Articles Posted in Delay in Paying Claim

What about those times that an insurance company pays a claim but the payment has been a lot later than it should have been paid?  That is an issue that is partially addressed in a January 2020, opinion from the United States District Court, Southern District of Texas, Houston Division.  The opinion is styled, Zachary Dunne v. Allstate Vehicle And Property Insurance Company.

This part of the ruling is the result of a Motion For Summary Judgment filed by Allstate.

The facts are not in dispute.  Dunne’s home was damaged in a storm that was insured by Allstate on June 20, 2018.  Dunne reported the claim on July 3, 2018.  Allstate’s adjuster determined the damage was below Dunne’s deductible despite increasing its estimate.

As discussed before, litigating cases in Federal Court is what an insurance company prefers to do.  Ans as discussed before, there are ways to keep this from happening in the right circumstances.  The United States 5th Circuit issued an opinion issued an opinion in 1998, that is worth knowing about as it relates to calculating damages and how that calculation effects whether or not a case will be litigated in Federal Court.  The opinion is styled, St. Paul Reinsurance Co., LTD. v. Greenberg.

This declaratory judgment action is a case wherein the insurance company won their fight to have the case litigated in Federal Court because the amount in controversy requirement for diversity jurisdiction under 28 U.S.C., section 1332, was not satisfied.

Greenberg had a homeowners policy with St. Paul.  Greenberg’s home was destroyed by arson.  Greenberg filed a sworn proof of loss for $35,000, which was the policy limits.  St. Paul denied the claim for three reasons.

All insurance lawyers understand that there are time limits within which an insurance company must accept and pay the claim or else deny the claim.  And it is also understood that the insured making the claim has an absolute duty to cooperate with the claims investigation.  But what about a situation where the insurance company needs to be able to get information from a third party, such as medical providers?

What is clear is that if the insurance company reasonably requests information from the claimant, deadlines for payment of the claim are postponed until the insurance company receives that information.

In contrast, the Prompt Pay 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, Texas Insurance Code, Section 542.056(d) allows the insurance company a one-time 45 day extension.

Here is an insurance case that was appealed to the Fort Worth Court of Appeals.  The case is styled, Joseph Lambert and Susan Lambert v. State Farm Lloyds and Tevin Senne.  The appeal involved a few issues but the one focused on here deals with the Texas Prompt Payment of Claims Act (TPPCA).

The Lamberts are appealing a grant of summary judgment in favor of State Farm.

The Lamberts had their home damaged in a storm in May 2015.  The y made a claim for benefits and after the first inspection, the damages did not not exceed the Lamberts deductible.  A second inspection was requested, after which the Lamberts were issued a check fo $1,700, in October 2015.

Just saying the claim was paid is not enough.  In Court, the insurance company needs to prove the claim was paid and paid timely in order to prevail on a Motion For Summary Judgment.

Here is a case from the Northern District of Texas, Dallas Division.  It is styled, Carolyn Kee v. Safeco Insurance Company of Indiana.

Kee alleges that Safeco, her home insurer, conducted an inspection after she made a claim and that the adjuster reported minimum damage, falling below her policy deductible.  Kee sued for breach of contract and violation of the Texas Prompt Payment of Claims Act.  Safeco then pursued binding arbitration and the resulting award was significantly higher than Safeco’s initial damage assessment.

Insurance lawyers need to know the time lines for an insurance company to pay claims under the Texas Prompt Payment of Claims Act and they need to know the legal reasons for those time lines being extended.

Pursuant to Texas Insurance Code, Section 542.056(d), if the insurance company cannot accept or reject the claim by the initial deadline, the statute lets the insurance company notify the claimant that it cannot accept or reject a claim by the deadline.  This notification has to be sent before the original deadline, and the notice must state the reason why the insurance company needs additional time.  The insurance company then has 45 additional days to accept or reject the claim.

Pursuant to the 1997, 5th Circuit opinion, Higginbotham v. State Farm Mutual Automobile Insurance Co., the insurer’s good faith or its lack of bad faith is no defense.  In reaching this conclusion, the court noted that precedents under the predecessor statute held that an insurance company’s good faith in denying a claim did not relieve the insurer of liability for penalties.  The court concluded that an insurer  that denies a claim takes the risk that it will have to pay the additional damages allowed by the statute.

The next question in this series related to violations of the Texas Prompt Payment of Claims Act is, what are some of the defenses the insurance company has for not making prompt payment on a claim.

The statute contains several provisions by which insurance companies may extend the deadlines.  While, technically, these are not “defenses,” they may help insurance companies avoid liability.  The following events or conditions can extend the deadlines:

a.  Texas Insurance Code, Section 542.055(a) allows eligible surplus lines insurers extra time for acknowledging claims, commencing investigation, and requests for information.

Additional remedies under the Texas Prompt Payment of Claims include attorney fees.  Attorney fees under the statute are governed by the 1997, Texas Supreme Court opinion, Arthur Andersen & Co. v. Perry Equipment Corp.  In that case, the court held that a reasonable fee must be based on eight factors set out by the disciplinary rules.  Fees cannot be awarded simply as a percentage of the recovery, but must be awarded as a dollar amount.  The jury can consider the fact that the plaintiff has agreed to a contingent fee as one factor in deciding what fee is reasonable.  This is discussed in the 1999, Tyler Court of Appeals opinion, Dunn v. Southern Farm Bur. Cas. Ins. Co.

In light of the Arthur Andersen opinion, earlier opinions allowing recovery of a percentage fee under the statute are no longer good law.

If fees an be segregated between the statutory claim and other claims, it is proper to do so, but the defendant needs to object.  Other wise an unsegregated award will be upheld according to the 1998, Waco Court of Appeals opinion, Allstate Insurance Co. v. Lincoln.

Under the 18% penalty imposed by Texas Insurance Code, Section 542.060, what is the effect if there is a finding of multiple violations?  Does the result of result of multiple violations result in multiple penalties?

In applying the Texas Prompt Payment of Claims Act and Section 542.060, the 1999, Tyler Court of Appeals opinion, Dunn v. Southern Farm Bureau, the court found four separate violations by the insurer, but did not discuss whether this made a difference in the damages.

Something to keep in mind is that arguably, an insurance company that violates the statute more than once ought to be more liable than an insurance company that violates the statute only once.  This view is consistent with liberal construction of the statute, and furthers the purpose of encouraging prompt payment of claims.

How to label the 18% penalty in the Texas Prompt Payment of Claims Act is a topic of much discussion in Insurance Law circles.  How is Section 542.060 to be labeled?  Maybe the damages awarded under the prompt payment statute are awarded simply for a failure to comply with a deadline.  The damages are not based on any level of malfeasance of the insurer.  Referring to the treatise, Couch on Insurance, the authors make the following point:

When the statute is silent on the matter, the determination of what kind of conduct of the insurer comes within the scope of the penalty statutes depends basically upon whether the statute is viewed as punitive or as compensatory.  Where it is the latter, the only conduct of the insurer required is of the negative character that the insurer did not pay, and therefore, was sued by the insured, and successfully.  When, however, the statute is viewed as punitive as is generally the case, there must be some misconduct of the insurer to justify the imposition of the penalty.  In general terms, these statutes apply to any improper conduct of the insurer with respect to delay in making payment, refusing to make payment, or stopping the making of payments.

With this analysis, the Texas prompt payment statute would fall within the “compensatory” group because the only conduct required of the insurer is the failure to pay or to timely process the claim, not other misconduct.