Bad Faith – Delaying Or Denying Claim

As was stated in the 1997, Texas Supreme Court opinion, Universe Life Ins. Co. v. Giles, an insurer violates its duty of good faith and fair dealing by denying or delaying payment of a claim if the insurer knew or should have known that its liability was reasonably clear.  However, an insurance company may withhold UIM benefits until the insured’s legal entitlement is established.

Statutory liability may also be imposed on an insurer that delays payment of a claim under Texas Insurance Code, Section 542.051 and those sections following, if the 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 along with the statutory penalty.  An insurer’s failure to comply with the requirements of this Prompt Payment of Claims section will result in imposition of statutory penalties, even if the delay in payment is in “good faith.”  If an insurer promptly interpleads policy proceeds, it cannot be subjected to statutory penalties for delayed payment.  However, in the 2007, Texas Supreme Court opinion, State Farm Life Ins. Co. v. Martinez, the court held an insurer may be liable for statutory penalties for interpleader filing after the prompt payment deadlines.

To recover the statutory penalties available under the Prompt Payment of Claims Act, an insured must first prove that the insurer is liable for the underlying claim.  The insured must establish three elements: (1) a claim under an insurance policy; (2) that the insurer is liable for the claim; and (3) that the insurer has failed to follow one or more sections of the Prompt Payment of Claims Act with respect to the claim.