Texas Prompt Payment Of Claims Act

Insurance Claims, when not timely paid are subject to the Texas Prompt Payment of Claims Act. So the question becomes when is a claim not timely paid?

A 2022, opinion from the Western District of Texas, San Antonio Division, is worth reading. The opinion is styled, John H. Winston III v. State Farm Lloyds.

This case arises from a dispute between Dr. Winston and his homeowner’s insurance carrier, State Farm. In April 2019, Dr. Winston filed a claim with State Farm for hailstorm damage to his home. State Farm paid Dr. Winston based on its inspector’s assessment of the damage. Dr. Winston was dissatisfied with the payment because the parties disagree about the extent of the damage—specifically, Dr. Winston contends that his roof needs to be replaced, while State Farm believes it could be repaired. When the parties reached an impasse, Dr. Winston invoked an appraisal clause in the parties’ contract to determine the actual amount of loss. The appraisal was conducted in October 2019, finding that $91,138.71 was necessary to replace the roof. State Farm continued to maintain that the roof did not need to be replaced. As such, State Farm reduced the appraisal award by $91,138.71 and paid Dr. Winston the amount it estimated was necessary to repair the roof, plus some additional funds for other damages to the home. All told, State Farm paid Dr. Winston $28,193.74 for hail damage. At issue in the case was whether State Farm breached the parties’ contract by refusing to pay $91,138.71 to replace Dr. Winston’s roof. The case went to trial and a jury found that State Farm had breached the contract.

The question now before the Court is whether the jury awarded the appropriate amount for Dr. Winston’s breach of contract claim. Both parties contend that it did not, for different reasons. The Court also considers the parties’ briefings on the amount State Farm owes Dr. Winston under the Texas Prompt Payment of Claims Act and for attorneys’ fees.

Chapter 542 of the Texas Insurance Code requires an insurer to follow certain procedures and meet certain deadlines when it receives, accepts, rejects, or pays an insurance claim. The statute’s purpose according to Section 542.054, is to require insurers to promptly pay claims made by their insureds. Courts are required to construe the statute liberally to promote this purpose. The elements of a cause of action for a violation of chapter 542 are the following: (1) the plaintiff had a claim under an insurance policy; (2) the plaintiff gave proper notice of its claim to the insurer; (3) the insurer is liable for the claim; and (4) the insurer violated chapter 542 by not timely: (a) acknowledging, investigating, or requesting information about the claim, (b) accepting rejecting, or extending the deadline for deciding the claim, or (c) paying the claim. All of which is found in Sections 542.051, 542.055, 542.056, 542.057, 542.060. The parties do not dispute that Dr. Winston had a claim under the insurance policy and gave proper notice of his claim to State Farm, satisfying elements (1) and (2). The jury’s finding that State Farm breached the parties’ contract by failing to pay to replace Dr. Winston’s roof satisfies elements (3) and (4)(c), because the jury found State Farm is liable for a claim it did not pay. Therefore, State Farm is liable for violating chapter 542.

In an action for violation of chapter 542, the insurer is liable to pay simple interest on the amount of the claim as damages pursuant to Section 542.060(c). Simple interest is calculated by applying the formula P x R x T = I, in which P is the principal (or the amount of the claim), R is the rate of interest, T is the time period, and I is the interest awarded. Each of these values is calculated as follows:

The P value, or principal value, is the value of Dr. Winston’s breach of contract claim, or $91,138.71.
The R value, or the rate of interest, is calculated by adding five percent to the judgment interest rate set by the Texas Consumer Credit Commissioner, which is currently five percent, for a total of ten percent. This can be gleamed from Section542.060(c); the Texas Finance Code, Section 304.003; and the Texas Credit Letter (July 18, 2022).
The T value, or time period, starts accruing on the date the claim was required to be paid, which is 60 days after the insurer has all the information it needs to process the claim pursuant to Sections 542.058, 542.060(c), 542A.001(2). Dr. Winston argues, and the Court agrees, that State Farm had all the information it needed to process his claim on the date of its first claims decision, April 25, 2019. Therefore, interest began to accrue 60 days after April 25, 2019—on June 24, 2019. Statutory damages stop accruing on the date of the trial court’s judgment. This Order is accompanied by a Final Judgment Order dated August 11, 2022, so that is the date upon which damages stop accruing. The number of days between June 24, 2019 and August 11, 2022 is 1,144 days—or approximately 3.1 years.
Applying the formula P x R x T = I, $91,138.71 x 0.10 x 3.1 = $28,253.00. Therefore, Dr. Winston is entitled to $28,253.00 under § 542.060(c) of the Texas Insurance Code.