Delay In Paying Insurance Claim

Dallas insurance attorneys know the statutes dealing with the requirements of time within which an insurance company must pay a claim. A 2000, Corpus Christi Court of Appeals case addresses this issue. The style of the case is, Colonial County Mutual Insurance Company v. Hector Valdez.
Hector Valdez bought a 1992 Plymouth Acclaim and arranged insurance for the car with Colonial through the Diego Luna Insurance Agency. An employee of the insurance agency told Hector that the car was insured “against theft, against accidents, against medical expenses, everything concerning the insurance.” A few months after obtaining this insurance, Hector sold the car to his son, Rene Valdez, for $7,000. Rene obtained a loan from Mercantile Bank in order to make the purchase. Hector called the Diego Luna Insurance Agency and told them Mercantile Bank would be calling them to make “changes” and “arrangements” on the insurance. Diego Luna testified that an employee of Mercantile Bank did call, and asked to verify insurance on the car for “a Mr. Valdez.” The bank was told that “Mr. Valdez” had insurance. Hector continued to pay insurance premiums on the car while Rene owned it. It is undisputed that Hector never told Colonial or Diego Luna Insurance Agency that he had sold the car to Rene. It is also undisputed that Hector was never informed, orally or in writing, that he could only insure the car if he owned it.
In November 1995 Hector’s policy was automatically renewed. On January 14, 1996 the car was stolen. Hector reported the theft and Colonial proceeded to investigate. During this investigation, Colonial discovered that Rene was the owner of the car. On March 19, 1996 Colonial sent Hector a letter informing him that “the handling of this claim is being conducted under a Reservation of Rights” because Colonial was investigating whether Hector had an “insurable interest” in the car.
A lawsuit was filed and the jury found that Colonial had engaged in a false, misleading, or deceptive act or practice under the Deceptive Trade Practices Act, had engaged in an unfair or deceptive act under Section 541.060 of the Texas Insurance Code.
Colonial argued that there is no evidence that it committed an unfair settlement practice as defined by the insurance code. In that regard, the jury was asked whether Colonial:
•Failed to promptly provide Valdez with a reasonable explanation of the factual and legal basis in the policy for its denial of his claim;
•Failed to affirm or deny coverage within a reasonable time;  or •Failed to submit a reservation of rights letter to Valdez within a reasonable time.
Colonial argued that it did not timely notify Valdez of acceptance, rejection, or the inability to accept or reject his claim because Valdez did not send to it all items, statements and forms that Colonial required in order to do so. Valdez argues that the terms “promptly” and “within a reasonable time” should be interpreted in light of the deadlines set out in the Prompt Payment of Claims Act. During the presentation of his case, Valdez presented evidence of the deadlines to the jury. If these deadlines apply, it is undisputed that Colonial failed to satisfy them. However, Colonial contends that these deadlines were never triggered because Valdez failed to provide all the materials and information requested in a letter sent to him by Colonial on January 17, 1996. The January 17 letter asked Valdez to provide:
(1) A completed Theft Statement form;
(2) A Power of Attorney Document;
(3) A completed Proof of Loss form;
(4) Copies of Vehicle Service Records;
(5) Recent Photographs of the vehicle;
(6) A copy of the Bill of Sale or a Licence Registration Receipt;
(7) Negotiable Title or a copy of the title;
(8) All sets of keys to the vehicle.
Valdez provided the Theft Statement form, the Power of Attorney, and the Proof of Loss form. He did not provide items 4-8. Colonial argues that, because Valdez failed to supply these documents, it never received “all items, statements, and forms required by the insurer to secure final proof of loss.” There is no Texas case examining what documents are “required by the insurer to secure final proof of loss” for purposes of triggering the deadlines in the Prompt Payment of Claims Act.
This Court held that items 4-8 demanded by Colonial were not required to secure final proof of loss. Colonial presented no evidence and has offered no argument explaining why it required these materials. Common sense indicates that materials such as service records, sets of keys, and photographs of the vehicle are irrelevant to proving the loss of the vehicle. Therefore, Valdez’s failure to provide these materials did not excuse Colonial from complying with the deadlines. The jury could have rightfully concluded that Colonial’s failure to comply with these deadlines constituted failing to affirm or deny coverage within a reasonable time and failing to promptly provide the insured with an explanation for the denial of his claim.