Dallas Fort Worth Insurance Lawyer Blog
Respected writers, Robert E. Keeton and Alan I. Widiss, argue that damages under the Texas Prompt Payment of Claims Act, Section 542.060(a), have a purpose of providing compensation to the insured. They write:
The statutory provisions establishing remedies for the late payment or nonpayment of insurance claims are often regarded, and sometimes are characterized by the legislation specifically, as penalties. Consequently, it is not surprising that some courts have adopted the view that because such legislation is “penal in nature,” the provisions should be subject to strict construction. However, such awards may also appropriately be viewed as allowing an insured to recover compensation for consequential damages the claimant sustained (1) by having to pay an attorney (as well as other litigation expenses) to secure the insurance benefits and (2) by not having the use of the insurance benefits from the time when the insurance should have been paid. Even when such a statute provides for an additional recovery of an amount that is calculated as a percentage of the insurance benefit that was due to the insured, in many instances such an amount does not fully indemnify the claimants for all of the adverse consequences that have resulted from the insurer’s wrongful denial of an insured’s claim. Accordingly, in most circumstances, there is considerable justification for not according such statutory provisions a “strict” construction.
When an insurer withholds insurance benefits, it deprives the insured of those benefits. Arguably, that deprivation merits some form of compensation. When the insurer forces the insured to litigate to recover money that is due under the contract, it imposes additional expenses and aggravation on the insured. Those are elements the legislature reasonably could find deserve compensation.
Characterizing the 18% damages as penal in nature, while not entirely wrong, is not entirely correct either. Thus, simply applying the label does not provide a sufficient basis for deciding the question.