Prompt Pay Law

Burleson insurance lawyers know that when an insurance company is slow to pay a claim that there are possible consequences to the insurance company under the Texas Prompt Payment of Claims Act (TPPCA).
Historically, one area of contention in TPPCA disputes has been the calculation of the penalty when an insurer violates an early claims-handling deadline and later denies a covered claim. Insurers have pointed out that §542.058 is the only subsection that references the enforcement provision (§542.060), and thus argue that only a violation of §542.058 triggers the penalty. The Fifth Circuit recently rejected this argument and ruled any violation of §§542.055-542.058 triggers the penalty, while the Texas Supreme Court has not addressed the issue.
Because courts have previously calculated the penalty interest when only a violation of §542.058 is pleaded and proved, there has been a dearth of guidance regarding when the penalty begins to accrue when an insurer violates §§542.055 or 542.056.
Courts interpreting the TPPCA have been split regarding the precise date to begin calculation of the 18% penalty for early claims-handling deadline violations.
Some courts held that the day after the earliest deadline violation is the date the penalty interest should start to accrue. For example, in Primrose Operating, the jury found that the insurer violated §§542.055(a) and 542.056. The federal district court held that the penalty began to accrue on the very first date of violation, i.e., the day after the deadline in §542.055(a): date of notice of claim + 15 days + 1 day.
Other courts have interpreted the TPPCA to mean the penalty can only be enforced through a violation of §542.058, and thus used §542.058’s 60-day period in determining the date the penalty begins to accrue even when an earlier TPPCA violation occurred. For example, where insurers violated §542.055(a), some courts calculated the accrual of the penalty as follows: date of notice of claim + 60 days + 1 day. Other courts have calculated accrual as: date of notice of claim + 15 days + 60 days + 1 day.
However, the Fifth Circuit has recently issued two opinions that adopt the methodology in Primrose Operating, supra, and do not tack on a 60-day period when an earlier TPPCA
deadline is missed.
First, in Cox Operating, where the jury found the surplus lines insurer violated both §§ 542.055(a) and 542.056(a), the Fifth Circuit concluded that the penalty should begin to accrue 30 days after the date the insurer received notice of the claim (i.e. the penalty was based on the violation of §542.055(a) – the earliest violation).
Second, in Weiser-Brown, where the insurer violated §542.056(a) (for failing to notify the insured of acceptance or rejection of the claim within 15 days of receiving information necessary to secure proof of loss), but did not violate §542.055, the Fifth Circuit affirmed that the penalty began to run 15 days after the insurer received the information necessary to secure proof of loss.