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By Steven J. Badger
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Standing orders are orders that apply in every case relating to a particular subject matter. They commence as soon as suit is filed, even though neither party requests entry of an order. While predominantly found in divorce cases, courts may enter standing orders in any situation where a large volume of litigation has been filed concerning the same subject matter. These orders are supposedly party-neutral and enacted for the purpose of expediting pretrial matters, streamlining litigation and preventing parties from engaging in conduct that is unfair or damaging to other parties.

Unfortunately, not all standing orders achieve these objectives of fairness.

On Nov. 30, 2016, Bexar County courts entered standing orders regarding residential and commercial hail claim litigation arising from the April/May 2016 hail events in Bexar County. These orders were entered purportedly to “expedite pretrial matters, discovery and mediation in order to minimize court costs and litigation expenses.”

Curiously, they read as though a group of Bexar County hail lawyers all got together for a strategy meeting at one of their offices, edited to their liking the standing orders adopted by Hidalgo County courts arising from the 2012 storms, and then submitted them to the Bexar County courts for filing — all without any input whatsoever from the insurance industry side of the dispute.

And that is exactly how the Bexar County orders read. They disregard mandatory policy terms, delay insurers’ rights to litigate meritless claims and promote bundled settlements based on little analysis of the merits of each individual lawsuit. While the standing orders certainly advance the interest of dispensing with cases, they accomplish this by, like what occurred in Hidalgo County, encouraging the hail-lawsuit model of signing-up every possible case regardless of merit, filing lawsuits with little investigation of the facts and pushing matters to early bulk settlements.

Just like the Hidalgo County storms and resulting lawsuits. Here we go again!

The problems are significant. The Bexar County standing orders ignore legitimate issues likely to arise in properly disputed insurance litigation. They ignore contractual provisions set forth in some policies that govern how disputes are to be resolved. They impose document production obligations that do not apply equally or fairly to both parties, failing to provide an opportunity to fully explore relevant issues prior to forced mediation. The orders have an unfair impact on the insurer’s ability to defend itself against what may well be frivolous or improperly solicited litigation. Overall, the elements of these standing orders make plain that they do not make sense, and will undoubtedly tie insurers’ hands with respect to defending the predictable onslaught of lawsuits.

The Bexar County residential standing order explicitly does the following:

1. Automatically abates the case for 30 days when an insurer files an answer to an insured’s lawsuit concerning the April/May hail storms, which is applicable to both Rule 190 discovery and court ordered deadlines
   1. the parties may send discovery during the abatement, but
   2. discovery answers are not due until 30 days after the end of the abatement
2. Requires the parties to submit an agreed mediation order within 100 days after the answer is filed
3. Provides that within 15 days of an unsuccessful mediation, the parties must submit a proposed scheduling order to the court
4. Provides that within 60 days of the insurer’s answer, the parties will informally exchange the documents listed in the standing order.

Sound simple and equitable? Maybe not so much.

The number of first-party insurance claims historically resulting in litigation has been less than 2 percent. However, following the March and April 2012 hailstorms in Hidalgo County, the statistic for claims resulting in litigation in that county approached 40 percent. More than 13,000 lawsuits were filed in Hidalgo County arising out of those hailstorms. There were so many lawsuits the courts entered standing orders for the purpose of expediting pretrial matters “for the efficient handling of such claims.” Today, four years after the storms, thousands of lawsuits remain pending in Hidalgo County.

Obviously, the Hidalgo County litigation model is presently being recreated in Bexar County. Like what occurred after the Hidalgo County storms, roofing contractors, public adjusters and even illegal case solicitors are canvassing San Antonio signing up homeowners for lawsuits with promises of free money. Billboards for hail damage lawyers are everywhere. There are reports that one public adjuster has signed up “over 1,400 homeowners.” Under the Hidalgo County model, and despite recent legislation requiring that public adjusters actually try to adjust claims, it is predictable that most of these matters will end up as lawsuits.

After the Hidalgo County storms, it was identified that many of the resulting lawsuits were without merit or illegally solicited by case runners. In some situations, homeowners weren’t even aware they were parties to lawsuits. In others, two different law firms filed lawsuits on behalf of the same homeowners. Things got so bad that the Texas Department of Insurance created a task force to investigate illegal conduct arising from the storms. Rumor has it that indictments are forthcoming.

In the Hidalgo County matters, insurers faced with meritless claims or clear illegal conduct had an alternative to forced mediation. The Hidalgo County standing order provided for a specific opt-out process, allowing insurers an option to not utilize the process and to litigate meritless matters. To opt out, an insurer needed only to file a document stating it was opting out of the process.

This created quite a dilemma for the policyholder attorneys, as they actually had to litigate the opt-out lawsuits — and in some cases risk identification of how the homeowners became plaintiffs to the lawsuits. Dismissals became common. One prominent hail lawyer recently had his law license suspended by the State Bar of Texas and is closing his firm. Three other prominent hail lawyers have received private reprimands. Reportedly other investigations remain pending.

Unfortunately, but not surprisingly given how it appears the orders originated, the Bexar County standing orders do not have the same opt-out method as the Hidalgo County order. An insurer cannot simply file a document to opt out. Instead, it must submit a request for relief and appear for a hearing. This raises questions for several reasons:

1. A hearing is required. This means that parties must incur fees in even trying to have an opportunity to fully litigate a meritless claim.
2. If a hearing is required, it is unclear whether the insured may oppose the insurer’s request to opt out. The standing order does not discuss whether or not opposition is permitted.
3. Before an opt-out is allowed, an insurer must obtain a favorable decision from a Bexar County judge. Even if opposition is not permitted from the insured, Bexar County judges may be so overwhelmed by the number of hail lawsuits that opt-out on a case with standing orders for forced mediation is unlikely to be granted. Like Hidalgo County, the oft-cited judicial mantra may become “It’s a hail lawsuit. Go get it settled.”
4. Logically, if judges intended to grant opt-outs, the standing order would not require hearings. Bexar County would allow submissions to keep their dockets clear of opt-out hearings. It stands to reason obtaining a favorable ruling on an opt-out is unlikely.
5. Given the Bexar County rotating docket, it is impossible for counsel to advise clients of the chance of success of an opt-out request because attorneys will never know in advance which judge will hear a request.

The unpredictable, and perhaps unrealistic, method for opting out of the standing orders is extremely pro-insured, and also extremely concerning for insurers. If a request to opt out is denied, an insurer is left with no choice but to follow standing orders that severely limit its ability to defend itself against inflated and frivolous claims. The pressure to settle these meritless matters at mediation will be intense.

And what about appraisal? Appraisal is a contractual right possessed by both insurers and insureds to resolve disputes as to the amount of loss without the need for litigation. This is precisely the issue in the overwhelming majority of all hail lawsuits — a dispute as to the amount of loss. Some insurance policies now even mandate participation in a prelitigation appraisal process as a condition precedent to litigation. With the recent dramatic increase in hail claim litigation, appraisal is being demanded by insurers as a way to bring a prompt and reasonable resolution to disputed claims. But the standing orders do not address appraisal at all. This leaves the insurer uncertain as to the order’s effect on its rights under the insurance contract, and provides the policyholder attorney the predictable response that it is disregarding a demand for appraisal under the guise of “simply following the standing orders.”

Preventing insurers from exercising their rights to appraisal through issuance of a standing order nullifies the terms of parties’ insurance contracts. If the order had been fair, it would have specifically stated that it did not apply where one of the parties had timely demanded appraisal or the insurance contract required appraisal before litigation. It is not clear how, or whether, the standing orders affect an insurer’s contractual right to demand appraisal during abatement, or what happens if an insurer has already demanded appraisal when suit is filed. Specifically:

• If parties reach impasse just before suit is filed, can the insurer demand appraisal while the suit is abated? If the insurer waits until abatement is lifted, can the insured successfully argue the insurer knew of impasse before suit was filed and the insurer’s demand is now untimely?
• What happens if appraisal has already been demanded when suit is filed and subsequently abated? Can appraisal proceed during abatement?

There has already been an abundance of litigation regarding appraisal. Unclear standing orders such as that just entered in Bexar County will likely lend itself to additional litigation.

Lastly, and perhaps most troubling, are the discovery obligations set forth in the standing order. The production requirements are extremely skewed. They go beyond the Hidalgo County standing orders. It is patently obvious that a San Antonio hail lawyer took the Hidalgo County orders and added a wish-list of additional insurance company discovery obligations.

As to the insured, it must produce any expert or engineering reports, estimates, inventories, photographs, contents lists and receipts it has concerning the particular claim at issue. The insurer must produce these items as well, plus essentially any other document it has concerning an insured. And the independent adjuster’s file too, if the insurer can get it.

The discovery requirement has problems. First, it requires production of many of the insurer’s documents that are simply irrelevant to the claim at issue. For example, the insurer may have provided ten years’ worth of different kinds of policies to a particular insured. The standing order requires production of the insured’s underwriting file, with no specificity regarding the number of years or the kinds of policies. Documents from ten years ago concerning an entirely different policy type — an auto policy, for example — have no relevance whatsoever to a hail claim on a residence from 2016. An insurer would be entitled to object to production of these documents under the Texas Rules of Civil Procedure because the requests are not narrowly tailored and do not seek relevant information.

And it is predictable how this discovery will play out. The policyholder attorney will produce nothing but an inflated estimate prepared by the attorney’s favorite “estimator," along with a few pictures. That’s it. No engineering reports will be provided. Have you ever seen an “engineering report” from a policyholder attorney in a residential hail claim? Nope. It’s all about the “estimate.” Neither will anything be produced about the historical condition of the home. There will be no documents showing that the damage may have been pre-existing and repairs previously completed. No weather data showing that the house was even in the path of the storm will be provided. Absolutely nothing will be produced to satisfy the policyholder’s burden that the alleged damage occurred during the applicable policy period.

How do we know this? Because this is all that is ever produced in support of the thousands of hail damage lawsuits being filed all across Texas. The only document ever produced is the estimate. And it’s become well-known in the hail litigation world that the estimating company is often the same entity that solicited the claim for the lawyer (or a thinly disguised related entity or even perhaps an internal estimating company set-up by the law firm). The lawyer states he is paying $1,000 for the estimate and bills the homeowner the charge as a litigation expense. But in reality, the value of the estimate is only a couple hundred bucks and the remainder is the disguised referral fee paid to the case-runner (or in the case of the law firm with its own estimating company, pocketed by the law firm).

But none of these facts will ever be the subject of discovery under the current “no opt out” orders. By mandating forced informal discovery and early mediation, it is almost guaranteed that the policyholder attorneys will get exactly what they want — a replication of the Hidalgo County “sue on anything, bulk mediate, and settle” model.

Another factor forcing the insurance companies to settle is the unprecedented blanket language allowing documents exchanged in cases not resolved at mediation to be used in other cases against an insurer. This runs afoul of Texas law, which provides that the mere fact that other claims have been filed or paid does not stand as any evidence of the claim which is the subject of a particular lawsuit. This is especially so, according to the Texas Supreme Court, “given the many variables associated with a particular claim, such as when the claim was filed, the condition of the property at the time of filing (including the presence of preexisting damage), and extent of damage inflicted by the covered event.” Thus, “[s]couring claim files in hopes of finding similarly situated claimants whose claims were evaluated differently from [the present plaintiff’s] is at best an ‘impermissible fishing expedition.’” The standing order completely disregards recent authority from the Texas Supreme Court on this issue.

That the standing orders wholly disregard Texas law on the subject obviously creates an unlevel playing field between the parties. In cases advancing beyond forced mediation and into discovery, insurers are guaranteed to incur the sheer aggravation of having to produce other claim files in subsequent and unrelated litigation (again, contrary to existing Texas Supreme Court precedent). Insurers will also be faced with the knowledge they will have to litigate old claims in the context of new claims. This provides absolutely no incentive for the insurer’s participation beyond the forced mediation in any case governed by the standing orders, even when lawsuits are frivolous. This will likely only cause further frivolous litigation.

Finally, there are a few other unclear issues. When will courts rule on post-appraisal motions for summary judgment? The Bexar County standing order is unclear on this issue This could take away a key benefit of appraisal. If the cases cannot be dismissed early, there is an even greater incentive to settle that will certainly be exploited in settlement negotiations.

And what if an insurer has a defense that bars coverage, such as an exclusion that completely precludes coverage, or information on prior claims where their insurer has already paid for the roof but it wasn't replaced prior to the 2016 storms? The standing orders make no allowance for such situations. Thus, even if a claim is made on a policy that plainly does not cover the 2016 hail loss, it appears from the standing orders that the case is abated, and the insurer must participate in forced mediation to present its defense. How can this possibly be fair and efficient?

There is a place for standing orders in situations where a large number of lawsuits can be expected after a significant weather event and an efficient and fair manner of litigating the matters is required. But the Bexar County standing orders fail to accomplish these objectives. The standing orders directly dictate the direction of litigation in a manner favorable to the plaintiffs’ attorneys. They do not take contractual provisions into account. They do not apply equally or fairly to document production, and do not allow the parties (well…the insurer, anyway) the benefit of full, thoughtful, and relevant discovery prior to forced mediation. They do not follow Texas law on the use of documents from unrelated litigation.

With these shortcomings, the Bexar County standing orders fall far outside the typical objectives of a standing order.

As drafted, the Bexar County orders are an early Christmas gift to the San Antonio hail lawyers. Perhaps the Bexar County courts should invite some established practitioners from both sides of the bar to work cooperatively in drafting amended orders that they are fair and balanced to all litigants.

Steven J. Badger is a partner with Zelle LLP in Dallas. 

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice. 

[1] For purposes of brevity, only the residential provisions are outlined. However, the commercial provisions are substantially similar.  The residential standing order is available here. The commercial standing order is available here.

[2] http://www.insurancejournal.com/news/southcentral/2015/02/11/357203.htm

[3] See id.

[4] http://www.insurancejournal.com/news/southcentral/2015/05/01/366654.htm

[5] In re National Lloyds Insurance Company, 449 S.W.3d 486, 489 (Tex.2014) (insurer’s overpayment, underpayment or proper payment of the claims of unrelated third parties is probative of the insurer’s conduct with respect to an individual insured plaintiff).

[6] Id.

[7] Id.