Dallas Fort Worth Insurance Lawyer Blog

Most people in Weatherford, Mineral Wells, Aledo, Azle, Willow Park, Hudson Oaks, and other places in Parker County would have a hard time understanding what constitutes "bad faith" in insurance. But most would believe that being late in paying a claim is bad faith. That does not appear to be the case.
The United States 5th Circuit made a ruling in a case in 1997, that addresses this issue. The style of the case is Higginbotham v. State Farm Mutual Automobile Insurance Company. Here are some of the background facts.
Higgnbotham's Porsche was stolen on June 8, 1993, from an unsecured parking lot next to his residence. The car was later recovered that day but it had been stripped of its top, seats, interior and exterior trim but was not damaged or destroyed with regard to mechanical connections, wiring harnesses or the engine. Higginbotham reported the theft to State Farm on June 9, 1993. State Farm denied his claim five months later on November 19, 1993.
Higginbotham sued for breach of contract, violations of the Texas DTPA, violations of the Texas Insurance Code, negligence, breach of duty of good faith and fair dealing, and violation of Section 542.051 of the Insurance Code which imposes an 18% penalty on the carrier under certain circumstances. At trial, the jury returned a verdict in favor of Higginbotham for $30,000, the amount of his coverage, but the Court directed a verdict in favor of State Farm on the bad faith and extra-contractual claims under the DTPA and Insurance Code. Higginbotham appealed.
This appeals court said the trial court's judgment in favor of State Farm on the bad faith, DTPA and Insurance Code violations are affirmed. But the trial court's judgment with regard to the Prompt Payment of Claims Act for penalty for delay in notification of denial was reversed.
In a bad faith claim, the insured must establish the absence of a reasonable basis for denying or delaying payment of the claim and that the insurer knew or should have known that there was no reasonable basis. A bona fide controversy is sufficient reason for failure of an insurer to make prompt payment of a loss claim. In this case, State Farm's investigation found a number of suspicious circumstances. Higginbotham was associated with Tommy Vander, the owner of Luxury Auto Unlimited. Vander had pled guilty in 1991 to felony theft of a stolen Porsche. Higginbotham began parking the Porsche in the unsecured parking lot two weeks before it was stolen. His girlfriend allegedly reported it stolen to the apartment complex four days before the alleged theft. Higginbotham's Porsche was recovered 25 miles from his residence but only 1.6 miles from Vander's shop. The car was stripped in a manner so as not to destroy mechanical connections, wiring harnesses or the engine. Based on these facts, State Farm had a reasonable basis to dispute the validity of the claim and, as a matter of law, State Farm did not act in bad faith.
Extra-contractual claims under the DTPA and the Insurance Code require the same predicate for recovery of bad faith causes of action. An insurer will not be faced with a tort suit for challenging a claim if there was any reasonable basis for denial of that coverage. The Prompt Payment of Claims Act provides that if an insurer delays payment of a claim for more than sixty days, the insurer shall pay, among other damages, 18% per annum as a penalty. In this case, State Farm delayed rejection of the claim for five months. An insurance company's good faith assertion of a defense does not relieve the insurer of liability for penalties for tardy payment as long as the insurer is finally judged liable. In this case, State Farm was judged liable on the coverage claim. State Farm did not notify Higginbotham of its rejection for five months. Therefore, it must pay the 18% penalty.
The Prompt Payment of Claims Act has to be read carefully to understand when it has been violated. The time period for acceptance or rejection of the claim varies depending on the type of insurance company involved in the claim and on the type of claim being asserted. An experienced Insurance Law Attorney can apply the particular facts of a case to the statute and advise accordingly.

Insureds in Grand Prairie, Fort Worth, Hurst, Euless, Bedford, Grapevine, Saginaw, Rhome, Lake Worth, Burleson, and other places in Texas have very little knowledge of the remedies available to them when their insurance company refuses to defend them in a law suit. One of those remedies might surprise them.
This surprise can be found in a case styled, Luxury Living, Inc. v. Mid-Continent Casualty Company. This is a 2003, case heard by a Federal Court in the Southern District of Texas. Here are some of the facts:
Luxury Living, Inc., a home builder. was sued by a homeowner alleging defects in construction that resulted in physical injury to the home. Mid-Continent refused to defend Luxury Living on the ground that the claim asserted by the third-party homeowner was not covered by the insured's commercial liability policy. The insured, Luxury Living, filed this action seeking declaratory judgment that the insurer, Mid-Continent, has a duty to defend the insured and for damages, including reimbursement of the insured's defense costs to date, 18% statutory penalty on those costs for wrongful denial of the claim, and attorney fees to date. The insurer responded that because the homeowner's claims were not covered by the policy, the duty to defend was not triggered. Additionally, the insurer asserted policy exclusions that preclude coverage for damages arising out of installation of the Exterior Insulation Finish System ("EIFS"). Finally, the insurer argued that statutory penalties do not apply to third-party claims. Both sides moved for summary judgment.
In it's holding, the district court granted the insured's motion for summary judgment, held that the insured was entitled to reimbursement of its defense costs and attorney fees incurred to date, and awarded the 18% penalty on all defense costs. Applying the "eight corners" rule, the court found that the commercial general liability insurer had a duty to defend a homeowner for claims arising from negligent work which constituted an "occurrence" under the policy, absent an exclusion. The court also found that the EIFS allegations did not implicate the "damage to property" and "damage to work" exclusions in the policy and, therefore, the duty to defend applied. Finally, the court rejected the insurer's argument that statutory penalties provided for late payment of claims under Texas Insurance Code, Section 542.060 do not apply in this instance as involving a third-party claim. The court noted that although the statute does not define "first party," a claim is defined as "a first party claim made by an insured or a policyholder under an insurance policy ... that must be paid by the insurer directly to the insured or beneficiary." Thus, the court found that an insured's claim for reimbursement of defense costs from its liability insurer constitutes a "first party" claim and held that the statutory penalty applied to attorney fees as part of the defense costs incurred to date.
This case might also be confusing. It's value is in understanding a way that the insurance laws of the State of Texas can go a long ways to helping an insured in Texas when the insurance company refuses to assist in a claim. This case is a little more nuanced in the way an attorney can help an insured get what they bargained for in the insurance contract, plus a penalty on the insurer for playing games instead of stepping up and doing what they should have done in the first place. Hopefully, an experienced Insurance Law Attorney is aware of this case and how it can help clients who find themselves in this or a similar situation.

When does someone in Grand Prairie, Fort Worth, Burleson, Crowley, Lake Worth, Benbrook, Alvarado, Keene, Joshua, or anywhere else in Texas, know that the insurance company is taking too long to pay the claim?
There is no easy answer to the question. The laws related to the time frame for payment of claims are found in the Texas Prompt Payment of Claims Act. A reading of these laws is confusing. Even an experienced Insurance Law Attorney will have to read the law, look at the facts in the case then reread the law and see how it applies to the facts of the case. A big part of this law is the penalty the insurance company is subject to having to pay for violations of the law. So how is this penalty calculated?
The Fort Worth Court of Appeals decided a case in 2008, that provides some guidance. The case is styled, GuideOne Lloyd's Insurance Company v. First Baptist Church of Bedford. Here are some relevant background facts:
First Baptist Church brought suit against GuideOne for hail damage to the roof of its church building. GuideOne's engineer concluded the roof had to be replaced and could not be repaired. GuideOne solicited an estimate to repair the roof anyway, and the church obtained an estimate for the replacement cost, including a statutorily required insulation upgrade. The jury awarded the church approximately $286,000 for the covered losses, $60,000 in damages on the church's Insurance Code violations, and $30,000 in compensatory and $55,000 in exemplary damages for a knowing violation, along with $100,000 in attorneys' fees, and $188,000 based on the 18% interest penalty under the Prompt Payment of Claims Act for untimely payment of claims. The jury found that GuideOne had made an unconditional tender of $155,000 to the church after the church filed suit. GuideOne argued that the trial court erred in disregarding the jury's finding regarding its unconditional offer and that the interest penalty should have been calculated without subtracting the $155,000 that the jury found it had unconditionally offered after the suit was filed. GuideOne also challenged certain questions on the jury charge as erroneous.
In making its ruling, this court said the trial court erred in disregarding the jury's finding that GuideOne had unconditionally offered $155,000 to settle the claim because there was some evidence to support the jury's finding. In applying the offer to arrive at a new interest calculation, the court applied the $155,000 tender first to the accrued prejudgment interest on the amount of the coverage with the balance applied the principle coverage amount owed, and then use the adjusted principle to calculate the 18% interest penalty for untimely payment. The court rejected GuideOne's argument that the plaintiff had not received a finding on the accrual date for its Prompt Payment claim because the accrual date was undisputed and need not be submitted to the jury.
With regard to the jury charge issues, the court found that submission of multiple alternative definitions of an "unfair or deceptive act or practice" was harmless even if erroneous, and that a question on "false, misleading or deceptive" acts was not duplicative of the question about "unfair or deceptive acts or practices." Other challenges to the jury's finding were not erroneous because the judgment was not based on the challenged findings and otherwise, GuideOne waived its challenges to the jury charges.

People in Grand Prairie, Arlington, Fort Worth, Dallas, Colleyville, Lake Worth, Keller, Roanoke, Saginaw, North Richland Hills, and other places in Texas will get very frustrated when their insurance company delays in paying a claim. Here is some general information about this happening.
Most insurance companies will pass off claims delays as fluke occurrences. What is important to realize is that these actions, or lack thereof, are actually routine and intentional conduct. A lot of this is the result of the McKinsey system, set up by McKinsey & Company. This system for "lowballing" claims payments is driven by the claims performance management and pay systems from the top to the bottom of the organization.
A Rutgers law professor who has studied this, has suggested that the deck is stacked against individuals who make claims. He says, "You have an accident or a fire in your house. You call up the insurance company. You describe the circumstances. Maybe they send an adjuster out, and they say it's not covered, or it's covered but here's the dollar amount that we're obligated to pay you ." Most people do not have the expertise "to know whether or not that's right."
Most insurance company representatives will not comment on specific cases because of privacy requirements, but consider their claims processes both legal and effective. They will say, "Our customers and claimants receive prompt and courteous claim service and our goal is to settle each claim fairly and efficiently." All insurance companies claim practices are available to and regularly reviewed by state departments of insurance. In Texas that agency is the Texas Department of Insurance.
Insurance experts argue that insurance regulation has become little more than a fig leaf. This is because state insurance departments are usually understaffed and overwhelmed. And even if the departments had the legal firepower to contend with the insurance giants, the regulators are closer to the industry than to consumers. Proof of this is that eleven of the past 15 presidents of the National Association of Insurance Commissioners (NAIC) went to work for the insurance industry after leaving office. A study in Georgia found that around half of state-level insurance commissioners did so as well. Studies from other states would be interesting.
Penalties for violations of state regulations are "laughably low" in many states. It usually takes an experienced Insurance Law Attorney to help individual claimants for the illegal acts of the insurance companies. Also, it is important to realize that insurance taxes are a major source of revenue for states, and insurance oversight commissions are usually more concerned with keeping companies solvent than in resolving the problems of policyholders.
With the exception of the federal Affordable Care Act, insurance is regulated on a state-by-state basis. Although most states set a specific timeline for how quickly an insurance company must initially respond to claims, there is much more leeway when it comes to settling those claims. These rules will vary state by state. In Texas, the rules regulating these timelines are found in the Texas Insurance Code, Prompt Payment of Claims Act. According to NAIC, claim delays have long been the most frequent cause of policyholder complaints. As of November 28, 2011, the NAIC had received 11,053 delay-related complaints this year alone, comprising almost a quarter of the year's total complaints. These data only reflect confirmed complaints -- the ones that the state insurance commission has investigated -- so the actual number of delayed claims is likely much higher.

When someone in Grand Prairie, Hurst, Euless, Bedford, Fort Worth, Dallas, Irving, Carrolton, or anywhere else in Texas makes a claim with their insurance company, they expect the claim to be paid promptly.
Here is something to get you upset.
According to an unpublished Harris Interactive Poll conducted in September, 16 percent of surveyed adults have experienced financial hardship while waiting for an insurance claim to be settled or know someone who has. The same poll found that 59 percent of adults believe that most insurers intentionally delay claims -- and those with an income of $35,000 or less were more likely to agree.
With 15.3 percent of Americans -- about 46.2 million people -- living in poverty, close to 10 percent unemployment, and roughly 2 million people who've been looking for work for more than two years, Allstate's business model is profiting off many consumers at their most vulnerable. A claim delayed by even a month can spell financial disaster for a family. As a National Bureau of Economic Research study found, about 25 percent of Americans could not come up with $2,000 in a 30 - day period.
One Allstate customer, Burdett, a retiree, reported her experience on the website AllstateInsuranceSucks.com. When her Georgia home burned in November 2010, she was in Ohio, where she lives most of the year. She said the fire marshal in Georgia told her that her house would have to be torn down.
The next day her Allstate adjuster, told her the house could be repaired. Allstate also said it would have to do a thorough investigation to determine if the fire was caused by arson. If it was arson, the adjuster told her, Allstate would not pay for any damages. According to former employees, such investigations are a common practice at Allstate and are encouraged by supervisors as a way to avoid paying claims quickly.
Burdette, who lives on her Social Security checks, flew from Ohio to survey the damage herself. While in Georgia, she contacted public adjuster Anita Taff. Public adjusters serve as advocates for individuals who feel they need another set of eyes on a claim. Taff met with Burdette at the house, Burdett said, and discussed the damage with the contractor Burdett had hired. Upon returning to Ohio, Burdett spoke with Taff over the phone to find out what her impression was. Burdette said Taff warned her that the contractor might go along with Allstate's insistence that the house could be repaired.
Taff stated that she believed, delaying claims is an effort to put the squeeze on policyholders. She explained that while a claim is being held up, the insurance company may stop paying the policyholder's additional living expenses, forcing the policyholder to cover mortgage and rent entirely out of pocket. Taff said, "That is something that many people cannot afford to do, so they're forced to take a lower settlement,"
Burdette said she immediately called the contractor and told him not to go near her house. According to Burdette, she received a phone call within 10 minutes from her Allstate adjuster asking her not to hire Taff or any other public adjuster. "He said, 'If you hire a public adjuster, I'm going to deny and delay this claim for as long as possible.'" Taken aback, she then asked if it wasn't in his best interest to settle the claim. "Not really," was the reply according to Burdette.
Although the Allstate adjuster eventually agreed to work with Taff on Burdette's claim, her troubles did not end. The contractor who had been banned from her property nevertheless worked on the house and billed Allstate for $22,000. Burdette had explicitly told Allstate not to pay the contractor a dime, she said, but the company paid him under her policy anyway.
Now, more than a year later, Burdette's home is still being repaired and Allstate refuses to reimburse the $22,000. She consulted four different lawyers to see if she had a legal case. While she said they all agreed that she was entitled to reimbursement, she said they also agreed that she lacked the funds to fight the insurance giant. "They told me, 'You'll run out of money.'"
For Texans, an experienced Insurance Law Attorney can help by using the Texas Insurance Code and the Prompt Payment of Claims Act.

People in Weatherford, Mineral Wells, Palo Pinto, Aledo, Azle, Hudson Oaks, Willow Park, Brock, Cool, Millsap, Peaster, and other places in Parker and Palo Pinto Counties may wonder how long an insurance company can take to pay a claim.
The answer is found in the Texas Insurance Code, Sections 542.051 thru 542.061. These sections are also known as the Prompt Payment of Claims law.
A careful reading of these sections will see that the time frame for paying an insurance claim depends on many factors. Some of those factors are (1) what type of insurance company is involved, (2) what type of claim is being made, (3) what is involved in the investigation, (4) how much has the claimant cooperated in the investigation of the claim, and variations of the preceding.
A short answer to the above question is found in Section 542.057. This section says that the claim should be paid "not later than the fifth business day after the date notice is made." (notice of the insurance companies decision to pay the claim). Regarding this, the Houston Court of Appeals, Fourteenth District, issued an opinion in 1998, that discusses this in an unusual context. The style of the case is, John A. Daugherty, Jr. v. American Motorists Insurance Company.
Here is some background.
Daugherty had his 1994 BMW stolen on February 25, 1994. He submitted a claim for $68,895.42. After adjusting the claim, an adjuster called Daugherty's bookkeeper on March 16, 1994, and made an offer of $62,431.14. The following day, police recovered the BMW. At about 2PM on March 17, 1994, the adjuster called the bookkeeper and rescinded the offer. Daugherty did not learn of the offer until after it had been withdrawn.
Based on the damages to the recovered BMW, American tendered a check to Daugherty for $1,901.50 on April 7, 1994.
Daugherty refused the payment and filed a lawsuit against American claiming that American violated the Prompt Payment of Claims Act by not paying the $62,431.14 within five business days after making the offer.Daugherty's contention at trial was that American effectively notified him it would pay his claim when, on March 16, 1994, it informed his bookkeeper it had determined the value of the stolen BMW. Daugherty argued that American was bound by the terms of the contract, which tracked the language of the statute, to pay him within five days after notification. American Motorists, on the other hand, contended that the communication of March 16 was merely an "offer" to pay $62,431.14. Because the offer was rescinded before it could be accepted, American Motorists claimed it was not obligated to pay.
In discussing this case the court noted there was a discrepancy of almost $6,000.00 between Daugherty's and American Motorists' estimation of the loss, the call of March 16, was an offer, not a notification that American Motorists was going to pay the claim. The court stated, "Were we to hold that an oral offer constitutes notice of payment, negotiations between an insurer and its insured would be severely hampered."
The final paragraph of the opinion says:
"Finally, even if we were to find that the communication of March 16, 1994, was a 'notice of payment of claim,' such notice was grounded upon the fact that Daugherty's car had not been recovered. We find nothing in the Insurance Code or the policy at issue which prevents the insurer from withdrawing its notice of payment if the facts and circumstances known to the insurer change significantly after the notice is given but before the claim is paid. Here, the change of circumstances, i.e., the recovery of Daugherty's automobile, favored the insurance company because the loss was not as great as had been previously calculated. However, it is just as conceivable that changing circumstances may favor the insured, i.e., the damage to the property is found to be more severe than previously believed. The purpose of the statutory deadline contained in ... is to guarantee the prompt payment of claims made pursuant to policies of insurance; not to create a statutory windfall for one party or the other. ... Here, there is no evidence that American Motorists unreasonably sought to delay or postpone its obligation to pay Daugherty's claim."

Anyone in Grand Prairie, Arlington, Mansfield, Cedar Hill, Duncanville, De Soto, Irving, Fort Worth, or anywhere else in Texas would naturally wonder when a claim they submit is suppose to be paid. The lawyerly answer is: It depends. One answer in one situation is shown here.
In 2002, the San Antonio Court of Appeals issued an opinion in a case that dealt with when a claim for underinsured motorist (UIM) benefits should be paid. The style of the case is Lawrence F. Wellisch, III and Maria L Wellisch v. United Services Automobile Association. The case came to the appeals court on an appeal on a motion for summary judgement in favor of United Services Automobile Association (USAA).
Here is some background.
Judith Salinas was driving her car at about 88 miles per hour when she lost control of the vehicle. It rolled over, killing Salinas and her son and severely injuring other passengers, including 15 year old Jessica Wellisch. Jessica was in a coma for five days before dying. The Wellisch's sued Salinas estate, and, with USAA's permission, settled. The Wellisches then sought to recover under their USAA UIM coverage. On November 25, 1998, USAA denied the claim, and the Wellischs sued on the insurance contract and for extra-contractual claims.
A trial was held wherein the Wellishes prevailed on their contract claim. On May 2, 2000, the judgment was entered and on the same day, USAA paid the Wellisches their policy limits of $300,000.
The Wellischs then proceeded on their extra-contractual claims against USAA. The part of this that is relevant to this writing is the claim for delay in paying the claim from November 25, 1998, to May 2, 2000. USAA filed a motion for summary judgement asking the court to rule that there was no liability and the court granted that motion. This appeal ensued.
The Wellisches asserted that USAA's denial of their claim on November 25, 1998, was a violation of the Texas Insurance Code, Prompt Payment of Claims Act, and thus they were entitled to Section 542.060 penalties. USAA countered, arguing that the money was not due until judgment was rendered on May 2, 2000, and since they paid on that same day, they had no liability under Section 542.060.
The USAA policy provided that USAA would "pay all damages which a covered person is legally entitled to recover ...."
In discussing this case the court looked at how other courts have ruled and stated, "Various courts have construed the phrase 'legally entitled to recover' in similar UIM policies to mean that the insured must establish the uninsured motorist's fault and the extent of the resulting damages before becoming entitled to recover UIM benefits." They went on to say that those other courts make clear that an insurer is not obligated to pay UIM benefits until the insured becomes legally entitled to those benefits. Thus, an insurer has the right to withhold payment of UIM benefits until the insured's legal entitlement is established.
In looking at the statute, they said that the plain objective of the statute is to obtain prompt payment of claims, and as a court, they must liberally construe the statute to promote its underlying purposes. Failure to comply with the statute is what would result in penalties for failure to comply with the statute.
However, as the court stated, "Nothing in (the prompt payment of claims act) suggests that an insurance company cannot dispute and deny a claim. In fact, the statute is premised on the presumption that carriers have the right to dispute claims. It merely requires that they do so promptly. Further, nothing in (the act) precludes an insurer from awaiting a judicial determination of an insured's 'legal entitlement' to UIM benefits. It merely requires that the insurer notify the insured of its reasons for delaying the acceptance or rejection of a claim."
An experienced Insurance Law Attorney can read Section 542.055, 542.056, and 542.057 and advise a client how best to proceed. These situations can be very fact specific. When dealing with UIM cases, too many times a person has to wait until there has been a judicial determination of fault and damages. Most other cases do not require this wait.

Someone in Grand Prairie, Arlington, Fort Worth, Dalworthington Gardens, Mansfield, Crowley, Rendon, or anywhere else in Tarrant County or Texas may wonder how long an insurance company has to pay a claim. The answer is, it depends.
In 2001, the Texas Supreme Court issued an opinion in the case, Allstate Insurance Company v. Rhonda Bonner. This case dealt with the time frame in which an insurance company must respond to a claim benefit request and the punishment for the insurance company when the time frame is violated.
The Texas Insurance Code has a chapter that deals with the payment of claims and is known as the "Prompt Payment of Claims" statutes. They are sections 542.051 thru 542.061.
Here is some information on the case.
Rhonda Bonner was injured under an Allstate personal automobile policy when she was injured in an accident caused by an uninsured motorist in October 1997. Bonner submitted notice for personal injury protection(PIP) benefits along with a bill for $1,802. Allstate acknowledged and paid the claim. Bonner then submitted a claim for uninsured motorist (UM) benefits under the same policy on December 11, 1997. Allstate received the demand letter on December 15, 1997, but did not acknowledge receipt of the letter until January 16, 1998. Section 542.055 says an insurer must acknowledge receipt of a claim, "Not later than the 15th day ... after the date an insurer receives notice of a claim, ...."
Allstate eventually denied Bonner's UM claim. Bonner sued Allstate to recover the UM benefits. Bonner alleged injuries and alleged Allstate violated the Prompt Payment of Claims statutes. Bonner sought recovery of her damages, attorney's fees, and costs.
At trial, the jury compensated Bonner only $1,000 for her medical care and nothing for her physical pain and suffering and impairment claims and awarding her $7,500 for attorney's fees. Because Bonner's policy contained a nonduplication-of-benefits provision, and because the PIP payment exceeded the $1,000 UM damage award, the trial court rendered judgment that Bonner take nothing. The trial court refused to award Bonner attorney's fees and taxed cost of court against her.
In analyzing this case the court reviewed the statute. Section 542.060 is titled, "Liability for Violation of Subchapter." Part (a) states, "If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, ... the insurer is liable to pay the holder of the policy, ... in addition to the amount of the claim, ... reasonable attorney's fees." In reviewing this statute and reviewing other cases dealing with this subject, the court said that since Allstate was not liable under the policy in that they had already paid enough per the jury verdict, there was no penalty to be awarded.
In conclusion, the court stated, "Although Allstate failed to acknowledge Bonner's claim within fifteen days, Bonner has not presented a claim under her insurance policy for which Allstate is liable. As a consequence, Bonner cannot recover attorney's fees under Insurance Code (Section 542.060)."
A reading of the Prompt Payment of Claims statutes has to be very careful. Violations turn on, (1) the type of insurance company, (2) the type of claim, (3) the liability under the claim, (4) the information required to investigate the claim, and other conditions that have to be looked at carefully to be able to decide if an actual violation has occurred. An experienced Insurance Law Attorney is needed to look at the facts of each case and evaluate those facts against the backdrop of these statutes in order to determine if there has been a violation.

People in Weatherford, Mineral Wells, Aledo, Azle, Springtown, Willow Park, Brock, Hudson Oaks, Millsap, Cool, Peaster, Palo Pinto, and other places in Parker and Palo Pinto Counties may wonder: How long does the insurance company have to pay the claim?
The "Prompt Payment of Claims statute" is found in the Texas Insurance Code, Sections 542.051 thru 542.061.
The "Prompt Payment of Claims statute" imposes certain 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's fees and an additional 18% per annum in addition to the amount of the claim.
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:
(1) the insured had a claim under an insurance policy;
(2) the insurer is liable for the claim; and
(3) the insurer has failed to comply with a requirement of the Act.
This was made clear in a 2001, Texas Supreme Court case styled, Allstate Insurance Company v. Bonner.
In the Bonner case, the Court considered whether an insurance company that did not comply with the claim acknowledgment deadline could be held liable under the statute even though the insurance company ultimately did not owe the claim. In that case, that 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's fees under the statute. The Court rejected this argument and held that for an insurance company to be liable under the Prompt Payment of Claims statutes, a party must establish the three elements listed above.
The Bonner case decision raises questions whether an insurance company can always disprove a claim thereby avoid liability for violating the statute, or whether the court's holding is limited to the circumstance presented in that case.
The statute's purpose is "to promote the prompt payment of insurance claims pursuant to policies of insurance." This per Section 542.054.
This statute, which was revised in 2005, 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.
An experienced Insurance Law Attorney is going to be needed to know whether or not the insurance company had violated the statute . The rule varies based on the type of claim and what the insurance company needs from the insured to properly investigate the claim. Many adjusters violate the provisions of this statute. These adjusters rely on the lack of knowledge most people have regarding the proper way for these claims to be handled.

An insured in Weatherford, Mineral Wells, Aledo, Hudson Oaks, Willow Park, Peaster, Azle, Springtown, Millsap, Brock, Cool, Poolville, or anywhere else in Parker County would expect any claim they make to be paid in a timely manner. So what happens if it is not paid in time?
A 1995, Amarillo Court of Appeals case styled, Doris Rusk, Roger Lusk, and Russell D. Daves v. Honorable Cecil G. Puryear, addressed this issue.
Keep in mind that first, an experienced Insurance Law Attorney should be consulted to help in these situations. Next, here is what happened in this case.
This case is a writ of mandamus, seeking to compel Judge Puryear, to vacate his order of severance and abatement. This severance and abatement caused the contract claim for benefits to be separated from the extra-contractual claim due to late payment. The writ was filed by the insurance company in this case, Mid-Century Insurance Company of Texas.
Factually, the Lusks were insured under a policy of insurance issued by Mid-Century, a provision of which contained personal injury protection (PIP) in the amount of $2,500 per person. Doris sustained injuries in an automobile accident and, resultingly, incurred medical expenses through assorted health care providers. Thereafter, she made a claim for PIP benefits, and assigned her right to receive the benefits to health care providers who had treated her. Mid-Century received notice of Doris intention to revoke the assignments. To prevent being subject to adverse and conflicting claims, Mid-Century interpleaded the PIP money into the registry of the court.
The Lusk's and Daves (their attorney) sued Mid-Century for breach of contract and for violations of the Prompt Payment of Claims Act of the Texas Insurance Code.
In reviewing this case, this appeals court cited Texas Rule of Civil Procedure, Rule 41, which grants a trial court broad discretion to order or not order separate trials when judicial convenience is served and prejudice avoided. But as stated by the Texas Supreme Court, the rule does not contemplate the severance of one cause of action into two or more parts. The Texas Supreme Court said, "A claim is properly severable if (1) the controversy involves more than one cause of action, (2) the severed claim is one that would be the proper subject of a lawsuit if independently asserted, and (3) the severed claim is not so interwoven with the remaining action that they involve the same facts and issues." But when all the facts and circumstances of the case unquestionably require claims to be tried together, there is no fact or circumstance supporting or tending to support a contrary conclusion, and the legal rights of the parties will not be prejudiced thereby, there is no room for the exercise of discretion and the trial court has a duty to deny a motion to sever.
This court reversed the trial court and ordered that the contractual claim and the extra-contractual claim be tried together.
In justifying its ruling this court pointed out that the Lusks claim was for breach of contract for not paying their claim within 30 days of its being presented. This failure to pay within 30 days was a breach of their insurance contract and a violation of the Prompt Payment of Claims Act thereby entitling her to "the additional sum of 12% of the amount due" and reasonable attorney's fees.
Mid-Century argued that until they were found to have violated the insurance contract, that it was not proper, in the same proceeding, to be claiming the penalties because the penalties are the result of statute, not the insurance contract.
In making its ruling the court stated, "Although the damages and attorney's fees provided by the [Prompt Payment of Claims Act] do not arise from the insurance contract, they are recoverable for the insurer's failure to timely pay any loss for which it may be liable under the contract. Thus, when ... Lusk alleged Mid-Century failed to timely pay her claim and pleaded for damages and attorney's fees provided by [Prompt Payment of Claims Act], the entire liability of Mid-Century, both on the insurance policy and under [Prompt Payment of Claims Act], was put in issue as one cause of action."
This can be a bit confusing, especially considering other court rulings in these types of cases. What is relevant is realizing that there are various ways of enforcing a person's rights under a policy of insurance.

A resident in Grand Prairie, Weatherford, Arlington, Fort Worth, Dallas, Mineral Wells, Mansfield, Crowley, Benbrook, Aledo, or anywhere else in Texas may wonder how long an insurance company has to pay a claim after the claim is made. The answer is not always easy. Worse though, is how to bring a lawsuit to enforce this statutory right against a company who violates the law.
The Prompt Payment of Claims Act is in the Texas Insurance Code, Sections 542.051 thru 542.061. These sections set out in pretty good detail how long an insurance company has to pay a claim. The length of time varies with the circumstances and facts of each claim and the needs of any investigation. Plus the type of insurance company makes a difference in how long the company has to pay the claim.
But stepping beyond how long a company has to pay a claim is, how does someone enforce their rights to timely payment. An experienced Insurance Law Attorney needs to be consulted to get a good answer.
The Court of Appeals, Dallas issued an opinion in the case styled, In Re Loya Insurance Company, wherein the proper way for enforcing the Prompt Payment of Claims Act was at issue. The opinion was issued on August 11, 2011.Here is some background.
In this insurance coverage dispute, Loya Insurance Company sought mandamus relief from the trial court's order partially severing the homeowners breach of insurance contract claim from the extra-contractual claims, but refusing to sever the prompt payment claim. Loya had offered to pay some of the claim.
Fabian and Marth Jagrup sued Loya for breach of their homeowner's insurance policy, violations of the Texas Insurance Code and its chapter 542 prompt payment provisions, violations of the common-law duty of good faith and fair dealing, and fraud.
In discussing this case, the court pointed out that Texas insurance law requires the courts to look at the severance and abatement of a breach of contract claim from extra-contractual claims in the insurance context, in an abuse of discretion standard. Courts have stated that "When an insurer offers to settle a breach of contract claim, the trial court must sever the insured's extra-contractual claims from the contractual claims to avoid prejudice to the insurer in its defense of the coverage dispute." This is because, ordinarily, an offer to settle a coverage dispute is inadmissible to prove the merit of a coverage claim, but such evidence nevertheless may be admissible on the extra-contractual claims to rebut evidence that the insurer acted in bad faith. Under such circumstances, the trial court can reach only one decision that will protect all interests involved, and that is to order severance of the two types of claims.
Loya asserted that the trial court's order severing only some of the Jagrups' extra-contractual claims while maintaining their prompt payment claim in the lawsuit with their coverage claim is contrary to the principles of law set forth. Loya observed that the Jagrups could seek to admit Loya's settlement offer as evidence of Loya's belated attempts to resolve the disputed insurance claim to support Loya's prompt payment liability, but the admission of such evidence would undermine Loya's coverage defense of the underlying insurance claim.
This Court of Appeals held that the trial court abused its discretion by not severing and abating the prompt payment claim from the contract claim.
All this can be confusing to someone who does not have a fair understanding of insurance law. What is important to know is that there are legal ways for punishing the insurance company for its violation of the Prompt Payment of Claims Act. Some of these ways are pretty straight forward and others, like this one, are not so easy, and end up requiring a lot of time and work. The good thing is that Section 542.060 says, ... the insurer is liable to pay the holder of the policy or beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney's fees.

Someone in Grand Prairie, Arlington, Hurst, Euless, Bedford, Grapevine, Keller, Saginaw, Roanoke, Fort Worth, or anywhere else in Tarrant County might ask, "Why do I have to submit to an examination under oath?" Here is a case that might shed some light to that question.
The case is styled, Shannon Trahan and Joleen Trahan Woods v. Fire Insurance Exchange and Texas Farmers Insurance. The opinion in this case was issued in 2005, by the Beaumont Court of Appeals. This case is an appeal from a summary judgment rendered in favor of Fire Insurance Exchange (FIE) and Texas Farmers Insurance (TFI). This court upheld the summary judgment.
As some background, on December 31, 2000, the Trahan's home and automobile were destroyed in a fire. The Trahans filed a fire loss claim. On February 8, 2001, they signed a Proof of Loss form. On February 14, 2001, FIE requested the Trahans submit to examinations under oath (EUOs). Finally, on August 29, 2001, the Trahans submitted to the EUOs, and they were signed and sworn to on September 20, 2001. On October 8, 2001, FIE accepted the Trahans fire loss claim and issued checks.
The Trahans sued for various violations of the Texas Insurance Code alleging they were wrongly subjected to the EUO since there was no evidence they had committed an arson. In examining this case, the court reviewed the policy which read:
Agreement
We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy.
SECTION I -- CONDITIONS
3. Duties After Loss.
a. Your Duties After Loss. In case of a loss to covered property caused by a peril insured against, you must:
(5) as often as we reasonably require:
(b) provide us with pertinent records and documents we request and permit us to make copies.
(c) submit to examination under oath and sign and swear to it.
The policy language after the above stated the responsibilities of the insurance company and their time for payment.
The Trahans asserted that FIE was delaying payment based on suspicion of arson. Since there was not any proof of arson, the Trahans asserted the EUO's were not necessary or justified.
The law in this area is clear. The conditions under which an insurance company may conduct an EUO are governed by the insurance contract. As the Texas Supreme Court has stated, "For an event to constitute a 'condition precedent' under a contract, the contract must provide that the event 'must happen or be performed before a right can accrue to enforce an obligation.'"
In discussion the court pointed out that the policy imposed on the Trahans a duty to "submit to an examination under oath and sign and swear to it" upon request. Insurance policy provisions requiring an insured to submit to an EUO as a condition precedent are valid. Thus, FIE's request that the Trahans submit to EUOs invoked the conditions of the policy and were a valid request.
The demand by an insurance company for an insured to submit to an EUO is a red flag that should cause an insured to immediately seek the advice of an experienced Insurance Law Attorney. This is not something that is normally called for on all cases and when they are asking for an EUO it is normally the first step towards denying the claim. In the case written about here, the insurance company paid the claim after the EUO, but this is not the norm.
There are lots of things someone can say without realizing that they are hurting their case. Most people thing they can "just be honest" and everything will be okay. That sounds good but unfortunately is not always the case. Plus, even though the insurance company has a right to ask for the EUO, that does not mean they can ask anything they want to ask. This of course is where an attorney comes in to help.

Anyone in Grand Prairie, Weatherford, Fort Worth, Dallas, Arlington, Aledo, or anywhere else in Texas may ask the question which is the title of this post. The answer is not as easy as one would hope it to be.
The Texas Insurance Code has a subchapter titled "Prompt Payment of Claims." This subchapter consists of eleven sections. To answer the question of how long an insurance company has to pay a claim, the section has to be read with the applicable policy and then apply both to the facts of the case.
A 1998, Fourteenth District Court of Appeals case styled, John A Daugherty, Jr. v. American Motorists Insurance Company, deals with the question. The case was decided by the trial judge in favor of the insurance company and then the decision was upheld by this appeals court. Here is the story.
Daugherty purchased a 1994 BMW 740IL on January 12, 1994. The price, including taxes and fees totaled $64,678.97. The car was stolen on February 15, 1994. Daugherty promptly reported the theft to American Motorists. On February 25, 1994, he submitted an affidavit of vehicle theft to American in which he claimed a loss of $68,895.42.
After an investigation, the adjuster called Daugherty's bookkeeper on March 16, 1994, and informed her that American had determined the cash value of the stolen vehicle to be $62,931.14, less a $500 deductible. Daugherty was out of town and was not communicated the offer. The next day, the BMW was recovered in Florida and the adjuster called the bookkeeper and rescinded the offer. Daugherty did not learn of the offer until after it had been withdrawn.
The recovered BMW was returned to Houston on April 4, 1994. An inspection found several problems which were estimated to be worth $1,901.50, and tendered this amount to Daugherty.
Daugherty refused the payment. He then bought another BMW that was identical to the stolen one for $62,355.34. He took delivery on May 30 and continued to make payments on both vehicles all the way to time of trial.
Daugherty filed a lawsuit seeking the $62, 431.14, initially offered by American, as well as additional damages for violations of the Prompt Payment of Claims chapter of the Texas Insurance Code.
Daugherty's contention was that American effectively notified him it would pay his claim when, on March 16, 1994, it informed his bookkeeper it had determined the value of his stolen BMW. He further argued American was bound by the terms of the auto policy to pay him within 5 days after notification. American contended the communication of March 16 was merely an "offer" to pay. Because the offer was rescinded before it could be accepted, American claims it was not obligated to pay the sum.
The policy contained an amendatory endorsement which provided, in pertinent part:
1) If we notify you that we will pay your claim, or part of your claim, we must pay within 5 "business days" after we notify you.
2) If payment of your claim or part of your claim requires the performance of an act by you, we must pay with 5 "business days" after the date you perform the act.
The policy amendment tracks, and effectively incorporates, the mandatory provisions of the Insurance Code, Section 542.057.
Both the policy and the Insurance Code, Section 542.055, provide that within 15 days after a claim has been filed, the insurer is obliged to begin an investigation of the claim and to request all items, statements, and forms the insurer reasonably believes will be required from the insured.
In this case, American, within 15 business days of receiving all the necessary information and forms from Daugherty, to accept or reject his claim in writing, told Daugherty's bookkeeper it had calculated the losses. The court said that, "Whatever can be said of this communication, it does not appear to be a 'notice of payment of claim.'"
First, both the policy and the Insurance Code indicate that a "notice of payment of claim" must be in writing. The policy states:
After we receive the information we request, we must notify you in writing whether the claim will be paid or has been denied ...
If we notify you that we will pay your claim, or part of your claim, we must pay within 5 "business days" after we notify you.
Since there was a discrepancy between what Daugherty was seeking and what American estimated, the call from the adjustor to Daugherty's bookkeeper appeared to be more in the nature of an offer than a notification that American was going to pay the claim.
In conclusion the court said, even if we were to find that the communication of March 16, 1994, was a "notice of payment of claim," such notice was grounded upon the fact that Daugherty's car had not been recovered. The court pointed out that nothing in the Insurance Code or the policy prevented American from withdrawing its notice of payment if the facts and circumstances changed significantly. In this case, the the change of circumstances, i.e., the recovery of Daugherty's BMW, favored the insurance company because the loss was not as great as had been previously calculated. However, the court stated, it is just as conceivable that changing circumstances could have favored the insured.
This writer does not agree with the conclusion reached by the court in this case. One thing that is certain is that an experienced Insurance Law Attorney should be consulted in these types of situations.

If you have insurance in Grand Prairie, Arlington, Fort Worth, Mansfield, Dallas, Irving, Mesquite, Garland, or anywhere else in Texas, you would like to think that when you make a claim against your insurance company, that they are going to pay your claim and they are going to pay it promptly. The following is a case where they, first refused to pay then later decided to pay, but by that time it was a late payment.
This is a 1996, Texarkana Court of Appeals case styled, Southland Lloyd's Insurance Co. and James D. Webb, III v. Charles W. Tomberlain, individually and d/b/a Charles Tomberlain Insurance Agency and Charles M. Tomberlain. The case is somewhat complicated and deals with other issues besides the prompt payment of the claim but the facts are kinda interesting to follow and the law regarding prompt payment is discussed enough to educate.
Southland and Webb were appealing a judgment entered in a lawsuit by Charles M. Tomberlain for delayed payment of an insurance claim. The court reversed the judgment and remanded for a new trial due to errors regarding the jury charge, exclusion of expert testimony, and the granting of a directed verdict.
Here is the background:
Charles W. Tomberlain was an independent insurance agent who owned Charles Tomberlain Insurance Agency. His son, Chuck, was an agent with the agency. Chuck also owned and managed numerous properties. In 1988, Chuck purchased a small house, on Myrle Street, in Longview, Texas, from the United States Department of Housing and Urban Development in a discount auction for $13,200. Chuck then spent about $500 - $1,000 improving the house. On september 9, 1988, Chuck executed a contract for sale of the house to Trennis Willis for $20,000, to be paid in monthly installments over ten years at twelve percent interest. Willis immediately occupied the house. Chuck, acting as agent for the agency, issued a policy on the house with Republic Insurance Company in August 1988. On August 15, 1991, the Republic insurance policy on the house expired. Chuck did not renew the policy at that time because his father's agency had stopped writing policies with Republic.
On October 11, 1991, again acting as his own agent, Chuck completed, signed, and submitted an application for a $25,000 fire insurance policy on the house with Southland. Southland thereafter approved the policy, but reduced the coverage amount to $20,000. Sometime before October 16, Willis vacated the house without notifying Chuck. Chuck immediately began cleaning and repairing the house, and arranged for a new tenant to move in December 1.
In the early morning hours of November 20, 1991, a fire started and burned substantial portions of the house's interior before being extinguished. Damage was estimated by the fire department at $20,000. A fire department investigation concluded that the fire was of suspicious origin and was started with the aid of accelerants.
Chuck telephoned Southland on November 20, the day of the fire, to notify them of the loss and on November 21, faxed them a completed claim form, along with a copy of the fire marshal's report. Over the next two months, Chuck called Southland periodically to check on the status of the claim. He was told that an investigation was being conducted. The first written response that he received in regard to his claim was a letter from Webb dated January 24, 1992. The letter stated that Southland had determined that the fire was the result of arson and that the company had requested further investigation. Chuck's attorney sent a demand letter to Southland on February 4, requesting that it pay in full.
Southland responded by way of two letters dated February 7, 1992. One letter, addressed to Charles W. Tomberlain, announced that Southland was immediately canceling its agency agreement with the Tomberlain Agency and notified the agency that Southland intended to seek damages against it for its misrepresentations on the Myrtle Street property application. The other letter was written to Chuck's attorney. In the letter, Webb stated that Southland was investigating Chuck's claim as a potential arson incident and that Southland felt it had been "duped" by misrepresentations on the insurance application. The letter demanded that Chuck produce all records and documents of any kind pertaining to the property and to his employment history with the Tomberlain Insurance Agency.
On February 7, 1992, the same date as the two letters, Chuck sued Southland and Webb. Southland ended up paying Chuck $20,900 to settle the claim, with the intention of pursuing its third-party action against the agency for indemnification. Chuck refused to drop his suit, opting instead to seek additional damages against Southland.
One cause of action that Chuck sued on was for breach of the duty of good faith and fair dealing based on Southland's delay or denial of a claim payment. For an insured to prevail, or for Chuck to prevail, he must proved two independent facts: (1) that the insurer (Southland) had no reasonable basis for denying or delaying payment of the claim, and (2) that the insurer (Southland) knew, or should have known, that it had no such basis. The is the statutory law and the standard set out by the Texas Supreme Court in a case in 1994.
One thing interesting in this case is that Southland did pay the original claim for the $20,000, but instead of Chuck taking that money and going on, he continued his claim against Southland for bad faith and the additional damages available to him including court costs, attorney fees, and exemplary damages. Many times a person gets paid the amount they should have been paid in the beginning and make a choice to drop the rest of the matter. Chuck did not.

Someone in Weatherford, Mineral Wells, Aledo, Hudson Oaks, Willow Park, Brock, Millsap, Peaster, Azle, Cool, Cresson, or anywhere else in Parker or Palo Pinto Counties might wonder - How long do I have to give an insurance to pay a claim before I can do something about it? The lawyerly answer to that is - It depends.
First, if an insurance company is being too slow in paying a claim, a person should not have any hesitation in approaching an experienced Insurance Law Attorney.
Second, there is a section of the Texas Insurance Code titled the "Prompt Payment of Claims Act" which gives guidance to the question, - When is too long - too long?
Third, there is case law that gives guidance to specific facts situations to help someone understand when a payment should be made and the rules governing different situations. One of these cases was issued by the Texas Court of Appeals, Houston, (14th District) on May 17, 2011. The style of the case is, Christus Health Gulf Coast, Christus Health Southeast Texas, Gulf Coast Division, Inc., Memorial Hermann Hospital System and Baptist Hospitals of Southeast Texas v. Aetna, Inc. and Aetna Health, Inc.
Here is some background:
The hospitals filed a lawsuit suing the above HMO's for violating the Texas Insurance Code, Prompt Pay Statute. The hospitals alleged that the HMO's failed to timely pay claims for healthcare services provided to Aetna's Medicare HMO enrollees under agreements between the hospitals and an intermediary that failed to pay the hospitals. The trial court held in favor of the insurance company and this appeals court upheld that decision saying that under the Prompt Pay Statute there must be a contract between the insurance company and the health care provider. That in the absence of a contractual relationship between any of the hospitals and Aetna, the trial court did not err by denying the hospitals' lawsuit.
In discussion of this case the court recognized the hospitals contention that Aetna's refusal to pay them for services provided to Aetna's insureds violates the Texas Prompt Pay Statute. Under the applicable version of the Texas Insurance Code's HMO Act, the Prompt Pay Statute at issue provided as follows:
(c) Not later than the 45th day after the date that the health maintenance organization receives a clean claim from a physician or provider, the health maintenance organization shall:
(1) pay the total amount of the claim in accordance with the contract between the physician or provider and the health maintenance organization;
(2) pay the portion of the claim that is not in dispute and notify the physician or provider in writing why the remaining portion of the claim will not be paid; or
(3) notify the physician or provider in writing why the claim will not be paid.
The hospitals acknowledged that they have no contracts with Aetna, but contended the Prompt Pay Statute does not require contractual privity. In making this argument the hospitals looked to only portions of the statute rather than reading the statute as a whole. The Texas Supreme Court has made it clear that statutes have to be read in their entirety in order to be given their legislative intent.
In explaining its' decision the court stated, "We conclude that subsection (n) enables a provider to bring an action for violation of the Prompt Pay Statute against a "person" with whom the provider has contracted to process claims or to obtain the provider's services for the HMO's enrollees. Effectively, article 20A.18B would be read to substitute the "person" with whom the provider contracts for "HMO," and would enable providers like the hospitals to recover under the Prompt Pay Statute when that "person" violates the statute. This conclusion is consistent with the statute's imposition of deadlines upon the "receipt" of a claim "from a physician or provider." If the provider's contract is with an intermediary (which also contracted with the HMO), it follows that this intermediary would be the "person" actually receiving the claims from the physician or provider for purposes of the Prompt Pay Statute, and therefore would be the person on whom the statute imposes liability. In this case, the hospitals' contracts were with the Management Services or NAMM, not Aetna. Accordingly, Management Services or NAMM - not Aetna - would be the proper defendant in a Prompt Pay Statute suit.
The court also pointed out that their reasoning in this case was sound because the legislature subsequently enacted an amendment to the HMO Act to provide an avenue for recovery against an HMO intermediary's violation of the Prompt Pay Statute even when the HMO is not contractually liable.
It is important to realize that in this case the patient was not receiving the payment to then reimburse the hospital for their services, rather the payments for services were suppose to be sent to an intermediary who was suppose to then pay the hospital. If the payments were coming straight to the insured who had received services, then the insured would have a claim against the insurance company if it did not promptly pay the bill.