Dallas insurance attorneys should know about the Prompt Payment of Claims Act

Dallas insurance attorneys should know about the Prompt Payment of Claims Act. It is found in Chapter 542 of the Texas Insurance Code.
This statute imposes deadlines for an insurance company to acknowledge, investigate, and accept or reject a claim. An insurance company that violates the statute is liable for attorney fees and an additional 18% per annum in addition to the amount of the claim. The time periods stated in the statute are subject to being very short or very long in the context of how long it actually is takes for an insurance company to pay a claim before having penalties imposed.
Keep in mind that the time limits apply only to first party claims – not third party claims.
The statute sets out the steps an insurer must follow when presented with a “first party” claim by an insured.
To recover a penalty under the statute act, an insured must establish that:
a) the insured had a claim under an insurance policy;
b) the insurance company is liable for the claim; and c) the insurance company has failed to comply with a requirement of the Act.
The above requirements were spelled out in the 2001, Texas Supreme Court case, Allstate Insurance Co. v. Bonner.
In the Bonner case, the Court considered whether an insurance company that did not comply with the claim acknowledgement deadline could be held liable under the statute even though the insurance company ultimately did not owe the claim. The insured was awarded less on her uninsured motorists claim that the insurance company had already paid in personal injury benefits. Nevertheless, Bonner argued that Allstate’s violation entitled her to recover attorney fees under the statute. The Supreme Court rejected the argument and held that for an insurance company to be held liable, a party must establish the three elements listed above.
The questions for lawyers and their clients becomes whether an insurance company can always disprove a claim and thereby avoid liability for violating the statute, or whether the Court’s holding is limited to the circumstances presented in that case.
It is important to keep in mind that the purpose of the statute is to promote the prompt payment of insurance claims pursuant to policies of insurance.
As time has evolved there have been changes to the law. The present statute made several changes compared to prior laws. It applies to more insurance companies and more kinds of insurance. It imposes more deadlines. It also imposes a bigger penalty – 18% per annum, instead of a flat 12%. The statute was intended to enhance the protections for insureds and claimants, and strengthen the incentives for prompt claims handling by insurance companies.
The tricky or confusing part of the Prompt Payment of Claims statutes are the deadlines. For instance, look at Section 542.055(b) – An insurer may make additional requests for information if during the investigation of the claim the additional requests are necessary. As a practical matter here is what happens:
The insurance company timely requests information. They take the full amount of time under the statute to investigate the information when it is received and then ask for more information. When that information is received (maybe that is quickly and maybe it is not) they then take the full amount of time to investigate that information and then based on the result of that investigation, ask for more information. As you can see, this can go on and on. This is where an experienced Insurance Law Attorney can be helpful. He can evaluate their requests and see if a case can be made for the insurance company deliberately trying to stretch out time and wear down the claimant.