It has been eight years since Hurricane Ike ripped through the Gulf and Houston's surrounding areas, but homeowner Gail Menchaca's insurance company has still not paid her a cent for the damages to her home.
In a case that could have sweeping implications for how thoroughly insurance companies choose to inspect property damage and whether firms have any real motivation to pay you anything, Menchaca's insurance company, USAA Texas Lloyd's Company, has fought her all the way to the Texas Supreme Court. Even after a Montgomery County trial court and appeals court ordered USAA to pay Menchaca not only for the property damages covered under the policy, but also thousands more in court and attorneys fees, USAA has refused. At the heart of the case is this: If an insurance company fights you in court for eight years, at the end of it all, are you entitled to recover any damages beyond the money you need to fix your house?
If the Supreme Court agrees with the insurance company that the answer is no, Menchaca's appellate attorney, Jennifer Burch Hogan, fears insurance companies will have no reason to pay homeowners what they are owed after big storms like Ike — unless those homeowners sue them. And given that major flood events and tropical storms don't seem to be going away any time soon, Hogan said this is a case every homeowner should be paying attention to.
“If there isn't the ability to punish an insurance company for not behaving as it should,” Hogan said, “then when people are in their most vulnerable positions, insurance companies will have far too much power and authority that they can abuse.”
So here's what happened to Menchaca, as first reported by Houston Public Media: After the costliest hurricane in the state's history rolled through in September 2008, Menchaca noticed that her roof was missing some shingles and that others were billowing in the wind. An inspector with USAA came out to investigate, apparently only noticing three missing shingles. When Menchaca received a letter in the mail from USAA that December, the insurance company told her that yes, this type of damage was covered, but since the roof damage would only cost about $455 to repair, it was far beneath the deductible and therefore Menchaca could pay for it herself.(The attorney representing USAA in the Supreme Court did not return a request for comment.)
Menchaca, believing that was a serious understatement, sued the company in June of 2009. Trial experts and engineers testified that she would need an entirely new roof, costing as much as $29,000.
Hogan said what's tricky about cases like this is that insurance policies generally don't explain that companies are “obligated to conduct a thorough investigation” of the property damages — only state law does. And it's a crucial law, Hogan said, because otherwise, without a punishment for insurance companies for failing to investigate properly, why would they care to?
“They would have no reason to actually conduct a reasonable investigation,” Hogan said. “They would have no reason to treat [homeowners] fairly or timely, or to make a legitimate offer. They might as well just tell everybody no — because then they make you sue them. They make you hire people to investigate and find the damage. They make you hire lawyers. And that, the Legislature has determined, is not what we want as a public policy in Texas.”
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The jury in Menchaca's case found that USAA violated this law, resulting in $164,000 in damages owed to Menchaca — but jurors did not find that USAA violated its own policy or contract with Mencahaca. Now, according to court records, USAA is arguing in the Supreme Court that since the jury agreed USAA didn't violate its own contract, it shouldn't be held liable for extra damages. And that's what's dangerous, Hogan said — because failing to do a good investigation is generally never covered in the company polices.
Hogan said that insurance firms lobbied the state Legislature to amend the law to state that the insured could not reap any damages beyond what is owed to them under the insurance policy, but those bills went nowhere last session. Now, Hogan said, it appears the insurance lobby is trying to get its way through the high court, which Hogan said should not be allowed to happen.
“[The law exists] to put some pressure on the insurance company to do the right thing in the first place: to do a reasonable investigation, to negotiate in good faith, and to not make an insured [person] have to sue in order to recover policy benefits they’re owed," Hogan said. "There has to be some sort of a weapon — and that's why these cases really matter.”
The Supreme Court heard oral arguments this week. Justices are expected to rule sometime next year.