, are found in House Bill 2102.

Expect to hear a lot about these statutes and the insurance commissioner’s rulemaking 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 Chapter 707 when using insurance proceeds to fix their home.