The Texas Prompt Payment of Claims statute is helpful to claimants when an insurance company drags it feet on paying a claim. This statute is found in the Texas Insurance Code, Sections 542.051 – through 542.061.
When an insurance company reasonably requests information from a claimant, deadlines are postponed until the insurance company receives the requested information.
In contrast, the statute does not expressly extend any deadlines while the insurance company awaits information from third parties. However, if the insurance company cannot accept or reject a claim because it is still waiting for such information, Section 542.056(d) allows the insurance company a one-time, 45 day extension.
Keep in mind that this 45 day extension may not provide the insurance company sufficient time, for example, for an engineer to complete an inspection, conduct necessary studies, and write a report. The statute does not give insurance companies an answer to this dilemma, other than to deny the claim, at the risk of incurring the 60 day penalty, or pay the claim, based on an incomplete investigation.
On the other hand, insurance companies are normally in a better position to speed the claim investigation process than are insureds. In may cases, the statutory time limits will be sufficient. In those instances where an insurer must accept or reject a claim without sufficient time to receive all information, arguably, the statute is a legislative choice to put the risk of delay on the insurance company, instead of the insured.
The statute allows the insurance company to request information it reasonably believes will be required. Deadlines are then postponed while the insurance company waits for this information from the claimant. An unreasonable request by the insurance company would not postpone any deadlines and thus could lead the insurance company to violate the statute by failing to meed a deadline. This is discussed in the 2000 opinion from the Corpus Christi Court of Appeals styled, Colonial County Mutual Insurance Company v. Valdez.
One other issue to keep in mind when dealing with Prompt Pay violations. The amount of damages imposed by the statute should be included in calculating the “amount in controversy” for federal diversity jurisdiction purposes. This is discussed in a 1998, 5th Circuit opinion styled, St. Paul Reinsurance Co., Ltd. v. Greenberg.