Dallas Fort Worth Insurance Lawyer Blog
The Texas Prompt Payment of Claims Act is found in the Texas Insurance Code, Section 542.051 thru 542.061. When an insurance company fails to timely pay a claim, are there ways they can escape liability under the Prompt Payment of Claims Act?
If the insurance company cannot accept or reject the claim by the initial deadline, the statute lets the insurer notify the claimant that it cannot accept or reject a claim by the deadline. This is found in Section 542.056(d). This notification has to be sent before the original deadline, and the notice must state the reason why the insurance company needs additional time. The insurance company then has 45 additional days to accept or reject the claim.
The insurance company’s good faith – or its lack of bad faith – is no defense. This is discussed in the 1997, United States 5th Circuit Court of Appeals opinion styled, Higginbotham v. State Farm Mutual Automobile Insurance Company. In reaching this conclusion, the court noted that precedents under the predecessor statute, article 3.62, held that an insurance company’s good faith in denying a claim did not relieve them of liability for penalties. The court concluded that an insurance company that denies a claim takes the risk that it will have to pay additional damages allowed by the statute.
The statute identifies one instance where the insurance company may prove it does not owe the claim and thereby avoid liability under the statute for failing to comply with a deadline.
Except as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items provided by Section 542.060.
Section 542.058(a) requires the insurer to pay within 60 days after receiving all items requested from the claimant. If the insurer does not really owe the claim, and can prove it through litigation or arbitration, how can the insurer be faulted for not paying the claim after it received the necessary materials.