Penalties For Not Paying Promptly

Fort Worth insurance lawyers would know the penalties available when an insurance company does not promptly pay a claim.
The Prompt Payment of Claims Act provides for 18% per annum damages, in addtion to the amount of the claim, plus attorney fees, plus this is on top of other types of remedies that may be available.
Section 542.060 says:
(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.
(2) if a suit is filed, the attorney’s fees shall be taxed as part of the costs in the case.
Texas case law from the Tyler Court of Appeals and the Austin Court of Appeals makes clear the above damages are recoverable whenever the insurance company fails to comply with any of the requirements of the statute.
Several courts have held that an insurance company that denies a claim and is found liable necessarily violates this section that requires payment within 60 days after the insurer receives necessary information. As was explained by the United States 5th Circuit Court of Appeals, in 1998, in the case styled, St. Paul Reinsurance Company, Ltd. v. Greenberg, “As long as the insurer is found to be liable under the policy, this fee attaches, even if the insurer had a reasonable basis for denying coverage.”
The 5th Circuit decision in 1997, in Higginbotham v. State Farm Mutual Auto Insurance Co. is significant because it construed the statute as imposing as a “strict liability” for failing to pay a valid claim. Under Higginbotham, if the insurance company is found at trial to have breached the contract, the 18% penalty under this statute can be awarded even if the insurance company complied with all the other deadlines. Some insurers view this as an inaccurate construction of the statute. Insurance companies argue the statute only imposes penalties for accepting or rejecting a claim. They point out that the statute does not mention the imposition of the 18% penalty merely because the insurer is subsequently determined by a jury to have made a wrong decision on the claim. Insurers argue that wrong claim decisions are remedied by contractual damage awards, prejudgment interest, attorney’s fees, and extra-contractual damage claims. Insureds argue that Higginbotham is based on the plain language of the statute.
Here is something for an experienced Insurance Law Attorney to think about. Although the prompt pay statute applies in the context of both first and third party claims, it is still limited to first-party claims. A first party claim “is stated when ‘an insured seeks recovery for the insured’s own loss,’ whereas a third-party claim is stated when ‘an insured seeks coverage for injuries to a third party.'” Following this reasoning, the Texas Supreme Court in a case in 2007, determined that the 18% penalty does not apply to “a loss incurred in satisfaction of a settlement” because such a loss “belongs to the third party and is not suffered directly by the insured.”

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