18% Penalty – 10

Insurance lawyers need to know the time lines for an insurance company to pay claims under the Texas Prompt Payment of Claims Act and they need to know the legal reasons for those time lines being extended.

Pursuant to Texas Insurance Code, Section 542.056(d), if the insurance company cannot accept or reject the claim by the initial deadline, the statute lets the insurance company notify the claimant that it cannot accept or reject a claim by the deadline.  This notification has to be sent before the original deadline, and the notice must state the reason why the insurance company needs additional time.  The insurance company then has 45 additional days to accept or reject the claim.

Pursuant to the 1997, 5th Circuit opinion, Higginbotham v. State Farm Mutual Automobile Insurance Co., the insurer’s good faith or its lack of bad faith is no defense.  In reaching this conclusion, the court noted that precedents under the predecessor statute held that an insurance company’s good faith in denying a claim did not relieve the insurer of liability for penalties.  The court concluded that an insurer  that denies a claim takes the risk that it will have to pay the additional damages allowed by the statute.

The statute identifies one instance where the insurer may prove it does not owe the claim and thereby avoid liability under the statute for failing to comply with a deadline.

Except as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060.

Section 542.058(a) requires the insurer to pay within 60 days after receiving all items requested from the claimant.  If the insurer does not really owe the claim, and can prove it through litigation or arbitration, how can the insurer be faulted for not paying the claim after it received the necessary materials.