Penalty For Late Payment Of Insurance Claim

Insurance attorneys in Dallas County need to be aware of the penalties that can be imposed on an insurance company for being late in paying a claim. Part of how this works is illustrated in a 2000, San Antonio Court of Appeals opinion. The style of the case is, Cater v. United Services Automobile Association. Here is the relevant information from this case.
Cater appeals the trial court’s denial of her claim for statutory damages and attorneys’ fees under Section 542.060 of the Texas Insurance Code. She asserts that United Services failed to pay her foundation claim inside the statutorily mandated time period, rendering it liable for the damages and fees.
In 1993, Cater filed a claim with United Services Automobile Association (“USAA”) for damage to her foundation, which she believed was caused by a plumbing leak. USAA denied her claim based on its conclusion that the damage to her foundation was not caused by a plumbing leak. Cater subsequently sued USAA for violation of Texas Insurance Code, Section 542.051. In January, 1999, the parties mediated the claim and reached a settlement. The settlement agreement required USAA to pay Cater $40,000 in contract damages and required Cater to dismiss all other claims and demands she had against USAA. The agreement, however, explicitly excluded Cater’s claim for additional damages and attorney fees from the dismissal requirement. Instead, the parties agreed to submit to a bench trial for a determination on her remaining issue.
On April 20, 1999, the Judge heard Cater’s claim, ruled in USAA’s favor, and filed findings of fact and conclusions of law to substantiate his ruling. It is from this ruling that Cater appeals. She asserts the trial court erred in granting judgment for USAA because USAA delayed payment to her. She claims this violation entitles her to recover an additional 18% of the contract claim plus reasonable attorney fees.
The Texas Insurance Code provides time deadlines that insurers must follow when responding to a claim. These deadlines are tied to the insurer’s receipt of notice of a claim. The statute sets out when an insurer should act in dealing with a claim and guides an insurer’s conclusion regarding a submitted claim.
The statute also deals with when an insurer should pay a claim and what happens should the insurer delay making that payment. It requires an insurer to pay the claim within five business days after the insurer has notified the insured that it has accepted the claim. If, however, an insurer delays payment for more than 60 days from the date it received all the information reasonably requested and required, the insurer must pay the claim, 18% per annum of the amount of that claim as damages, and reasonable attorney fees. This is stated clearly in Section 542.058(a). It is this damages provision under which the dispute in this case arises. According to Cater, if an insurer delays payment beyond sixty days, then the insurer is liable for damages and attorney fees. USAA, on the other hand, asserts the section applies only in cases where the insurer has not complied with the other deadlines in the statute. In other words, under USAA’s interpretation of the statute, an insurer is not subject to the 18% penalty and attorney fees so long as the delayed payment is due, in fact, to a good faith denial of the claim.
A fundamental rule of statutory construction is that a court should first ascertain the legislature’s intent in enacting the statute as expressed in its plain language. However, where an application of a statute’s plain language leads to absurd results, we will not enforce the statute under a literal interpretation.
The plain language of the statute states that if an insurer delays payment of a claim sixty days after it has received all the information reasonably necessary to determine coverage, then the insured is entitled to recover damages as provided for in the statute.
A wrongful rejection of a claim may be considered 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 percent statutory fee and reasonable attorneys’ fees. In sum, State Farm took a risk when it chose to reject Higginbotham’s claim. State Farm lost when it was found liable for breach of contract. Therefore, it must pay this 18 percent per annum interest and reasonable attorneys’ fees.
The plain language of the statute is clear. The damages should be in the amount of 18 percent per annum of the amount of the damages, plus attorneys fees.
Cater and USAA agree that the accrual date used for calculating the statutory damages is April 20, 1994, the date upon which USAA rejected Cater’s claim. Cater asserts that the damages should continue to accrue through the date a final judgment is rendered. However, she fails to take into account that the claim was paid on January 29, 1999. Therefore, Cater is entitled to 18% of the $40,000 as damages, that accrued during the time between April 20, 1994, and January 29, 1999.