Property damage is often an inevitable reality for business owners. Whether it be from a natural disaster or vandalism, owners of commercial properties must remain aware of the potential threats that could disrupt their operations and how to recover from them in the most efficient ways possible. There are a variety of laws regarding the requirements and rights Texas business owners should be aware of when their property is damaged to ensure a successful insurance claim.
Texas Commercial Property Damage Laws
Property insurance should act as a safety net for business owners. When damage to a commercial property occurs, the insurance policy acts as a legally binding contract to provide financial coverage of the damage. While there are many causes of property damage, in Texas it is most often due to some form of natural disaster or weather-related event such as hurricanes, hail, and tornadoes.
Regardless of how the damage occurred, Texas law explicitly prohibits an insurance company from using unfair claim settlement tactics. Under the Texas Insurance Code, these unfair practices include:
- Misrepresenting facts or policy terms
- Delaying payment on a valid claim
- Failing to settle a claim within a reasonable time
- Underpaying or undervaluing a claim
- Denying a claim without a reasonable explanation
Fortunately, there are common legal and statutory protections for policyholders that work to hold insurance companies accountable and help ensure insurers uphold their legally binding obligations under the terms of the policy. However, there are certain time limitations set by the policy and/or Texas law that insureds should be aware of so they don’t lose the opportunity to take legal action should an insurance company use one or more of these bad faith actions.
Texas Common Law and Property Damage
Insurance providers owe a wide range of duties to their Texas policyholders. Insurance policies in particular are contracts of adhesion, meaning they are drafted by one party (the insurer) and signed by another party (the policyholder). Because the insurer has a stronger bargaining power, Texas law interprets insurance policies in favor of the policyholder and penalizes insurance providers for bad faith actions. However, both parties are subject to the policy terms and must perform their obligations as delineated. Should the insurance company violate its policy terms, it can be held liable for breach of contract.
Insurance providers must adhere to the terms of the contract and owe a duty of good faith and fair dealing to their insureds. In other words, under this implied covenant they must treat policyholders reasonably, fairly, and in good faith. Once a Texas policyholder files a claim, the insurer is required to follow specific regulations to investigate, process, and handle the claim. For instance, the insurance company must evaluate the claim fairly to the fullest extent and not deny or delay payment of a valid claim when liability is reasonably clear. If an insurance company breaches the policy or their duties, by law they can be liable for damages.
Texas Insurance Code
The Texas Insurance Code (TIC), specifically Sections 541 and 542, provides statutory protections for Texas policyholders that require insurance providers to effectuate a prompt, fair, and equitable settlement of a claim. Further, the TIC penalizes insurance providers for bad faith activities, such as failure to conduct a reasonable investigation, misrepresenting the policy, and/or making false statements of material fact. Further, TIC §542–the Texas Prompt Payment of Claims Act (TPPCA) triggers time limitations for an insurance company to respond and acknowledge the receipt of a filed claim, request documentation and begin investigating the claim, notify whether a claim has been accepted or denied, and to pay an accepted claim. If the claim is denied, the insurance company must provide a valid reason to the insured in writing. An insurance company’s failure to meet any of these requirements within the time allowed is a violation of the TPPCA and the insurance company may be responsible for additional damages, penalties such as statutory interest, and attorneys’ fees.
A violation of the TIC may also create a cause of action under the Deceptive Trade Practices Consumer Protection Act (DTPA), which provides additional protections to consumers who are victims of deceptive, improper, or illegal practices. Insurance companies that violate the TIC and DTPA may be liable to pay to attorneys’ fees, treble damages, and other penalties.
The Texas Statute of Limitations for Property Damage
Texas has a statute of limitations for property damage claims, no matter if the case involves real property – such as a business’s physical building – or personal property. The term statute of limitations refers to state law placing a time limit on how long a claimant has to file a lawsuit in court.
Under Texas law, there is a two-year filing deadline that applies to any lawsuit seeking the repair or replacement of damaged or destroyed property. The case must be filed within two years from the day the property was damaged or destroyed. In the event the two-year deadline has passed before the injured party files suit, the insurer can file a motion to ask the court to dismiss the case. If the dismissal is granted, the plaintiff has lost the right to any legal remedy against the carrier to recover compensation for the damaged property. It is important to also be aware that policies often contain statutes of limitations that may differ from those provided under Texas law. Because of this, property owners should file suit as soon as possible to avoid a potential case dismissal.
In certain situations, Texas policyholders can pause or extend the lawsuit filing deadline set by the statute of limitations, including:
- If the defendant is absent from the state for any part of the two years, the timing of the statute of limitations is suspended for the length of the absence
- If the property owner is under a legal disability at the time the property damage occurs. This does not apply to the designated two-year period, however, if a legal disability comes up after the limitations period has already started, it will not suspend the running of the period.
Key Mistakes to Avoid to Secure a Successful Commercial Property Damage Claim
While there is no one-size-fits-all process to successfully resolve all property damage claims, as each instance is unique, there are certain items to keep in mind that can help most policyholders succeed. Knowing the mistakes to avoid entirely during the claims process, for instance, can be the key to winning a commercial property damage claim. These include:
Failing to Understand the Policy and Its Exclusions
While commercial property owners may know the ins and outs of their business, that doesn’t mean they know everything about their insurance policies. This is often due to insurance policy language being heavily nuanced and containing various provisions and exclusions that may be unknown to the policyholder. A lack of policy knowledge can be a major issue when filing a property damage claim.
To avoid this, commercial property owners should take the time to review their insurance policies thoroughly. Consulting with experienced legal counsel during this process can be helpful, as insurance coverage lawyers can give valuable insight into a policy and note any gaps in coverage that may make a claim difficult. While it may be time-consuming, it can cause fewer headaches in the long run when property damage does happen and will likely help the property owner have a successful claims process.
Not Protecting the Damaged Property
Immediately after damage occurs at a commercial property, one of the key requirements outlined in an insurance policy is for property owners to take reasonable steps to protect it from further damage. This does not mean the insured should begin repairing the property. Rather, the property owner should make arrangements to ensure the property doesn’t sustain additional damage while the claim is being investigated. For instance, if a commercial property’s roof was damaged due to a hurricane, hailstorm, or tornado and then was left exposed to the elements causing further damage to the interior of the property, the insurance provider may flat-out deny the claim altogether. Installing tarps where needed and blocking off damaged areas from non-damaged areas can help contain existing damage and prevent further damage.
Failing to Notify the Insurer Promptly
When property damage occurs, the insurance provider should be notified as soon as possible. This is because claims are much easier to adjust once the event has just occurred and the damage is fresh. A delayed response can put some property damage claims in limbo, as it leaves room for the insurer and adjuster to doubt the severity of the damage and what caused it.
Timely notice by the policyholder is often a requirement in many commercial policies. Just as insurers are required by the Texas Insurance Code to abide by strict time limits during the processing of a claim, policyholders are expected to notify their insurer of damage within a reasonable amount of time as well. While Texas allows for up to two years for a property damage claim to be filed, it is in the best interest of the policyholder to notify their insurer as soon as possible. Failing to report the claim within a reasonable timeframe could result in the insurer denying coverage.
Not Having the Proper Documentation
Not having and maintaining the proper documentation can be detrimental to a property damage claim. Good recordkeeping is essential if a loss occurs because insurers require detailed information to settle a claim. In fact, in some cases, the information required by the insurance provider is stated within the policy conditions. For instance, the ISO commercial property form requires policyholders to provide complete inventories of the damaged and undamaged property, including quantities, costs, values, and the amount of loss claimed. It also requires policyholders to submit photo and video evidence of the damage. Policyholders should take photos and videos of everything damaged as soon as possible after the damage is discovered.
It’s also important commercial policyholders document every communication had with their insurer regarding the claim. Keeping and maintaining a list of contacts of everyone involved, as well as the dates, times, and subject matter of all related correspondence can help ensure nothing is missed so a claim can be successful.
Commercial Property Insurance Claim Attorneys
Any instance of commercial property damage can cause a business to come to a screeching halt and leave owners unsure of what to do or what their legal options are. At Raizner Slania, our attorneys understand the laws surrounding property damage in Texas and the options available to commercial property owners, should they need assistance with a claim.
