The Fort Worth Court of Appeals delivered an opinion in 2006, that is relevant to all insurance lawyers in Texas. The case has to do with who can assert a claim under the Texas Prompt Payment of Claims Act. The opinion is styled, American National Fire Insurance Company v. Hammer Trucking, Inc.
In November 2006, the Fort Worth Court of Appeals held that the Prompt Payment of Claims Act doe not apply to an indemnity claim against an excess carrier for payments made to settle a liability claim. In so holding, the Court stated that this Act only applies to first party claims between the insurance company and their customer. However, the Texas Supreme Court recently held, in response to a certified question from the Fifth Federal Circuit on a CGL case, that the Prompt Payment of Claims Act applied to the insurance company’s obligation to pay third party claims.
The prompt-payment statute provides that an insurer, who is “liable for a claim under an insurance policy” and who does not promptly respond to, or pay, the claim as the statute required, is liable to the policyholder or beneficiary not only for the amount of the claim, but also for interest on the amount of the claim at the rate of eighteen percent a year as damages, together with reasonable attorney’s fees pursuant to Texas Insurance Code, Section 542.060(a). “Claim” is defined as “a first party claim made by an insured or policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract that must be paid by the insurer directly to the insured or beneficiary.” This is found in Texas Insurance Code, Section 542.051(2). The statute does not separately define “a first party claim,” and Texas cases are divided as to its meaning.
This is cited from the 2007, Texas Supreme Court opinion styled, Lamar Homes Inc. v. Mid-Continent Casualty Company. The Court then went on to discuss two conflicting lines of cases, and concluded that, although the statute did not define “first party claim,” that “a defense claim is a first party claim because it relates solely to the insured’s own loss.” The Court similarly rejected the argument that applying the statute would be “unworkable,” and held that the Prompt Payment of Claims Act applied to both defense and indemnity claims.
Violations of the Texas Prompt Payment of Claims Act provides good remedies for Texas policy holders. First, the claim is paid. Second there is an eighteen percent penalty on the principle amount for each year the claim is not paid. Third, attorney fees are taxed as part of the costs of the case pursuant to Section 542.060.