Fort Worth insurance lawyers and those in Lake Worth, Saginaw, North Richland Hills, and other parts of Tarrant County need to know the rules governing how an insurance company is suppose to pay a claim.
The Insurance Law Section of the State Bar of Texas published an article that is informative on this subject. It tells us how to calculate the 18 percent statutory damages available under the Prompt Payment of Claims Statute.
The 18 percent penalty is found in the Texas Insurance Code, Section 541.060. The sections 542.051 through 542.061, establish the procedures for determining when first party claims are to be paid. Timetables are set out. These timetables will vary with the facts of the case. The remedies available against insurance companies for violations of the statute provide as follows:
(a) 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 or the 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.
The next part (b) has some teeth also. It says:
(b) If a suit is filed, the attorney’s fee shall be taxed as part of the cost in the case.
Of relevance in (b) above is the word “shall.”
“Claim” is defined to mean a “first-party claim” that:
(A) is made by an insured or policyholder under an insurance policy of contract or by a beneficiary named in the policy of contract; and (B) by the insurer directly to the insured or beneficiary.
The emphasized phrase, “that must be paid”, limits “claim” to the amount ultimately determined to be owed, which of course would be net of any partial payments made prior to that determination. This encourages insurance companies to pay the undisputed portion of a claim early, consistent with the statute’s purpose “to obtain prompt payment of claims made pursuant to policies of insurance.” Also the 18 percent per annum penalty is calculated based on simple interest rather than compounded annually. Courts have used the following formula when calculating the 18 percent damages:
Where “d” is the total interest awarded as damages;
p = the principle;
r = the rate of interest; and t = the time over which the interest is to be calculated.
The calculation of when the interest is due will vary and the facts of the case have to be looked at closely to determine exactly the date to begin the interest.
This is one of those situations where an experienced Insurance Law Attorney is required in order to properly pursue remedies available and to make sure the insurance company does not get away with violating the laws that are designed to protect their customers.