What happens when an insurance does not pay a claim that it was suppose to pay? That issue is dealt with in the Texas Insurance Code by statute and by courts interpreting the statute.
A particularly strict deadline for insurance companies is the requirement in Texas Insurance Code, Section 542.058(a) that the insurance company pay a valid claim within 60 days after receiving all required items requested from the claimant. This means that if the insurance company ultimately loses on the coverage issue and has to pay the claim, then it necessarily has violated the 60 day payment provision and is subject to the 18% damage set forth in Section 542.060(a) and attorney’s fee provisions of the statute. This is true even if the delay on the part of the insurance company was in good faith.
In a 5th Circuit Court of Appeals opinion from 1997, styled, Higginbotham v. State Farm Mutual Automobile Insurance Company, the court held that by rejecting the claim, the insurance company necessarily failed to pay within 60 days, in violation of the statute. As the court put it:
A wrongful rejection of a claim may be considered a delay in payment for purposes of the 60 day rule and statutory damages. More specifically, if an insurer fails to pay a claim, it runs the risk of incurring the 18% statutory fee and reasonable attorney’s fees. In sum, State Farm lost when it was found liable for breach of contract. Therefore, it must pay this 18% per annum interest and reasonable attorney’s fees.
Other courts have ruled on this Texas law dealing with delay in payments on claims. A 2003 , Tyler Court of Appeals case styled, Protective Life Insurance Company v. Russell is on of them. Another is a 1998, Austin Court of Appeals opinion styled, Oram v. State Farm Lloyds. Also, a federal opinion from 1997, from the Eastern District of Texas styled, Teate v. Mutual Life Insurance Company of New York.
As can be seen, this rule is a powerful weapon for insurance lawyers to weld against an insurance company who mistreats one of their customers.