Timely notice is an important first step in a successful insurance recovery.  But insurance policies are not always straightforward in identifying how, when, and to whom notice must be provided.  Some states may also impose additional procedural hurdles, including requiring policyholders to contact their insurers before filing suit (the idea behind this requirement is that it may avoid litigation).  Failing to comply with pre-suit requirements can hurt the policyholder’s recovery, as illustrated in a recent decision from the Northern District of Texas. 

In NewcrestImage Holdings, LLC v. The Travelers Lloyds Insurance Company, No. 2:23-cv-039-BR (N.D. Tex. Oct. 17, 2023), the court considered whether NewcrestImage had forfeited its right to recover attorneys’ fees by failing to give Travelers pre-suit notice.  NewcrestImage had filed suit against Travelers to obtain coverage for damage to its hotel property arising out of Winter Storm Uri.  In its answer, Travelers asserted that NewcrestImage failed to provide the insurer with pre-suit notice as required under the Texas Insurance Code, and that if NewcrestImage successfully proved it was entitled to coverage, NewcrestImage’s failure to provide pre-suit notice precluded it from recovering attorneys’ fees.  Travelers later moved to strike the claim for attorneys’ fees on that basis. 

Under Texas law, a policyholder asserting a first-party insurance claim because of damage to real property caused by hail, wind, or a rainstorm must give 60 days notice to the insurer before filing suit.  Tex. Ins. Code § 524A.001(2).  There are only two exceptions to this rule—when notice is impractical because (1) there is insufficient time before the limitations period expires, or (2) the action is brought as a counterclaim.  Id. § 524A.003(d).  If the policyholder fails to comply with Section 524A.001(2), the insurer can either file a plea in abatement (essentially, a motion to dismiss) or “plead and prove” that it was entitled to pre-suit notice—if it does so, the policyholder cannot recover attorneys’ fees dating from the insurer’s pleading.  Id. § 524A.005(b); § 524A.007(d).  The defendant must raise this defense within 30 days after the date its response is due, or the defense is waived.  Id. § 524A.007(d). 

NewcrestImage argued that no pre-suit notice was necessary because its original petition did not seek “the particular ‘damages’ corresponding to Chapter 524A.”  It also argued that Travelers’ motion was untimely because it was not filed within 30 days after its answer was due, and that Travelers had not “pleaded and proved” that it was entitled to pre-suit notice.  And in any case, NewcrestImage claimed it complied with Chapter 524A by stating in its Petition, “NOTICE OF INTENT TO PURSUE CLAIM UNDER CHAPTER 542A OF THE TEXAS INSURANCE CODE.” 

The court disagreed.  First, it concluded that the pre-suit notice requirement of Chapter 524A applies to “any claim against an insurer” falling within the scope of the Chapter, no matter what damages are sought.  Second, the court found that Travelers had sufficiently pleaded and proved it was entitled to pre-suit notice by stating in its answer that, among other things, Travelers had the right to pre-suit notice under Tex. Ins. Code § 524A.003 and that NewcrestImage did not comply with that section, so NewCrestImage was not entitled to attorneys’ fees.  Despite NewcrestImage’s assertions to the contrary, Travelers was not required to file a separate motion raising its pre-suit notice defense.

Finally, the court concluded that NewcrestImage’s petition did not provide proper notice.  The purpose of Chapter 524A, the court stated, was to discourage litigation and encourage settlement.  This purpose would not be served by construing notice in the petition itself as pre-suit notice.  As a result, NewcrestImage would be precluded from recovering attorneys’ fees incurred after the date that Travelers filed its answer.

NewcrestImage underscores the importance of fully understanding all contractual and jurisdiciontally-imposed requirements before filing suit on a disputed claim.  That means, at a minimum, reading the insurance policy, and understanding which law governs the dispute and whether it imposes any additional requirements on the policyholder before making a demand upon the insurer.  In this instance, by failing to send a notice letter at least 61 days before filing its petition, NewcrestImage lost its ability to recover thousands, if not millions, of dollars in attorneys’ fees.  Experienced coverage counsel can help policyholders comply with contractual and jurisdictionally-imposed pre-suit requirements and provide strategic pre-suit advice that can help to maximize net recovery.