Attorney’s fees are a considerable expense in litigating construction disputes, whether you are plaintiff or defendant.  But, against whom are they recoverable and are they covered by insurance?  Recent changes to Chapter 38 of the Texas Civil Practice and Remedies Code (the “TCPRC”) significantly change the answer to this question.

Recovering Attorney’s Fees Beyond Individuals or Corporations

Unlike many other states, Texas creates a statutory right to recover attorney’s fees under certain circumstances.  Under that statute, Chapter 82 TCPRC, a party can recover attorney’s fees from “an individual or corporation” for a claim where the claim is for “rendered services, performed labor, furnished material . . . or [breach of] an oral or written contract.”  In the context of construction disputes, almost all of which related to verbal or written contracts, Chapter 82 is a critical element of damages.

Surprisingly to most members of the construction industry, Texas courts have strictly construed the statute by giving “individual” and “corporation” their literal meaning.  Other than individuals and C and S corporations, certain business entities have been excluded from the statute. For instance, LLCs or partnerships have not been extended the ability to recover attorney’s fees under this section.

To resolve this issue, the Texas Legislature adopted House Bill 1578, amending § 38.001 if TCPRC and expanding who qualifies for recovery of fees to “an individual or organization.” Organization is afforded a more expansive definition that corporation and will now include:

a corporation, limited or general partnership, limited liability company, business trust, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or other organization, regardless of whether the organization is for-profit, nonprofit, domestic, or foreign.

These new amendments are effective for agreement entered into or signed on or after September 1, 2021

Recovering Attorney’s Fees as Compensatory Damages

Another change to Chapter 38 that will have massive implications for construction defect claims is recharacterization of attorney’s fees as compensatory damages. For the past several years, courts interpreting Texas law have held that attorney’s fees are not covered damage under a commercial general liability policy.  With attorney’s fees many times exceeding the amount in dispute between the parties, having an uncovered element of damages creates unnecessary conflict between a contractor and its insurance company.

Under the recent amendment to Chapter 82, HB 2416, reasonable attorney’s fees from an individual, corporation, or other entity are now “compensatory damages”, as follows.

Sec. 38.0015.  RECOVERY OF ATTORNEY’S FEES AS COMPENSATORY DAMAGES.  (a)  A person may recover reasonable attorney’s fees from an individual, corporation, or other entity from which recovery is permitted under Section 38.001 as compensatory damages for breach of a construction contract as defined by Section 130.001.

(b)  This section may not be construed to create or imply a private cause of action or independent basis to recover attorney’s fees.

This amendment applies to construction contracts entered into or executed on or after September 1, 2021.

Understanding when and how your attorney’s fees are recoverable is a vital piece of your overall risk management scheme – whether in defending against a claim or making a claim of your own. Our attorneys in Dallas and Austin are available to answer any questions you may have and to help you and your company ensure you can recoup all monies you have the right to recover or are sufficiently prepared for all outcomes. Please contact us at info@gstexlaw.com if you have any questions.

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