Prompt Pay And Auto Insurance

Mansfield insurance lawyers need to read the Houston Court of Appeals [14th Dist.] opinion styled, Daugherty v. American Motorists Insurance Company. It was issued in 1998.
Daugherty filed suit against American for refusing to pay his claim. The trial court ruled in favor of American. Daugherty appealed.
The record reflects that Daugherty purchased a BMW on January 12, 1994.   The sales price of the vehicle was $58,148.88. With the addition of taxes and fees, Daugherty paid a total of $64,678.97 for the automobile. The car was stolen on February 15, 1994. Daugherty promptly reported the theft to American. On February 25, 1994, Daugherty submitted an affidavit of vehicle theft to American in which he claimed a loss of $68,895.42.
After investigating the claim, an 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. After subtracting a $500 deductible, the adjuster informed her that the total payoff would be $62,431.14. Because Daugherty was out of town, his bookkeeper did not communicate the offer to him. The following day, police recovered BMW # 1 in Florida. At approximately 2:00 p.m., on March 17, 1994, the adjuster called Daugherty’s bookkeeper and rescinded the offer. Daugherty did not learn of the offer until after it had been withdrawn.
Daugherty sued for violations of the DTPA and violation of Texas bad faith laws and violation of the Texas Prompt Payment of Claims Act.
Daugherty contends American effectively notified him it would pay his claim when, on March 16, 1994, it informed his bookkeeper it had determined the value of the stolen BMW to be $62,431.14. Daugherty further argues American Motorists was bound by the terms of the policy to pay him $62,431.14 within 5 days after notification. American, on the other hand, contends the communication of March 16 was merely an “offer” to pay $62,431.14. Because the offer was rescinded before it could be accepted, American claims it is not obligated to pay the sum.
The insurance policy contained an amendatory endorsement which provided, in pertinent part:
i.  Loss payment 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 within 5 “business days” after the date you perform the act.

The policy amendment tracks, and effectively incorporates, the mandatory provisions of the Prompt Payment of Claims Act. The purpose of this article is to ensure prompt payment of claims made against insurance policies.
Both the policy and the Insurance Code 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. Here, American acknowledged in writing its receipt of Daugherty’s claim on February 17, 1994. American thereafter requested, and Daugherty signed, an affidavit of vehicle theft in which he claimed a loss of $68,895.42. Daugherty signed the affidavit on February 25, 1994, and it was received by American on March 1, 1994.
Ultimately, the court ruled against Daugherty for other reasons but what is significant here is that the court found that American waived any complaint about the Daugherty’s notice, because American investigated the claim anyway.