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As Houston floods, many are worried about Texas’s controversial new insurance law

Here’s how it works.

Hurricane Harvey Slams Into Texas Gulf Coast Photo by Scott Olson/Getty Images

As Texas continues to endure catastrophic amounts of rain, panicked calls have been going out across social media — not just about rescue operations — but also about insurance claims.

It’s hard to estimate the scale of property damage as the flooding continues, but it will be in the billions of dollars. So far, 15 trillion gallons of water has fallen on the Houston area, flooding thousands of homes and businesses — and more is expected.

That’s complicated by the fact that the state’s insurance law is set to change on Friday, making it more difficult for home and business owners to sue insurance companies over a disputed claim. On Facebook, some lawyers have been advising Houston-area residents to file their insurance claims before the new law kicks in at the end of the week.

The law in question is Texas House Bill 1774, which the Republican-majority Texas legislature passed during its most recent legislative session. The bill’s supporters said it was meant to protect insurance companies from frivolous lawsuits after natural disasters. Detractors say it gives Texas property owners little recourse to get their money back if insurance companies don’t pay up.

In reality, the law likely won’t have a huge impact on Harvey victims who have flood insurance — but it could spell an unpredictable future for Texans whose homes and businesses get damaged by future storms.

The law won’t impact most people filing Harvey claims

This law won’t impact the vast majority of people who file flood insurance claims after Harvey’s waters recede. That’s because those people have flood insurance through the National Flood Insurance Program, a federal program administered by the Federal Emergency Management Administration, which is not regulated by the state.

Approximately 444,000 people in Texas are insured through the NFIP; a FEMA spokesperson said it’s still too early to report claims numbers, but said the agency has started receiving insurance claims and should have updated figures later this week.

Meanwhile, another group of people who won’t be impacted are those who have wind and hail insurance through the Texas Windstorm Insurance Association, which provides insurance to some in coastal counties.

Ultimately, this law change impacts those with private insurance, but even among those who have it, supporters and opponents of the law change alike agree that the number of people impacted will be pretty small.

The law focuses on interest on unpaid insurance claims, and on claims that end up in court — and in Texas, the number of claims that go to court is less than three percent, according to Alex Winslow, director of communications for the Texas Trial Lawyers Association, which opposed the law change. But the law could impact home and business owners in two big ways.

The most concrete way it impacts insurance holders is by reducing a penalty interest rate insurance companies have to pay if they are late paying a claim. Currently, insurance companies have to pay an interest rate of 18 percent; that will be reduced to 10 percent after Friday.

The second impact of the law kicks in if a property owner sues their insurance company; this law will make it much more difficult for the lawyers representing property owners to collect lawyer’s fees.

If Texans with private insurance have their property damaged from a very broad range of natural disasters — including earthquakes, earth tremors, wildfires, floods, tornados, lightning, hurricanes, hail, wind, snow or rain — and disagree with the amount of money their insurance company awards them for damages, they will have less recourse to fight back.

These changes are the reason Winslow’s organization and others, like US Rep. Joaquin Castro, have been urging people to file claims with their insurance companies as soon as possible.

However, these changes do not mean that people should rush to their homes now to try to inspect the damage, especially in areas where the flood waters are still rising. Winslow said a simple written notice like an email, fax, or letter to an insurance company that you are intending to file a claim will suffice.

“No one should go back to their property if it’s not safe,” he said.

Harvey isn’t the only problem. Future storms are too.

Lucy Nashed is the spokesperson for Texans for Lawsuit Reform, a nonprofit that backed the law change. She says this is the latest in an ongoing fight between the insurance industry and lawyers in Texas over the sheer number of lawsuits filed over extreme weather claims in past years.

For instance, after a spate of bad hailstorms in 2012, 6,700 lawsuits were filed in a single Texas county. Insurance companies complained that spike in court cases were being driven by sue-happy lawyers, rather than property owners. Nashed said this is why her organization has been pushing for the new law for years.

“It’s there to protect the property owner from the bad actor on both sides of this,” she said. “This doesn’t impact the insurance claims process the way they’re making it out to be. Lawsuits are the exception, not the rule.”

Hurricane Harvey has made the issue more urgent. On Monday, the Houston Chronicle reported that private insurers are already starting to get claims by the thousands from the storm, with Farmers Insurance reporting 5,400 claims related to Harvey, and State Farm reporting about 5,000.

And just judging from the photos coming out of the Houston area, with flood waters up to the roofs of some houses, the property damage is devastating. Meanwhile, this 500-year flood is raising the possibility that we should stop considering the probability of such events so rare.

“Any entity with an insurable interest is impacted by this,” Winslow said.