Delay In Paying Claim – When Does It Happen?

Fort Worth insurance attorneys and those in Arlington, Burleson, Benbrook, Grapevine, Saginaw, Lake Worth, Crowley, and other places in Tarrant County need to know when an insurance company can be held liable for a delay in paying a claim.
The Texas Supreme Court issued an opinion in 2004, that deals with this issue. The style of the case is, Republic Underwriters Insurance Company v. Mex-Tex, Inc. Here are some of the facts:
Following a May 25, 1999 hail storm in Amarillo declared by the Texas Department of Insurance to be a weather-related “catastrophe for the purpose of claims processing”, Mex-Tex, Inc. notified its property insurer, Republic Underwriters Insurance Co., of damage to the roof of Signature Mall, a retail shopping center that Mex-Tex owned. Mex-Tex claimed that the roof had been destroyed and should be replaced. Republic immediately investigated the claim but disputed the amount of damage attributable to hail. The roof had leaked for a long time, and months before the storm Mex-Tex had obtained estimates to replace it. While Republic was still investigating the claim, it learned that Mex-Tex had retained a contractor to go ahead, without waiting on Republic, and replace the roof at a cost of $179,000 with one of the same kind, but which would be fixed to the building mechanically rather than by ballast as the old roof had been. Republic’s first response was to offer what it believed was the cost to repair the minimal hail damage, $22,000, as what it termed “partial payment” of Mex-Tex’s claim, but when Mex-Tex rejected that offer, Republic sent Mex-Tex a check on August 20, 1999, including $145,460, an amount representing what Republic’s engineer had determined was the cost of replacing the mall’s roof with an identical one, attached by ballast.
Mex-Tex returned the check. Republic re-sent it. Mex-Tex re-returned it. Republic then replied that it would hold the money until Mex-Tex accepted it, which Mex-Tex did on October 12, 2000, as partial payment of its claim. Meanwhile, Mex-Tex had sued Republic for breach of the policy and delay penalties under the Texas Insurance Code. After trial to the bench, the court found that Republic’s failure to pay Mex-Tex the $179,000 was a breach of Republic’s policy obligation to replace the roof with one of “like kind and quality”–despite the fact that Mex-Tex’s cost exceeded the replacement cost of an identical roof by $33,540–and awarded Mex-Tex that difference in damages. The court also awarded Mex-Tex, under the Insurance Code, 18% per annum on $179,000 from November 4, 1999, the date the court determined that Republic should have tendered that amount, which was 75 days after it tendered $145,460, to the date Mex-Tex accepted that partial payment almost a year later, and thereafter on the $33,540 difference until judgment.
Republic argues that the delay penalty imposed by the Insurance Code should have been calculated only on the $33,540 difference between the payment it tendered Mex-Tex and the full amount Mex-Tex claimed, from the date of the tender until Mex-Tex accepted it. The Insurance Code states that “if an insurer delays payment of a claim the insurer shall pay damages and other items as provided for in the Insurance Code.
The Insurance Code defines “claim” as follows:
“claim” means a first party claim made by an insured or a policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract that must be paid by the insurer directly to the insured or beneficiary.
The emphasized phrase, “that must be paid”, limits “claim” to the amount ultimately determined to be owed, which of course would be net of any partial payments made prior to that determination. This encourages insurers to pay the undisputed portion of a claim early, consistent with the statute’s purpose “to obtain prompt payment of claims made pursuant to policies of insurance.”
Mex-Tex does not disagree with this but argues that the penalty should nevertheless be assessed if an insurer’s tender of partial payment of a claim is not unconditional. The Court agreed. Otherwise, an insurer’s insistence on a release to which it is not ultimately entitled delays payment, again impairing the statute’s purpose. Here, the trial court found that Republic did not tender $145,460 unconditionally but “tried to enforce a full and final release of [the claim] when only a partial payment had been made.”
An insurer cannot tender partial payment of a claim and then assert that acceptance was an accord and satisfaction fully releasing the claim. In this case, it was Mex-Tex’s burden to prove its right to the delay penalty under the Insurance Code. The burden on Mex-Tex to prove that Republic’s offer was conditioned on a full release is no less than the burden would be on Republic if it were making that assertion.
The Court concluded that from November 4, 1999, 75 days after Republic tendered Mex-Tex partial payment of $145,460, to the date of judgment, Mex-Tex was entitled to the statutory penalty only on the $33,540 difference between the tendered payment and the amount of Mex-Tex’s claim, determined by the trial court to be $179,000.
The Insurance Code, Prompt Payment of Claims statute has to be read carefully, applying the facts of a case to the language of the statute. Experienced Insurance Law Attorneys know how to do this.