Dallas Fort Worth Insurance Lawyer Blog

How do you calculate the beginning date and end date for violation of the Texas Prompt Payment of Claims Act?  The start date was calculated in the previous post.  Here is a discussion on the end date for calculation.

The statute does not say when the penalty stops accruing.  No court has addressed this specific issue.  Several courts have simply held that the penalty accrues from the date of the violation up to the date of judgement, without any analysis for choosing that date.  This was done in the 2010, 5th Circuit opinion, Great American Insurance Co. v. AFS/IBEX Financial Services, Inc.  Also in the 2004, Texas Supreme Court opinion, Texas Farmers Insurance Co. v. Cameron.  Other courts have held that the penalty accrues until the insurer settled.  This was seen in the 2000, San Antonio Court of Appeals opinion, Cater v. United Services Automobile Ass’n and in the 1196, Texarkana Court of Appeals opinion, Southland Lloyd’s Insurance Co. v. Tomberlain.  One approach is to end the accrual of the 18% damages on the day of the judgment.  This is the approach taken in Mid-Century Insurance Co. v. Barclay, which is from the 1994, opinion of the Austin Court of Appeals.  The statute itself, neither embraces nor rejects this approach.

Another approach would be to continue accruing the 18% damages until the insurer fully discharges its liability, including payment of the 18% damages and attorney’s fees.  An argument for this approach is that, presumably, the Legislature intended the 18% damages partially to compensate claimants for the delay and partially to punish insurers for violations.  If the 18% damages accrue only up to the time of judgment, this would mean that while the insurer is contesting liability, perhaps even in good faith and reasonably, these extra damages would accrue, but once the claim is finally established, the incentive to pay would be removed.  Arguably, it makes no sense to compensate the claimant when his claim is disputed, but once it is certain to no longer compensate him.  Likewise, it makes no sense to punish the insurer for withholding a disputed claim, but to no longer punish it for withholding an established claim.  Case law makes clear the statute recognizes that the insurer denies the claim at its risk.  If the insurer gambles and loses, it pays these additional damages.  Similarly, if the insurer wants to gamble on continuing to contest the claim once judgment has been rendered, that choice may bear financial consequences.  Interestingly, in the Cater case above, the court ended the penalty on the date the claim was paid, to shorten the time period, presumably as a reward or encouragement for the insurer to pay the claim.  Conversely, the penalty should be extended when the insurer continues to refuse to pay, especially after the judgment is rendered.

When does the time to start calculating the time a payment is due under an insurance policy claim?  Good question but not an easy answer.

The penalty for violation of the Texas Prompt Payment of Claims Act is an 18% penalty on the amount due and owing on the claim according to Insurance Code, Section 542.060.  However, the date that amount accrues is not so easy.

The statute does not say when the penalty accrues.  On approach would be to begin accruing the 18% damages from the date the claim was received.  This focuses on the length of time the claimant has been without his or her money, instead of focusing on the length of time the insurer has been in error.  This approach encourages prompt payment of claims.  As the claim proceeds towards payment, the insurer’s incentive to pay the claim would increase.  Any error, even at the last stage, would accrue damages at 18%, retroactive to the date the claim was filed.  This approach has the benefit of making payment of the claim more important to the insurer, even as the passage of time makes payment of the claim more important to the insured.

When an insurance company delays in paying a claim, the claimant may be entitled to relief under the Texas Prompt Payment of Claims Act.

The Texas Prompt Payment of Claims Act, Section 542.060 provides that

(1) if an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to pay the holder of the policy or the 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