Prompt Payment Of Claim Act – Bad Faith Insurance

Life insurance lawyers run into situations where a person eventually recovers life insurance benefits they are entitled to receive.  A common situation where this occurs is when a life insurance lawyer sends a notice letter to the insurance company letting the insurance company know that the claim has not been paid and that if it is not paid immediately that a lawsuit will be filed.  Then, the insurer pays.  Is that the end of it?

Not necessarily.  The Prompt Payment of Claims statute , Texas Insurance Code, Section 542.054, says in one sentence, “This subchapter shall be liberally construed to promote the prompt payment of claims.”   This statute was used in the 1999, Tyler Court of Appeals opinion, Dunn v. Southern Farm Bur. Cas. Ins. Co.  It was also used in the 1997, Texarkana Court of Appeals opinion, Bekins Moving & storage Co. v. Williams.  And in the 1997, Federal Eastern District of Texas opinion, Teate v. Mutual Life Ins. Co. of New York.

The meaning of ‘liberal construction” has been applied expansively under other consumer statutes, as discussed in the 1981, Texas Supreme Court opinion, Cameron Terrell v. Garrett, Inc.  Liberal construction mandates that courts give the statute the most comprehensive application possible without doing violence to the statute’s terms.

In the Dunn opinion, the court relied on liberal construction to conclude that a claim was sufficient to trigger the statutory deadlines, even though it was presented through the claimant’s attorney.

In Mid-Century Ins. Co. v. Barclay, a 1994, Austin Court of Appeals opinion, the court relied on the liberal construction clause to reject the insurer’s argument that the statute had to be strictly construed because it is penal in nature.  Of course, even without a liberal construction mandate in the statute, this argument should have been rejected.  The Legislature has generally provided that all statutes are to be liberally construed to achieve their purposes and to promote justice.


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