When Delay In Paying A Claim Is Unpunished

The Texas Prompt Payment of Claims Act was not violated in this situation.

The case is from the Southern District of Texas, Laredo Division.  It is styled, Jonnie Byrd v Liberty Insurance Corporation, et al.

Following a hail storm, Byrd made a claim against her homeowner’s policy with Liberty for damage to the roof and interior his home.  Liberty’s adjuster found no hail damage to the roof but did find water damage of a little over $3,000, which was less than the deductible.  Byrd then sent a demand letter seeking $55,731.  Liberty closed the file and Byrd sued for various causes of action including violation of the Prompt Payment of Claims Act.

Liberty invoked its right under the terms of the insurance contract to appraise the lose.  The appraisers chosen by the parties agreed upon an award of $13,332, less the deductible, which Liberty promptly paid.  Liberty filed a motion for summary judgement stating the claim had now been paid and that there were no more issues for the Court to hear.  Byrd countered saying saying among other things that penalties for violations of the Prompt Payment of Claims Act were still be pursued.

Section 542.058 requires insurers to pay claims within 60 days after receiving the necessary documents giving notice of the claim.  Pursuant to Section 542.060, late payments are penalized through the charge of an 18% annual interest rate, plus attorney fees.

Byrd argues that since the appraisal process was completed a little over a year after the claim was submitted, Liberty must pay penalties, interest and attorney’s fees.  To secure a prompt payment penalty under Texas law a plaintiff must show that:  (1) a claim was made under an insurance policy, (2) the insurer is liable for the claim, and (3) the insurer failed to follow one or more sections of the prompt payment statute with respect to the claim.

However, the second element — that the insurer is liable for a claim under the insurance policy — is not satisfied as a matter of law if the insured does not recover any judgment based on the insurer’s liability under the insurance policy.  The rational behind this holding is that:

An insurer’s voluntary payment of the full amount owed based on an appraisal award does not mean that the insurer was liable under the insurance policy; this payment means only that the insurance company chose not to seek to set aside the appraisal award and not to assert any defenses to its liability to pay the amount owed under the policy based on the appraisal award.  If an insurer pays this full amount,the trial court will not there after be asked to determine whether the insurer is liable under the policy,and the insured will not recover a judgment for any amount under the policy to which an eighteen-percent interest rate might be applied.

Therefore, the full and timely payment of an appraisal award under the policy precludes an award of penalties under the prompt payment provisions as a matter of law.  Applying this rule, the Fifth Circuit recently concluded that “no Texas case has ever subjected such an appraisal award payment to the late payment penalties provided by the statute.

Byrd’s claim for further damages was denied and judgment was granted in favor of Liberty.