Penalty For Slow Payment Of A Claim

Insurance Companies are supposed to promptly make payment of claims made by an insured.  A May 2021, case from the Fifth Circuit Court of Appeals confirms this.  The style of the opinion is Hyewon Shin v. Allstate Texas Lloyd’s.

In this case, the insured, Hyewon Shin asserted a claim for penalties under the Texas Prompt Payment of Claims Act.  The relevant statutes are Sections 542.058 and 542.060.  The lower level court granted summary judgment in favor of Allstate, concluding that Allstate’s pre-appraisal payment to Shin was both timely and reasonable as a matter of law notwithstanding that the final appraisal amount, $25,944.94 was 5.6 times greater than the pre-appraisal payment of $4,616.63.

This opinion is based on the Texas Supreme Court ruling in Hinojos v. State Farm Lloyds, et al.  The Texas Supreme Court said in relevant part:

Chapter 542 [of the Texas Insurance Code] does not provide that a partial payment of a valid claim discharges liability for statutory interest. Accordingly, we hold that an insurer’s acceptance and partial payment of the claim within the statutory deadline does not preclude liability for interest on amounts owed but unpaid when the statutory deadline expires. Our holding accords with our past decisions in [Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423 (Tex. 2004), Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019), and Alvarez v. State Farm Lloyds, 601 S.W.3d 781 (Tex. 2020)], as well as the statute’s stated purpose of “promot[ing] the prompt payment of insurance claims.”[TEX. INS. CODE § 542.054]. By requiring insurers to promptly satisfy claims that they owe in their entirety, the [Texas] Legislature incentivizes insurers to resolve disputes and invoke the appraisal process sooner rather than later. Although the statute says nothing about reasonableness, a reasonable payment should roughly correspond to the amount owed on the claim. When it does not, a partial payment mitigates the damage resulting from a Chapter 542 violation. Interest accrues only on the unpaid portion of a claim.

Based on the Texas Supreme Court ruling in the Hinojos case, the 5th Circuit over-ruled the district court and ruled in favor of Shin.

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