Delay In Paying The Claim

How long can an insurance company take to pay a claim to an insured in Dallas, Fort Worth, Arlington, Grand Prairie, Mesquite, Richardson, or anywhere else in Texas. The answer is – as long as they want – and even if they have good reason for the delay – it is going to cost them.
A 1997 case decided by the United States Court of Appeals, Fifth Circuit, is a good example of what can happen when an insurance company doesn’t pay a claim in a prompt manner. The style of the case is, John Higginbotham v. State Farm Mutual Automobile Insurance Company.
Here are some facts in the case:
John Higginbotham (JH) owned a used 1988 Porsche 911 for which he had purchased insurance from State Farm Mutual Automobile Insurance Company. The car was stolen on June 8, 1993, from an unsecured parking lot next to his residence. The Porsche was ultimately recovered later that day, but it had been severely damaged by whomever had taken the vehicle. I was discovered approximately 25 miles away from JH’s apartment complex and it was stripped of its top, seats, interior and exterior trim, and any untraceable parts of value. The stripping operation was conducted in a manner so as not to damage or destroy mechanical connections, wiring harnesses, or the engine.
JH reported the theft to State Farm on June 9, 1993, and made a claim for proceeds. Upon conclusion of its investigation, State Farm determined JH’s “loss was not accidental and therefore not a covered loss under his policy.” JH was informed of this decision on November 19, 1993, five months after his initial claim.
JH filed suit and eventually prevailed. One of his claims against State Farm was for violation of the Prompt Payment of Claims Act and imposition of an 18% penalty against State Farm for violation of the statute. State Farm appealed.
In State Farm’s appeal they argued that the delay was due to the claim being denied and it was denied in good faith based on other facts in the case. Specifically:
JH was associated with Tommy Vander, the owner of Luxury Auto Unlimited (LAU). LAU was a luxury car repair shop which specialized in Porsches and other luxury cars. JH was listed as a purchaser with buyer’s priviledges extended to LAU for car auctions. In fact, Vander and JH regularly attended automobile auctions to purchase damaged automobiles for repair and resale. Vander pled guilty in 1991 to felony theft when he was arrested for driving a stolen Porsche with a completely different vehicle identification number from a Porsche which had been completely burned.
When JH began parking the Porsche at his complex, he would normally leave the car in a parking lot surrounded by a fence and secured access gate. However, approximately two weeks before the theft, he began parking it in an unsecured lot near the complex, even though both he and his girlfriend claimed to have had prior break-ins from the unsecured lots at the apartment complex. The manager and assistant manager of JH’s complex stated that JH’s girlfriend complained that on June 4, 1993 (four days before the theft) JH’s car had been stolen and that this was justification for a late move-out notice.
JH’s Porsche was recovered 25 miles from JH’s apartment complex, but only 1.6 miles away from Vander’s shop. The car was stripped in a manner so as not to damage or destroy mechanical connections, wiring harnesses, or the engine. Pro Technik, Porsche specialists hired by State Farm to investigate JH’s claim, concluded that approximately two auto technicians with proper tools would require at least eight hours to strip the Porsche in the manner that it had been left. JH’s car was discovered approximately six hours after it had last been seen by JH.
In ruling for JH in awarding the 18% penalty against State Farm the court stated, “… an insurance company’s good faith assertion of defense does not relieve the insurer of liability for penalties for tardy payment, as long as the insurer is finally judged liable.” The court further said, “A wrongful rejection of a claim may be considered in a delay in payment for purposes of the 60-day rule and statutory damages. More specifically, if an insurer fails to pay a claim, it runs the risk of incurring this 18% statutory fee and reasonable attorney’s fees. In sum, State Farm took a risk when it chose to reject JH”s claim. State Farm lost when it was found liable for breach of contract. Therefore, it must pay this 18% per annum interest and reasonable attorney’s fees.”