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Changes in Construction Law; 87th Legislature, Texas House Bill 2416

10.27.2021

Changes in Construction Law; 87th Legislature, Texas House Bill 2416

By Sydney Koby, Associate

Background

Prior to September 1, 2021, Texas law required an insurance company to pay the damages, but not the attorneys’ fees, awarded as compensatory damages in a breach of a construction contract case. In In re Nalle Plastics Family Ltd. P’ship, a law firm sued its client for unpaid legal fees and was awarded $132,000 for damages and another $150,000 in attorney’s fees. 406 S.W.3d 168 (Tex. 2013). Pending appeal, Nalle, the client, deposited $132,000 with the trial court to suspend enforcement of the judgment. Id.

In response, the law firm argued that because the deposit did not include the $150,000 for attorney’s fees, the judgment was not properly superseded. Id. The Supreme Court of Texas provided that “[w]hile attorney’s fees for the prosecution or defense of a claim may be compensatory in that they help make a claimant whole, they are not, and have never been damages.” Id. at 173. Thus, the court held that attorney’s fees are not compensatory damages and are therefore not subject to recovery by the prevailing party. Id.

Texas House Bill 2416

Texas House Bill 2416 (“HB 2416”) adds section 38.0015 to the Civil Practices & Remedies Code (“CPRC”), allowing a person to recover reasonable attorney’s fees from an individual, corporation, or other entity from which recovery is permitted under section 38.001 of the CPRC as compensatory damages in breach of construction contract cases. In other words, HB 2416 clarifies the CPRC by providing that attorney’s fees in a suit for a breach of a construction contract are compensatory damages, therefore, creating an expectation of insurance coverage.

However, HB 2416 does not create or imply a private cause of action or independent basis to recover attorney’s fees. The law will likely be beneficial in cases where a plaintiff’s pre-trial demand is too high, and the insurance company wants to go to trial in an attempt to lower the damages. Further, HB 2416 will increase the face amount of appeal bonds.

Conclusion

The changes in law addressed in HB 2416 will only apply to a cause of action that accrues on or after September 1, 2021. In such cases, the insurance company—not the contractor—will be required to pay the prevailing party’s attorney’s fees. This change in the law is significant for contractors because although HB 2416 may result in a contractor paying slightly more in insurance, the end result will not be as detrimental if the contractor is found liable.

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