Partial Payment And Prompt Pay Insurance Law

Aledo insurance lawyers need to know how partial payment of an insurance claim works in a claim for violating the Prompt Payment of Claims Act. A 2004, Texas Supreme Court case styled, Republic Underwriters Insurance Company v. Mex-Tex, Inc. helps an insurance law attorney to understand. Here is the relevant information.
Facts: The roof atop a shopping mall was damaged by a hail storm. Before Republic agreed to pay for the replacement, Mex-Tex, owner of the mall, retained a roofer on a priority basis to replace the roof in order to avoid further injury to the tenants from future rains at a total cost of $179,000. Republic estimated the cost of replacing the roof with an identical make to be $145,460 and tendered that amount. The new roof was substantially similar in kind and quality to the old one, but the additional cost was due to the method of the roof’s attachment to the building and the high priority of the job. Republic refused to pay the balance of the claim and Tex-Mex sued. Tex- Mex sought to recover the balance of the amount owed plus a statutory 18% penalty on the entire claim. Republic argued that the penalty, if any, should be assessed only on the disputed amount, rather than on the entire claim. The trial court entered the judgment in favor of Tex-Mex and Republic appealed. The Amarillo Court of Appeals affirmed, holding that the policy did not require the replacement roof to be identical and that Republic’s tender of the amount it believed was owed on a claim did not stop the accrual of Texas Insurance Code, Prompt Payment of Claims Act penalties, or prejudgment interest, on what was later judicially determined to be the full amount of the claim. The Texas Supreme Court granted review.
The Texas Supreme Court reversed and remanded, agreeing that replacement of a damaged roof with one of “like kind and quality” fell within the policy but rejecting the lower court’s holding that the Prompt Payment of Claims Act calls for an 18% penalty of the amount of the claim, not just the amount outstanding after partial tender.
The court observed that interpreting “claim” as the amount ultimately determined to be owed net of any partial payments made prior to such determination was consistent with the statutory goal of encouraging prompt payment by insurers of undisputed amounts. The court also found a lack of support for the trial court’s conclusion that Republic’s payment was in full satisfaction of the claim. Therefore, the statutory penalty could be imposed on $33,540, the difference between the trial courts’ determination of the claim amount and the partial payment tendered by Republic, from the day of payment until the date of the judgment.