How Long Does An Insurance Company Have To Pay A Claim

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 The next day, the BMW was recovered in Florida and the adjuster called the bookkeeper and rescinded the offer. Daugherty did not learn of the offer until after it had been withdrawn.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.