Claims Handling Process

Claims Handling Process For Failed Companies In Texas

October 24, 2009 | Mark S. Humphreys

Let’s say you buy an insurance policy in Dallas or Grand Prairie. You drive over to Fort Worth or Arlington. You actually live in Weatherford or somewhere else in Parker County. Next, you incur a loss that you believe is suppose to be covered under the insurance policy you bought. Okay so far, but you call the insurance company to file a claim and you get told that the company has been having financial problems and is possibly going out of business. What happens now? The result will be the same no mattter where you are in Texas.

Most businesses that need protection because of financial problems they are experiencing file for some form of bankruptcy protection. When an insurance company has severe financial problems they are placed in receivorship.

There are two main classifications for a financially troubled insurance company in Texas. The first is called, “impaired”, meaning that the insurer does not have admitted assets at least equal to all its liabilities together with the minimum surplus required to be maintained under the insurance code. The second is, “insolvency” or “insolvent”, which means an insurer: (A) is unable to pay its obligations when they are due; (B) does not have admitted assets at least equal to all its liabilities; or (C) has total adjusted capital that is less than that required under various chapters of the insurance code.

Insurance Policies In Texas Are Contracts

October 19, 2009 | Mark S. Humphreys

The Texas Supreme Court stated in 2008 that insurance policies are contracts. This was stated in the case Ulico Casualty Company v. Allied Pilots Association. This is not new in Texas. In the Ulico case the court cited earlier Texas case law. The earlier case law was a Texas Supreme Court case styled Barnett v. Aetna Life Insurance Company and was decided in 1987.

What this means is that rights and obligations arising from an insurance policy, and the rules used to construe them, are those rules generally pertaining to contracts. One relevant concept here is that when a court construes or tries to interpret a contract and that contract can be read to mean more than one thing, then the interpretation is suppose to be in favor of the party who did not draft the contract. The burden is on the party drafting the contract to make it clear. Since an insurance company is always the party who drafts the insurance policy, the result is that if the reading of the policy can be interpreted in more than one way, the court is supppose to interpret it in such a way as to find coverage under the policy.

When an insurance contract covers certain risks, such as liability, but the policy contains exclusions or limitations of coverage, then when the insured customer makes a claim for coverage benefits, the insurance company must assert any applicable exclusion or limitation to avoid liability. This would be called an avoidance or in the Texas Rules of Civil Procedure it is called an affirmative defense. The burden of proof here then falls on the insurance company. This law is found in the Texas Insurance Code, Section 554.002.

Penalties And Punishments For Texas Insurance Companies Who Do Wrong

October 7, 2009 | Mark S. Humphreys

Texas insurance companies are regulated by the Texas Department of Insurance. The written laws for most insurance companies are found in the Texas Insurance Code. These laws and regulations apply to all insurance companies in Texas. So whether the company is located or does business in Dallas, Fort Worth, Arlington, Irving, Grand Prairie, Carrollton, Mesquite, Weatherford, Granbury, or anywhere else in the State of Texas the same laws and regulations apply to the insurance company.

The worst acts of insurance companies may be criminal in nature, but the majority are violations of civil laws and statutes, and what are being addressed in this writing. Violations of these civil laws and statutes may result in fines to the companies and issuance of cease and desist orders, and revocation of licenses or suspensions of insurance licenses. Most of the penalties just mentioned are enforced through the Texas Department of Insurance or the Texas Attorney Generals Office.

The recourse for insureds against their own insurance companies for violations to them personally, are addressed in different parts of the Insurance Code and depend on exactly which statute the insurance company violated. Punishment for violations of Insurance Code, Chapter 541 are found in Section 541.152. Here, the plaintiff who prevails in their cause of action may obtain: 1) the amount of actual damages to the plaintiff, plus court costs and reasonable and necessary attorney’s fees, and 2) any other relief the court determines is proper. What is important here and in other statutes that allow for the recovery of attorneys fees, is that if your cause is just and right, that at the end of your case, you can recover your court costs and attorneys fees. This is also why it is important to seek an experienced Insurance Law Attorney so that they can inform you whether you have a case worth pursueing.

What If A Texas Insurance Company Does You Wrong

October 5, 2009 | Mark S. Humphreys

The recourse that a Texas insurance policy holder has against their insurance company depends on exactly what it is that the insurance company does that is wrong or illegal. The types of wrong that can be committed by insurance companies are too numerous to mention all of them here. However, there are a few wrongs committed by insurance companies that policy holders should be aware of when dealing with their insurance agent or the insurance company.

Again, keep in mind that there are many wrongs that can be committed by an insurance company. The most wrongs that can be found without reading all the laws related to insurance can be found in the Texas Insurance Code Section 541.051, Section 541.060 and Section 542.003.

These Sections are appropriately found in Subtitle C of the Texas Insurance Code which is titled “Deceptive, Unfair, And Prohibited Practices”. Section 541.051 is in Chapter 541 and titled “Unfair Methods Of Competition And Unfair Or Deceptive Acts or Practices”.

How Do I Know When My Texas Insurance Company Is Not Doing Its Job

September 30, 2009 | Mark S. Humphreys

It is easy to say “you know when you know”. Most people will sense something isn’t right. Often times the insurance company sends you a letter saying your claim for benefits is being denied and state as a reason, something you absolutely know is wrong.

Let’s look at what the Texas Insurance Code says. Section 542.055 is titled “Receipt of Notice of Claim”. This section gives guidance to the first actions an insurance company is suppose to take when a claim is filed. It says that not later than the 15th day after the date they receive notice of a claim that they shall, (1) acknowledge receipt of the claim, (2) begin their investigation of the claim, and (3) request from the person making the claim all statements, and forms that the insurance company believes it will need to evaluate the claim. It then says that the insurance company may make additional requests for information if during the investigation of the claim the additional requests are necessary. Also, they are suppose to acknowledge the claim in writing or make a written record of how the acknowledgement was made.

Section 542.056 is titled “Notice of Acceptance or Rejection of Claim”. This section is a little complicated and varies depending on the type of claim made, but does have deadlines for when the insurance company is suppose to make their determination. Also it is in these actions required of the insurance that they are most likely to be making mistakes. If the claim is one they should be paying, a letter from an Insurance Law Attorney at this point usually gets them acting properly in a hurry. If they are not sure whether they should be paying the claim or not, the requirements of this section and a letter from an Insurance Law Attorney makes the insurance company take a stand or be in further violations of these sections or others in the Insurance Code. The Insurance Law Attorney wants the insurance company to make that stand rather than continuing to string out the matter.

Texas Bad Faith Insurance Laws / Deceptive Trade Practices Act

September 29, 2009 | Mark S. Humphreys

The Texas Department of Insurance has the authority to punish insurance companies and agents who commit wrongs. The punishment can be fines or in some cases “cease and desist” orders are issued.

When an insurance company or one of their agents commits a violation of the Texas Insurance Code, the person who sustains actual damages may bring an action for those damages caused by the person or company engaging in the wrongful action. Section 541.151 of the Texas Insurance Code allows for this private cause of action. Any violation of Subchapter B, defined to be an unfair method of competition or unfair or deceptive act or practice in the business of insurance, or Section 17.46(b) of the Texas Business & Commerce Code, may bring this private cause of action against the insurance company or its agent.

A person who prevails in their claim against the insurance company or its agent may obtain the amount of actual damages plus court costs and reasonable and necessary attorneys’ fees, plus any other relief the court determines is proper. If the insurance company is found to have knowingly committed the act complained of, the judge or jury may award an amount up to three times the amount of actual damages.

Texas Insurance Law vs. ERISA (The Elephant)

September 3, 2009 | Mark S. Humphreys

The State of Texas regulates insurance companies by way of the Texas Department of Insurance. Texas has laws telling the insurance companies and the Texas Department of Insurance how they should be conducting their business and these laws are found in the Texas Insurance Code.

These Texas insurance laws are applicable to all citizens and businesses through-out Texas. So whether you live in Dallas, Fort Worth, Arlington, Grand Prairie, South Texas, East Texas, west to Weatherford and Parker County or all the way to El Paso, the law is the same. This is a good thing in that a person or company knows what to expect when it comes to insurance policies and the guiding principles for their interpretation.

The problem with Texas Insurance Laws is the elephant in the room most people do not know about and lawyers usually wished did not exist. This elephant is the Federal Laws that pre-empt, or trump, State Law. The relevant Federal law in the insurance arena is known as the “Employee Retirement Income Security Act“, also known as ERISA.

This law passed by the Federal Congress is a thorn in the side of Texas Insurance Attorneys. Even though an Insurance Attorney may know about this law and how it works, it has powers that severely limits rights claimants have under Texas Law. The tricky part in this area of Insurance Law is knowing the distinctions between when ERISA controls and when Texas Insurance Law is controlling. The recent case, Lone Star OB/GYN Associates vs. Aetna Health Inc., is a case where the courts allowed Texas Law to be controlling in the dispute and thus allowed for a recovery against the insurance company that otherwise would not have been allowed.
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Texas Insurance Law On How Claims Are Paid

August 22, 2009 | Mark S. Humphreys

In 1929, a case was decided that has had deep effects on the claims handling process in Texas. The case was G. A. Stowers Furniture Company vs American Indemnity Company. The case arose out of a situation in Galveston, Texas, but applies to any place in Texas including Dallas, Fort Worth, Arlington, Grand Prairie, Irving, Weatherford, or any other city or town in the State.

In this case, Stowers had a $5,000 insurance policy with American. A claim was made against Stowers wherein the claimant was willing to settle the claim for $4,000. The claim was potentially worth much more. American decided to deny the claim. American’s thinking was that the worst that could happen to them was that if the case were tried and lost that American would be out $5,000 which was the top limit on the policy. So instead of settling the case for $4,000 the case went to trial and a judgment was taken against Stowers for over $14,000. American paid the policy limits of $5,000 and walked away leaving Stowers to make up the difference.

Stowers sued American saying American refused to act as a reasonable and prudent insurer would have acted and thus cost Stowers money. Stowers said it was unreasonable for American to have not settled the case for $4,000, when they could have, rather than expose Stowers to a judgment in excess of the policy limits. The court agreed with Stowers.

This law, now known as the “Stowers Doctrine” in Texas says that if an insurance company is given the opportunity to settle a case for an amount less than or equal to the policy limits and refuses to do so, then the insurance company and not its insured is responsible for any judgment in excess of the policy limits. The test is, would a reasonable and prudent insurance company go ahead and settle the case, given the facts of the case, rather than expose its policy holder to the risk of a judgment in excess of the policy limits.

There have been several adjustments to this law over the years that involve issues of liens and subrogation interests. Plus the exact language of any offer to settle for an amount equal to or less than the policy limits is scrutinized closely by the courts to see if the offer properly invokes the “Stowers Doctrine”. If this “Stowers Doctrine” is properly taken into account and the claim is not paid by the insurance company then the policy holder has a claim against its insurance company for its conduct in the matter.
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