Dallas Fort Worth Insurance Lawyer Blog
Insurance attorneys need to be know this 2021, opinion from the Texas Supreme Court. It is styled, Louis Hinojos v. State Farm Lloyds and Paul Pulido.
The Texas Prompt Payment of Claims Act, codified in Insurance Code Chapter 542, imposes deadlines on insurers to pay valid claims. If an insurer fails to comply with Chapter 542, then it is liable for statutory interest on the amount of the claim and attorney’s fees. The insurer in this case accepted a homeowner’s claim and paid part of it before the statutory deadline.
Dissatisfied with that amount, the homeowner sued, seeking full payment of the claim plus interest and attorney’s fees under Chapter 542. While suit was pending—and after the statutory deadline for payment had passed—the insurer invoked the policy’s appraisal process. The appraisers awarded the homeowner substantially more than the amount the insurer had paid.
The insurer paid the difference and then moved for summary judgment on the homeowner’s Chapter 542 claim, contending that its payment of the appraisal award precluded liability. Because the insurer in this case did not pay the amount that “must be paid” on the claim before the statutory deadline, it was in violation of the Prompt Pay statute.
When an insurer receives a claim, it has fifteen days to acknowledge its receipt, begin an investigation, and request from the claimant all “items, statements, and forms” that the insurer reasonably believes are necessary to evaluate the claim. Within a further fifteen business days of receiving the “items, statements, and forms,” the insurer must inform the claimant, in writing, whether it accepts or rejects the claim. If an insurer accepts the claim, in whole or in part, it has five business days to pay the insured. To enforce these deadlines, Chapter 542 provides that a claimant may recover statutory interest and attorney’s fees, in addition to the amount of the claim.
In this case, nearly two years after Hinojos submitted his claim, and fifteen months after he filed suit, State Farm invoked the policy’s appraisal clause. The appraisal process results in a binding determination of the amount owed for a covered loss under the policy.
The appraisers valued Hinojos’s loss at $38,269.95 on a replacement cost basis and $26,259.86 on an actual cash basis. Within a week of the appraisers’ decision, and about two-and-a-half years after Hinojos submitted his claim, State Farm tendered an additional $22,974.75, reflecting payment of the appraisal award net of the earlier payment it made to Hinojos, the deductible, and depreciation.
Hinojos had filed a lawsuit, and after payment of the appraisal, State Farm filed a motion for summary judgment based on their assertion the case was now over and the trial court granted the motion.
Hinojos appealed, contending that “the payment of the appraisal award should allow him to receive interest penalties under the statute because the appraisal payment was ultimately paid outside the sixty-day statutory-window.”
The parties agree on the key facts: (1) State Farm “accepted” Hinojos’s claim and paid some money toward that claim within the statutory window; and (2) State Farm fully paid the amount it owed to satisfy the claim after the deadline had passed. The issue presented is whether State Farm can avoid liability under Chapter 542 as a matter of law based on these facts.
The Legislature defines “claim” as: a first party claim that:
(A)is made by an insured or policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract; and
(B)must be paid by the insurer directly to the insured or beneficiary.
Nothing in Chapter 542 discharges prompt payment liability based on the partial payment of the amount that “must be paid” under the policy. Otherwise, an insurer could pay a nominal amount toward a valid claim to avoid the prompt payment deadline that the Legislature has imposed. The phrase “must be paid by the insurer” in the definition of “claim” includes the amount of the claim and “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.”
By requiring insurers to promptly satisfy claims that they owe in their entirety, the Legislature incentivizes insurers to resolve disputes and invoke the appraisal process sooner rather than later. Although the statute says nothing about reasonableness, a reasonable payment should roughly correspond to the amount owed on the claim. When it does not, a partial payment mitigates the damage resulting from a Chapter 542 violation. Interest accrues only on the unpaid portion of a claim.
A significant delay in requesting an appraisal, as in this case, may cause additional interest to accrue. Although access to the appraisal process to resolve disputes is an important tool in the insurance claim context, it is the insurer’s responsibility to seek prompt resolution of a disputed claim through appraisal to avoid statutory interest on amounts that were not promptly paid.
This Court ruled in Hinojos’s favor.