It is important for Dallas and Fort Worth Attorneys to understand how the Texas Prompt Payment of Claims Act (TPPCA) works.
The deadlines imposed by the TPPCA are presented chronologically in terms of the claims-handling process.
First, §542.055 states the insurer shall acknowledge receipt of the claim, request information the insurer believes it requires, and begin investigation of the claim, within 15 days [or 30 days, for surplus lines insurers] of receiving notice of the claim;
Next, §542.056 states not later than the 15th business day after the date the insurer receives all items required by the insurer to secure final proof of loss, the insurer notifies the insured of (1) acceptance, (2) rejection, or (3) the need for additional time to decide (not more than 45 days);
§542.057 states that if the insurer notified the insured of acceptance of the claim under §542.056, the insurer must pay the claim within 5 business days;
Finally, §542.058 states that if an insurer does not pay a (covered) claim 60 days after receiving all items reasonably requested and required under §542.055, the insurer shall pay damages and other items as provided in §542.060.
The Texas Supreme Court rarely discusses on TPPCA issues. Federal courts interpreting the TPPCA have recently issued some important opinions that are bound to play a key role in future TPPCA disputes.
Historically, one area of contention in TPPCA disputes has been the calculation of the penalty when an insurer violates an early claims-handling deadline and later denies a covered claim. Insurers have pointed out that §542.058 is the only subsection that references the enforcement provision (§542.060), and thus argue that only a violation of §542.058 triggers the penalty. The Fifth Circuit recently rejected this argument and ruled any violation of §§542.055-542.058 triggers the penalty, while the Texas Supreme Court has not addressed the issue.
Because courts have previously calculated the penalty interest when only a violation of §542.058 is pleaded and proved, there has been a dearth of guidance regarding when the penalty begins to accrue when an insurer violates §§542.055 or 542.056.
Our next writing will address when the 18% penalty begins to accrue.
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