A resident in Grand Prairie, Weatherford, Arlington, Fort Worth, Dallas, Mineral Wells, Mansfield, Crowley, Benbrook, Aledo, or anywhere else in Texas may wonder how long an insurance company has to pay a claim after the claim is made. The answer is not always easy. Worse though, is how to bring a lawsuit to enforce this statutory right against a company who violates the law.
The Prompt Payment of Claims Act is in the Texas Insurance Code, Sections 542.051 thru 542.061. These sections set out in pretty good detail how long an insurance company has to pay a claim. The length of time varies with the circumstances and facts of each claim and the needs of any investigation. Plus the type of insurance company makes a difference in how long the company has to pay the claim.
But stepping beyond how long a company has to pay a claim is, how does someone enforce their rights to timely payment. An experienced Insurance Law Attorney needs to be consulted to get a good answer.
The Court of Appeals, Dallas issued an opinion in the case styled, In Re Loya Insurance Company, wherein the proper way for enforcing the Prompt Payment of Claims Act was at issue. The opinion was issued on August 11, 2011.Here is some background.
In this insurance coverage dispute, Loya Insurance Company sought mandamus relief from the trial court’s order partially severing the homeowners breach of insurance contract claim from the extra-contractual claims, but refusing to sever the prompt payment claim. Loya had offered to pay some of the claim.
Fabian and Marth Jagrup sued Loya for breach of their homeowner’s insurance policy, violations of the Texas Insurance Code and its chapter 542 prompt payment provisions, violations of the common-law duty of good faith and fair dealing, and fraud.
In discussing this case, the court pointed out that Texas insurance law requires the courts to look at the severance and abatement of a breach of contract claim from extra-contractual claims in the insurance context, in an abuse of discretion standard. Courts have stated that “When an insurer offers to settle a breach of contract claim, the trial court must sever the insured’s extra-contractual claims from the contractual claims to avoid prejudice to the insurer in its defense of the coverage dispute.” This is because, ordinarily, an offer to settle a coverage dispute is inadmissible to prove the merit of a coverage claim, but such evidence nevertheless may be admissible on the extra-contractual claims to rebut evidence that the insurer acted in bad faith. Under such circumstances, the trial court can reach only one decision that will protect all interests involved, and that is to order severance of the two types of claims.
Loya asserted that the trial court’s order severing only some of the Jagrups’ extra-contractual claims while maintaining their prompt payment claim in the lawsuit with their coverage claim is contrary to the principles of law set forth. Loya observed that the Jagrups could seek to admit Loya’s settlement offer as evidence of Loya’s belated attempts to resolve the disputed insurance claim to support Loya’s prompt payment liability, but the admission of such evidence would undermine Loya’s coverage defense of the underlying insurance claim.
This Court of Appeals held that the trial court abused its discretion by not severing and abating the prompt payment claim from the contract claim.
All this can be confusing to someone who does not have a fair understanding of insurance law. What is important to know is that there are legal ways for punishing the insurance company for its violation of the Prompt Payment of Claims Act. Some of these ways are pretty straight forward and others, like this one, are not so easy, and end up requiring a lot of time and work. The good thing is that Section 542.060 says, … the insurer is liable to pay the holder of the policy or beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney’s fees.