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by Alexander Masotto and Todd M. Tippett

Since the enactment of Chapter 542A of the Texas Insurance Code in 2017 (also known as the “Hail Bill”), insurers and policyholders have incessantly litigated over the interpretation of the presuit notice requirements under Section 542A.003. During a typical claims adjustment, and after a coverage decision has been made, policyholders often provide an estimate to support their claimed and/or disputed damages. Recently, a Federal Court in the Southern District of Texas found that a contractor’s estimate submitted to an insurer does not qualify as satisfying the “specific amount alleged to be owed by an insurer” requirement under Section 542A.003(b)(2).

The very purpose of Section 542A.003’s notice requirements “serves to ‘discourage litigation and encourage settlements of consumer complaints’ by assuring defendant-insurers have time to assess the situation and make a settlement offer.”[i]

Texas Insurance Code § 542A.003 provides that:

a) In addition to any other notice required by law or the applicable insurance policy, not later than the 61st day before the date a claimant files an action to which this chapter applies in which the claimant seeks damages from any person, the claimant must give written notice to the person in accordance with this section as a prerequisite to filing the action.

(b) The notice required under this section must provide:

(1) a statement of the acts or omissions giving rise to the claim;

(2) the specific amount alleged to be owed by the insurer on the claim for damage to or loss of covered property; and

(3) the amount of reasonable and necessary attorney's fees incurred by the claimant, calculated by multiplying the number of hours actually worked by the claimant's attorney, as of the date the notice is given and as reflected in contemporaneously kept time records, by an hourly rate that is customary for similar legal services.

If an insured’s presuit notice fails to state the “specific amount alleged to be owed by the insurer under Section 542A.003(b)(2), an insurer may move to preclude an insured’s claim for attorneys’ fees pursuant to § 542A.007(d):

(d) If a defendant in an action to which this chapter applies pleads and proves that the defendant was entitled to but was not given a presuit notice stating the specific amount alleged to be owed by the insurer under Section 542A.003(b)(2) at least 61 days before the date the action was filed by the claimant, the court may not award to the claimant any attorney's fees incurred after the date the defendant files the pleading with the court. A pleading under this subsection must be filed not later than the 30th day after the date the defendant files an original answer in the court in which the action is pending.

On June 20, 2024, Judge Lee Rosenthal in the Southern District of Texas, Houston Division, issued an opinion granting the Insurer’s Motion to Preclude the Insured’s Claim for Attorneys’ fees, and held that a contractor’s estimate failed to give notice of the “specific amount alleged to be owed” under Section 542A.003(b)(2). In Baker v. Am. Econ. Ins. Co.,[ii] the Insured sustained storm-related damage to her home. After inspecting the Insured’s property, the Insurer transmitted payment for the covered damage. Following payment, the Insured emailed the Insurer several mitigation and repair estimates from her contractor over a three-month period, and requested for the Insurer to reopen her claim for roof damage that had been denied. Once reviewed, the Insurer subsequently made additional payments based on some of the estimates.

Eventually, the Insured filed suit, and the Insurer subsequently moved to preclude the Insured from recovering attorneys’ fees for failing to provide proper presuit notice and providing a “specific amount alleged to be owed” pursuant to Section 542A.007(d). The Insurer argued that emails containing repair estimates do not qualify as the “specific amount alleged to be owed,” and that the emails only referenced the alleged work to be completed at the Insured’s residence. In contrast, the Insured asserted that the total cost of the estimates provided “the specific amount alleged to be owed.” The court disagreed, and held that the emails “did not specifically state the amount” alleged that the Insurer owed. The Court noted, however, that the Insurer could calculate the difference between the Insured’s various estimates and the amounts previously paid, but that mere “information sufficient to calculate a specific amount” does not comply with Section 542A.003(b)(2).

The Court further reasoned that Section 542A.003(b)(2) “is not satisfied by the trading of estimates that often occurs during the adjustment process.” Accordingly, the Court held that the estimates “were too premature to constitute valid presuit notice” even though the estimates came after payments made. In support of its holding, the Court relied on Henry v. Nationwide Prop.,[iii] which held that “adequate presuit notice cannot be given until the insurer has made a ‘final coverage decision’ on the insurance claim.” Lastly, the Court notes that it found the reasoning in the contrary decision of Nisha Hospitality LLC v. Scottsdale Insurance Company[iv] unpersuasive.

In Nisha Hospitality, Judge Starr in the Northern District of Texas, Dallas Division, held that a public adjuster’s estimate provided during the adjustment process satisfied the “specific amount alleged to be owed” under Section 542A.003(b)(2) requirement. In that matter the Insured had retained a public adjuster after: 1) the Insurer inspected the property, 2) scoped for covered damages under the policy, and 3) transmitted payment on the claim. The Insured proceeded to retain a public adjuster who disagreed with the scope and amount of loss. The public adjuster provided an estimate and a photo report to the Insurer. In response, the Insurer proceeded to reinspect the property with an engineer; however, the Insured continued to dispute the findings from the public adjuster. Ultimately, the Court declined to preclude the Insured’s claim for attorneys’ fees because the estimate “indicated the replacement cost” for the alleged damage to the Insured’s property, that was “the only requirement Chapter 542A states will result in no further attorneys’ fees if violated.”

Similarly, in Selinger v. Meridian Sec. Ins. Co.,[v] the Court also declined to grant the Insurer’s Motion to Preclude Attorneys’ fees where the Insured’s public adjuster submitted an estimate before the Insurer ultimately denied the claim. In that matter, however, the Court failed to analyze whether sufficient presuit notice could be provided before or after a final claim determination.

Another case that held a public adjuster’s estimate satisfied the “specific amount alleged to be owed” requirement is Compound South, LLC v. State Auto Mut. Ins. Co..[vi] However, Compound South is distinguishable because the Insured’s public adjuster provided an estimate as well as a sworn statement in proof of loss after the Insurer denied the claim. The Court ultimately found that presuit notice and the Section 542A.003(b)(2) requirement were satisfied since the documents were issued after the Insurer denied the claim.

Based on the above caselaw above, there appears to be a split in authority as to whether an estimate prepared by a contractor or public adjuster on behalf of an insured during the adjustment process satisfies the “specific amount alleged to be owed” requirement under Section 542A.003(b)(2).  We believe that the Baker decision provides the best guidance on the issue in holding as follows:

[T]he trading of estimates. . .[that] often occurs during the adjustment process. . .is an ordinary part of the claims process. . .and does not fulfill the purpose of presuit notice of ‘discourag[ing] litigation and encourage[ing] settlements.

Consistent with this holding, we believe Insurers should continue to file Motions to Preclude Attorneys’ Fees under Section 542A when only an estimate is provided during the adjustment process and no specific amount is alleged to be owed in the presuit notice letter.

[i] Jordan Indus., LLC v. Travelers Indem. Co. of Am., No. 7:21-cv-00114-O, 2022 WL 2719630, at *2 (N.D. Tex. Apr. 12, 2022).

[ii] Baker v. Am. Econ. Ins. Co., No. CV H-24-1145, 2024 WL 3070193 (S.D. Tex. June 20, 2024).

[iii] Henry v. Nationwide Prop., No. CVH-23-2488, 2023 WL 6049519, at *2 (S.D. Tex. Sept. 15, 2023).

[iv] Nisha Hospitality LLC v. Scottsdale Insurance Company, No. 3:22-cv-1811-X, 2022 WL 17417995 (N.D. Tex. Dec. 2, 2022).

[v] Selinger v. Meridian Sec. Ins. Co., No. 4:23-cv-747-Y (N.D. Tex. Oct. 31, 2023) (unpublished).

[vi] Compound S. LLC v. State Auto Mut. Ins. Co., No. 5:23-CV-070-H-BQ, 2024 WL 858011 (N.D. Tex. Jan. 31, 2024). 

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The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.