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New proposal may limit homeowners’ ability to sue in insurance disputes

A proposal to let insurers offer lower rates to homeowners who waive their right to litigation could limit the rights of Texans who face insurance disputes.

Homeowners in Dallas are legally protected against various rights violations on the part of insurance providers, including delayed claim processing or payment, unfair treatment and claim denial without adequate explanation. When insurance providers engage in these practices, homeowners may be able to seek recourse by filing lawsuits. A recently proposed policy change, however, could limit the ability of homeowners to sue for recourse in one common situation.

Arbitration agreements

The Texas Tribune explains that the proposition would allow insurance providers to offer consumers lower rates on the condition that they agree to resolve homeowners insurance claim disputes through a process of mediation and arbitration. Essentially, consumers would relinquish their right to file lawsuits in order to qualify for 10 to 25 percent discounts on their premiums.

Compared to litigation, this approach could offer numerous disadvantages for consumers. Critics point to the following concerns:

  • Unlike judges, arbitrators are selected and paid for by the company that is involved in the dispute.
  • The outcomes of arbitration are legally binding and not eligible for appeal, regardless of the potential reasons for an appeal.
  • Arbitration is a private proceeding, so homeowners have no way of knowing whether a final decision was based on valid grounds.

At present, some homeowners in Texas have policies that contain voluntary arbitration clauses. However, no homeowners are currently required to accept arbitration as their only option.

Concerns for consumers

Experts worry that this policy change could cause many consumers to unwittingly give up their rights. Some people, particularly those who lack legal backgrounds, might not fully understand the terms of the arbitration process or its potential downsides. Additionally, providers that engage in bad faith insurance practices could misrepresent or even conceal the nature of this agreement.

Furthermore, although insurance carriers have presented the mediation-arbitration option as voluntary, The Dallas Morning News notes that this might not always be the case. Documents from the proposal state that in some areas, providers may only offer this option. This could essentially force homeowners to give up their rights to secure the insurance that they are legally required to carry.

Likelihood of success

The fate of this proposition remains to be decided, as it is under public review. Still, it calls attention to the importance of homeowners understanding the terms of their insurance policies and their legal rights.

People who have concerns about the terms of a homeowners insurance policy that they have not yet signed should consider consulting with an attorney for advice. Similarly, homeowners who believe that an insurer is engaging in unfair or deceptive practices should discuss the situation with an attorney.

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