Prompt Payment Of Claims And Trebling Of 18% Penalty

When an insurance company makes an unjustified delay in paying a claim the Texas Prompt Payment of Claims Act allows interest on the amount of the claim at the rate of 18 percent a year as damages.  This statute is found in the Texas Insurance Code, Section 542.060(a).  But the statute does not say which amount is subject to this penalty.  Is it the amount of the claim submitted by the claimant, or is it the amount of the claim paid by the insurer, or is it the amount of the claim as ultimately determined by the trier of fact?  This is important to know because the insured may “claim” too much, the “claim” paid by the insurance company may be too small, and often no one knows the amount the notice of the “claim” is first given.

This issue is discussed in the 2004, Texas Supreme Court opinion styled, Republic Underwriters Insurance Co. v. Mex-Tex, Inc.  The court concluded that the “claim” is “the amount ultimately determined to be owed, which of course would be net of any partial payments made prior to that determination.”  The court felt this would encourage insurance companies to pay the undisputed portion of a claim early, which was consistent with the statute’s purpose to obtain prompt payment of claims.

The court also held that the 18 percent would be assessed on the entire amount of the claim in the insurer’s tender of partial payment was not unconditional.  Otherwise, the court reasoned, the insurance company could delay payment by insisting on a release to which it was not entitled.