Articles Posted in Delay in Paying Claim

How do you calculate the beginning date and end date for violation of the Texas Prompt Payment of Claims Act?  The start date was calculated in the previous post.  Here is a discussion on the end date for calculation.

The statute does not say when the penalty stops accruing.  No court has addressed this specific issue.  Several courts have simply held that the penalty accrues from the date of the violation up to the date of judgement, without any analysis for choosing that date.  This was done in the 2010, 5th Circuit opinion, Great American Insurance Co. v. AFS/IBEX Financial Services, Inc.  Also in the 2004, Texas Supreme Court opinion, Texas Farmers Insurance Co. v. Cameron.  Other courts have held that the penalty accrues until the insurer settled.  This was seen in the 2000, San Antonio Court of Appeals opinion, Cater v. United Services Automobile Ass’n and in the 1196, Texarkana Court of Appeals opinion, Southland Lloyd’s Insurance Co. v. Tomberlain.  One approach is to end the accrual of the 18% damages on the day of the judgment.  This is the approach taken in Mid-Century Insurance Co. v. Barclay, which is from the 1994, opinion of the Austin Court of Appeals.  The statute itself, neither embraces nor rejects this approach.

Another approach would be to continue accruing the 18% damages until the insurer fully discharges its liability, including payment of the 18% damages and attorney’s fees.  An argument for this approach is that, presumably, the Legislature intended the 18% damages partially to compensate claimants for the delay and partially to punish insurers for violations.  If the 18% damages accrue only up to the time of judgment, this would mean that while the insurer is contesting liability, perhaps even in good faith and reasonably, these extra damages would accrue, but once the claim is finally established, the incentive to pay would be removed.  Arguably, it makes no sense to compensate the claimant when his claim is disputed, but once it is certain to no longer compensate him.  Likewise, it makes no sense to punish the insurer for withholding a disputed claim, but to no longer punish it for withholding an established claim.  Case law makes clear the statute recognizes that the insurer denies the claim at its risk.  If the insurer gambles and loses, it pays these additional damages.  Similarly, if the insurer wants to gamble on continuing to contest the claim once judgment has been rendered, that choice may bear financial consequences.  Interestingly, in the Cater case above, the court ended the penalty on the date the claim was paid, to shorten the time period, presumably as a reward or encouragement for the insurer to pay the claim.  Conversely, the penalty should be extended when the insurer continues to refuse to pay, especially after the judgment is rendered.

When does the time to start calculating the time a payment is due under an insurance policy claim?  Good question but not an easy answer.

The penalty for violation of the Texas Prompt Payment of Claims Act is an 18% penalty on the amount due and owing on the claim according to Insurance Code, Section 542.060.  However, the date that amount accrues is not so easy.

The statute does not say when the penalty accrues.  On approach would be to begin accruing the 18% damages from the date the claim was received.  This focuses on the length of time the claimant has been without his or her money, instead of focusing on the length of time the insurer has been in error.  This approach encourages prompt payment of claims.  As the claim proceeds towards payment, the insurer’s incentive to pay the claim would increase.  Any error, even at the last stage, would accrue damages at 18%, retroactive to the date the claim was filed.  This approach has the benefit of making payment of the claim more important to the insurer, even as the passage of time makes payment of the claim more important to the insured.

When an insurance company delays in paying a claim, the claimant may be entitled to relief under the Texas Prompt Payment of Claims Act.

The Texas Prompt Payment of Claims Act, Section 542.060 provides that

(1) if an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to pay the holder of the policy or the beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney’s fees

The Texas Supreme Court has rendered an opinion which concerns the Texas Prompt Payment of Claims Act (TPPCA).  The opinion issued on June 8, 2019, and is styled, Barbara Technologies Corporation v. State Farm Lloyds.

In this case, the Texas Supreme Court reversed the appeals court judgment, which had granted summary judgment in favor of State Farm, and remanded the case to the trial court for further proceedings.

This case arose out of a wind and hail storm that damaged Barbara Tech’s property on March 31, 2013.  Tech filed a claim with State Farm on October 17, 2013, pursuant to the insurance policy, requesting coverage of the cost of repairs.  State Farm promptly inspected the costs of repair and denied Tech’s claim based on the assertion that the damage totaled $3,153.75, which was less than Tech’s $5,000 deductible.  Tech requested a second inspection and State Farm conducted another inspection finding no additional damage.

The Texas Prompt Payment of Claims Act was interpreted by the United States Fifth Circuit in this 2015 opinion.  The opinion is styled, Cox Operating, L.L.C. v. St. Paul Surplus Lines Insurance Company.

The facts are kinda long ans somewhat confusing, plus there are other issues in the case.  Of relevance here is the Court’s discussing of the Texas Prompt Pay statutes.

Texas Insurance Code, Section 542.054 says in order “to promote the prompt payment of claims,” the act provides for a series of deadlines to which insurers must adhere at each stage of the claim handling process.

The Texas Prompt Payment of Claims Act was not violated in this situation.

The case is from the Southern District of Texas, Laredo Division.  It is styled, Jonnie Byrd v Liberty Insurance Corporation, et al.

Following a hail storm, Byrd made a claim against her homeowner’s policy with Liberty for damage to the roof and interior his home.  Liberty’s adjuster found no hail damage to the roof but did find water damage of a little over $3,000, which was less than the deductible.  Byrd then sent a demand letter seeking $55,731.  Liberty closed the file and Byrd sued for various causes of action including violation of the Prompt Payment of Claims Act.

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.

Insurance lawyers will often run across the situation at issue in the 2018, Dallas Court of Appeals opinion, George Bryant v. Progressive County Mutual Insurance Company and Kristen Winkler.

This is a uninsured motorist (UM) case wherein Bryant sued Progressive and the adjuster, Winkler, for the harm caused by the UM driver and numerous insurance code violations.  The trial court severed the auto wreck from the bad faith insurance claims.  In an UM case, Brant first had to prevail at trial, which he did.  Bryant then continued his claims for insurance code violations.  The trial court granted a motion for summary judgment in favor of Progressive and this appeal followed.

Bryant alleged numerous appeal points but the one discussed here is the issue regarding the Texas Prompt Payment of Claims Act (PPCA).

Here is an opinion from the 14th Court of Appeals that concerns the Prompt Payment of Claims Act.  The opinion is styled, William Marchbanks v. Liberty Insurance Corporation.

This is an appeal from the trial court granting summary judgment in favor of Liberty.  This appeals court affirmed the trial court.

Marchbanks reported a hail damage claim to Liberty and the same day Liberty acknowledged the claim and sent an adjuster to the property the next day.  The adjuster determined that any roof damage was not storm related and Liberty sent a denial letter explaining no storm related damaged was found.

Here is a case where the Prompt Payment of Claims Act was not violated, even though at first glance it appears it was violated.  Knowing how the facts and the law square on these issues is important in evaluating a case.  This 2018, case is from the Amarillo Court of Appeals and is styled, Steven Biasatti And Paul Gross D/B/A Topdog Properties v. GuideOne National Insurance Company and John Karl Graves.

TopDog was insured with GuideOne and suffered property damage during a storm.  A claim was made and GuideOne adjusted the loss as being $1,896.88.  TopDog requested an additional inspection.  GuideOne retained an engineer who confirmed the adjuster’s findings.  TopDog wished to proceed with an appraisal and GuideOne responded that only they, GuideOne, could invoke the appraisal process.

TopDog filed this lawsuit and then GuideOne invoked the appraisal clause in the insurance contract.  The trial court ordered appraisal, the parties designated appraisers, and the court appointed an umpire.  The umpire filed the appraisal award, in which the parties’ appraisers and the umpire unanimously set the amount of loss at $168,808.