Why is it Not OK in Texas to Let Your Contractor Waive Your Deductible in 2025?

In Texas, contractors waiving or absorbing insurance deductibles have been a topic of significant legal scrutiny. While some homeowners might view this as a financial relief, it’s essential to understand that such practices are illegal under Texas law. This article delves into the reasons behind this prohibition, the implications for both contractors and homeowners and the specifics of the 2019 legislation that reinforced these regulations.

Understanding Insurance Deductibles

An insurance deductible is the amount a policyholder agrees to pay out-of-pocket before their insurance coverage kicks in to cover a loss. For instance, if a homeowner has a $2,000 deductible and incurs $10,000 in damages, they are responsible for the first $2,000, and the insurance company covers the remaining $8,000. Deductibles serve as a form of risk-sharing between the insurer and the insured, ensuring that policyholders have a financial stake in the maintenance and care of their property.

The Illegality of Waiving Deductibles in Texas

Before 2019, while it was technically illegal for contractors to waive deductibles, enforcement was lax due to ambiguities in the law. This led to widespread practices where contractors would offer to cover or waive the deductible to attract business, often advertising “free roofs” or no out-of-pocket costs for repairs. Such practices not only undermined the integrity of the insurance system but also paved the way for potential fraud and subpar workmanship.

House Bill 2102: Strengthening the Law

To address these issues, the Texas Legislature passed House Bill 2102 (HB 2102), which went into effect on September 1, 2019. This legislation clarified and strengthened the existing laws regarding the payment of insurance deductibles. Key provisions of HB 2102 include:

1. Mandatory Payment of Deductibles: The law explicitly requires policyholders to pay the full deductible applicable to their insurance claim. This eliminates any ambiguity about the necessity of deductible payments.
2. Contractual Disclosure: Contracts between contractors and homeowners, where the work is expected to be paid wholly or partly from insurance proceeds and exceeds $1,000, must include a specific notice. This notice, in at least 12-point boldface type, must state:
   

   “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.”

3. Prohibition of Waiving Deductibles: The law makes it a Class B misdemeanor for a contractor to:
   • Advertise or promise to provide goods or services without requiring the insured to pay the deductible.
   • Pay, waive, absorb, rebate, or offset any portion of the insured’s deductible.
   • Provide a rebate or credit that offsets all or part of the deductible.
   • In any manner, assist the insured in avoiding payment of the deductible.

These provisions are codified in Section 27.02 of the Texas Business and Commerce Code.

Implications for Homeowners

Homeowners must be vigilant and informed about these legal requirements. Engaging with contractors who offer to waive or absorb deductibles can lead to several adverse consequences:

1. Legal Liability: Homeowners who knowingly participate in such schemes may be complicit in insurance fraud and expose themselves to legal action.
2. Subpar Workmanship: Contractors willing to circumvent the law may also cut corners in their work, leading to poor-quality repairs that can result in further damages and expenses later on.
3. Insurance Complications: Insurance companies may require proof of deductible payment before releasing the full claim amount. Failure to provide such evidence can delay claim settlements or reduce payouts.

Ensuring Compliance

To ensure compliance with Texas law and protect oneself from potential pitfalls, homeowners should:

• Verify Contractor Credentials: Ensure the contractor is licensed, insured, and has a good reputation. Check for reviews and references.
• Insist on Transparent Contracts: The contract should clearly outline the scope of work, total cost, and the requirement for the homeowner to pay the deductible.
• Maintain Proof of Payment: Keep records such as canceled checks, receipts, or credit card statements that verify the payment of the deductible. This documentation may be required by the insurance company.
• Report Unethical Practices: If a contractor offers to waive or absorb the deductible, report them to the Texas Department of Insurance or the Texas Attorney General’s Consumer Protection Hotline at 800-621-0508.

Conclusion

While the prospect of avoiding an out-of-pocket deductible payment might seem appealing, it’s crucial for homeowners to understand the legal and ethical implications of such actions. The enforcement of HB 2102 underscores Texas’s commitment to maintaining the integrity of its insurance system and protecting consumers from fraudulent and unethical practices. By adhering to these regulations, homeowners not only stay within the bounds of the law but also ensure that they receive quality workmanship and safeguard their property’s value.

For more detailed information on the legal requirements, homeowners and contractors can refer to the Texas Business and Commerce Code, Section 27.02.

Looking for a Texas Contractor Who Works for You and Keeps it Legal?

Give Baker Roofing and Construction a call. For over twenty years, Baker Roofing has provided exceptional storm restoration repairs for Texan homeowners. We work directly with insurance companies to ensure the homeowner gets all their storm-related repairs completed and paid for by their insurance policy.