The Takeaways
- House Bill 2102 (H.B. 2102) Is designed to provide more clear language and law which makes paying your insurance deductible mandatory.
- H.B. 2102 goes into effect on September 1, 2019.
- Contractors and insurance-related service providers are now clearly prohibited from waiving, absorbing, or crediting funds to offset or eliminate an insured’s deductible in any way.
- Contracts for insurance-funded services must now include specific language set forth by H.B. 2102.
Texas House Bill 2102
With the passing of a widely debated bill, the month of May was monumental for Texas lawmakers and those who serve the insurance industry.
House Bill Number 2102 (H.B. No. 2102), to go take effect September 1, 2019, addresses the seemingly common practice of contractors who offer to waive their customers’ insurance deductibles on projects in which funding is provided partially or wholly by insurance company proceeds. The most common occurrence of this practice appears most often in the residential roofing industry and can be easily observed in the marketing material of many companies who boldly advertise that they will waive, absorb, or offer rebates in the amount of an insurance company’s deductible.
Fraud
A free roof! So, what’s the big deal? Well, we’ll lump it all into a single word. Fraud. Texas lawmakers have concurred that waiving deductibles produces animosity between competing contractors and creates instances of insurance fraud by homeowners and contractors alike. Reputable contractors have stated that those companies who follow the applicable laws are charging deductibles but they are continually undercut by deductible-waiving competitors who are bidding for the same project. In turn, the consumer may readily choose the contractor who promises no out-of-pocket expenses, not realizing the unlawful implications that may occur.
Although the practice of waiving deductibles has not been exclusively seen as unlawful, it has certainly paraded around the gray area of the law in Texas for decades. H.B. No. 2102 now provides very clear language, that was otherwise open to interpretation. Specifically, this new bill clarifies what constitutes acceptable conduct of a contractor when engaging in offering goods or services that are funded from monies owed under an insurance policy. Furthermore, H.B. No. 2102 goes on to state:
“(b) A contract to provide a good or service that is reasonably expected to be paid wholly or partly from the proceeds of a claim under a property insurance policy and that has a contract price of $1,000 or more must contain the following notice in at least 12-point boldfaced type: "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 seller of goods or services who reasonably expects to be paid wholly or partly from the proceeds of a property insurance claim to knowingly allow the insured person to fail to pay, or assist the insured person’s failure to pay, the applicable insurance deductible."
This “free-roof fraud” occurs when property owners are advised by contractors that they do not need to pay their deductible because said contractors will simply waive, absorb, or provide a credit in the same dollar amount as the deductible. Wait. Isn’t Texas some maverick state where the government doesn’t overstep its authority? Shouldn’t businesses and consumers get to choose to waive a deductible or not? So, where is the fraud? I’m confused…
Your Deductible
To understand why this is seen as fraud, you must first understand the concept and intention behind the dreaded deductible that your dastardly insurance company is imposing upon you - I say this in jest although I hear this sort of jilted banter from clients who feel their insurance companies are always after the “little guys”.
Where was I? insurance, H.B. 2102, fraud… oh yes, the deductible. A deductible is simply the amount a customer (insured) must pay out of pocket before the insurance carrier (insurer) will pay any expenses in the event of a covered loss. The deductible can be either a stated dollar amount or a percentage amount of the policy value. You and your insurance company agree that in order for them to cover your property, you must share in the risk by personally bearing some burden financially by way of paying your deductible. If you do not pay the deductible, you have not shared in the risk and are ultimately breaching your end of the deal. If you and your contractor decide at the inception of your relationship to do just one minuscule thing to pull one over on the insurance company, the slope can get slippery. I trust you see where this is headed…
Agreeing with a contractor to waive the deductible could be the beginning of a tangent of actions that could be perceived as questionably unethical or downright unlawful. Is the contractor giving you an honest and great deal and only sticking it to the insurance company? Is the contractor being honest with you about what materials and services you’re paying for? Is the contractor being honest with the invoices to the insurance company? These are all questions you may want to ask yourself before saying “yes” to a contractor who promises the world.
“But Your Honor, I didn’t know it was illegal to not pay my deductible… Please! Don’t lock me up! I have a mortgage! Who will water the succulents I got as a birthday gift from my sister last year?!?!" Texas lawmakers thought of that too. If you were paying attention to the quoted law earlier in this post, you know that H.B. 2102 requires that all contractor agreements now state in 12-point boldface font that it is a violation of Texas law to waive the deductible or assist a customer in any way in avoiding paying their deductible. There it is. Upfront, in writing, and under the nose of any contractor and insured who enters into an agreement for insurance-related work.
Goodbye grey area. Hello, deductible.
