Delay In Paying An Insurance Claim

A Federal Court for the Western District of Texas, Midland/Odessa Division issued an opinion in 2021, that deals with the Texas Prompt Payment of Claims Act (TPPCA).  The style of the opinion is long.  We will call it Woodcrest Capital, LLC, et al v. Zurich American Insurance Company.

The TPPCA is found in Chapter 542 of the Texas Insurance Code.  Chapter 542 of the TIC does not contain a statute of limitations.  District courts in the Fifth Circuit are split on whether a twoyear or fouryear statute of limitations applies to claims brought under Chapter 542, and the Fifth Circuit has not considered the issue.  The dispute is whether the two-year statute of limitations included in Chapter 541 of the TIC or the four-year statute of limitations in Section 16.051 applies to claims arising under Chapter 542.

Plaintiffs contend Defendant violated Section 542.058 when it failed to pay Plaintiffs’ insurance claims within sixty (60) days after receiving all items, statements, and forms requested.  Plaintiffs conclude that their TPPCA claim arises under the statute, not under the Policies; therefore, the contractual limitation does not apply to their TPPCA claim Additionally, Plaintiffs argue the contractual limitation in the Policies does not apply to the TPPCA claim because the language in the Policies suggests that it only applies to claims for breach of duties imposed by the Policies.  The Court agrees with Plaintiffs.

The Court finds Plaintiffs’ TPPCA claim arises under Chapter 542 of the TIC, not under the Policies. Here, the Court need not interpret the insurance policy to adjudicate Plaintiffs’ TPPCA claim, and the duty Plaintiffs allege Defendant violated is imposed by the TIC, not the Policies.  Plaintiffs’ TPPCA claim does not arise under the Policies.  Thus, Plaintiffs’ TPPCA claim is not governed by the Legal Action Against Us provision in the Policies.

Delaying payment for more than sixty (60) days violates a procedural requirement imposed by statute, not a “contractual duty” imposed by the Policies. Because Defendant would not breach a contractual duty by delaying payment for more than sixty (60) daysa Section 542.058 violationif the Court were to apply the contractual limitation to the TPPCA claim, it seems a cause of action for a Section 542.058 violation would never accrue.  This interpretation of the contractual limitation is illogical, and contravenes Texas law requiring courts to give meaning to “every sentence, clause, and word [in a contract] to avoid rendering any portion inoperative.”

This lengthy 28 page, opinion goes into great detail explaining it’s holding in this case and is a great read for any insurance lawyer dealing with a claim under the TPPCA.

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