When does the time to start calculating the time a payment is due under an insurance policy claim? Good question but not an easy answer.
The penalty for violation of the Texas Prompt Payment of Claims Act is an 18% penalty on the amount due and owing on the claim according to Insurance Code, Section 542.060. However, the date that amount accrues is not so easy.
The statute does not say when the penalty accrues. On approach would be to begin accruing the 18% damages from the date the claim was received. This focuses on the length of time the claimant has been without his or her money, instead of focusing on the length of time the insurer has been in error. This approach encourages prompt payment of claims. As the claim proceeds towards payment, the insurer’s incentive to pay the claim would increase. Any error, even at the last stage, would accrue damages at 18%, retroactive to the date the claim was filed. This approach has the benefit of making payment of the claim more important to the insurer, even as the passage of time makes payment of the claim more important to the insured.
Another approach is to begin the 18% damages accruing at the time of the violation. An insurer that errs later pays less. Those who err early pay more. In the 1997, Eastern District of Texas opinion styled, Teate v. Mutual Life Insurance Co. of New York, the court started the 18% damages accruing on the date of the insurer’s violation. In that case, the violation was the insurer’s failure to pay within 60 days after receiving proof of the claim.
An odd method was employed in the 1999, Tyler Court of Appeals opinion styled, Dunn v. Southern Farm Bureau Casualty Insurance Co., where the court of appeals started the accrual of the 18% damages 150 days after the insurer received notice of the claim. The court apparently did this by analogy to the prejudgment interest statute. Other than establishing a parallel between the prejudgment interest statute and the Prompt Pay statute, this approach has little to recommend itself. Nothing in the statute supports it.