The Texas Prompt Payment of Claims Act (“TPPCA”), codified in Chapter 542 of the Texas Insurance Code, contains deadlines relating to payment of claims. The TPPCA allows for an insured to recover actual damages, penalty interest, and attorneys’ fees on their damage claims if an insurance company is found to have failed to comply with the Act’s provisions. For instance, Section 542.055 requires that an insurer must acknowledge receipt of the claim, commence its investigation, and request from the policyholder all information that it believes is required to adjust the claim, within fifteen days after receiving notice of the claim. If the insurer does not comply with this timeline, it can be held liable under the TCCPA. Moreover, an insurer that delays payment of a claim for more than sixty days (if no other period is specified) after receiving all required information from the insured can be held liable under the TCCPA. An insurance company who is in non-compliance with the TPPCA must pay, in addition to the claim, a penalty of eighteen (18) percent per annum of the amount of the claim plus attorney’s fees under Chapter 542.060.[1] In that regard, the insured is entitled to penalty interest on the difference between the amount of the claim determined to be owed and the amount the insurer unconditionally tendered.[2]
Central to the TPPCA is the goal of discouraging insurers from failing to timely process and pay claims. That said, a violation of the bad faith provisions of the Texas Insurance Code is not a prerequisite to relief, and insureds do not need to prove that the insurer actually acted in bad faith to recover interest and fees.[3] Application of the TPPCA in the enforcement of timely claim processing has been consistently applied across the Texas insurance industry, with some nuances for the courts to settle. When questions for the courts do arise, they typically involve timing—for instance, a question of when an insurer received all information necessary to process the claim (the TPPCA deadlines are not triggered until the insurer receives all information needed to evaluate the claim). Even so, the plain text of the TPPCA outlines the deadlines for an insurer to acknowledge, adjust, and ultimately deny or accept and pay a claim. For instance, if an insurance company accepts a claim, it has five days, after providing notice to the policyholder, to pay the claim. If the insurer delays paying the claim, it is in violation and thus can be liable for interest and fees. This fact pattern is rather unremarkable in the everyday practice of claim adjustment.
What is less common, and what the Act text fails to address, is if the insured— as opposed to the insurer— acts wrongfully in delaying a claim. This situation brings about a question of whether there is any relief available to the insurer under the TCCPA for a policyholder’s delay. Put another way, is there authority to warrant tolling the accrual of statutory interest under Section 542 for any duration due to delays caused by the policyholder rather than the insurer?
It’s not a stretch to assume that the potential for recovery of statutory damages, in this case 18% interest, might incentivize delays by the policyholder (or its representative) in the claim adjustment process. Although Chapter 542 was enacted to prevent delays and abuse on the part of the insurer, it is silent as to the appropriate remedy when it’s not the insurer, but rather the insured, that delays the ultimate claim determination. Because the TPPCA makes no mention of delays on the part of the policyholder, there is no clear answer as to what relief, if any, is available to an insurer when an insured causes delay in the claim investigation process.
This scenario could arise in several ways. For instance, consider the following fact pattern: an insured submitted a claim on May 1, 2022 and the insurance company subsequently denied the claim on June 1, 2022, but the insured waited until May 30, 2024 to file suit. Should the insurance company be required to pay statutory interest during the two-year period it took the insured to file suit? Some factors that would likely need to be considered here are whether there was any ongoing investigation, adjustment activities or settlement discussions during that time, or whether either party was requesting additional information.
Another possible instance in which this question could arise is if an insured filed a lawsuit, say on September 1, 2018, and on the eve of trial, four years later, the insured demanded appraisal. Should the insurance company be required to pay statutory interest during the four years that the matter was needlessly in litigation?
One final hypothetical for consideration: let’s say an insured submitted a claim on February 1, 2020, and supported the claim only with a contractor’s estimate. Then, two years later, on February 1, 2022, a public adjuster finally submitted a causation analysis. Should the insurance company be required to pay statutory interest during that two-year period it took the insured to properly support its claim?
Unfortunately, neither the Texas Supreme Court nor the Fifth Circuit have addressed these issues. There is some guidance, however, from the Northern District of Texas under the guise of Article 21.21 of the Texas Insurance Code, which was re-codified and is now found in Chapter 541 of the Insurance Code. In Allison, a policyholder sued an insurer for statutory interest under the TPPCA for the insurer's failure to timely pay its claim.[4] Although the court found that the insurer had violated the TPPCA's prompt-payment provision, it decided to partially toll the accrual of interest due to the delay caused by the policyholder’s rejection of an earlier payment made by the insurer— the policyholder having accepted payment for the exact same amount at a subsequent date.[5] In this case, delays in payment were caused by the fact that the policyholder had not yet provided its increased loss estimates. The insurer argued that the purpose of the prompt-payment statute is to promote the prompt payment of claims, but the insurer could not “promptly pay” when the claims had not even been made. The insurer advanced an argument that the purpose of the statute would not be served by punishing the insurer for the policyholder’s delay, and any interest calculation should not include periods of delay, including periods where increased estimates had not yet even been provided to insurer.[6] The court agreed and concluded that interest is properly tolled for periods of delay caused by the policyholder’s bad faith refusal to accept payment of its claim from the insurer. Another court, however, has declined to extend this decision in support of the broader proposition that interest is generally tolled during periods of delay caused by the policyholder.[7] Thus, at best, this issue is a fact-based analysis for the courts.
While available case law on this issue is limited, regardless of whether such delays are innocent or intentional, imposition of statutory damages during periods of delay caused by policyholders seems unwarranted. And it remains to be fully developed whether an equitable argument on this very topic would fare favorably with the courts.
____________________________
[1] TEX. INS. CODE § 542.060
[2] Republic Underwriters Ins. Co. v. Mex–Tex, Inc., 150S.W.3d 423, 427-428 (Tex.2004); GuideOne Lloyds Ins. Co. v. First Baptist Church of Bedford, 268 S.W.3d 822, 831 (Tex.App.- Fort Worth 2008, no pet.).
[3] Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 518 (5th Cir. 2015) (not requiring a showing of violation of the bad faith claims of the Texas Insurance Code to recover under the TPPCA).
[4] Allison v. Fire Ins. Exchange, 98 S.W.3d 227, 263-64 (Tex. App.--Austin 2003, vacated by agreement).
[5] Id. at 264.
[6] Id.
[7] Devonshire Real Est. & Asset Mgmt., LP v. Am. Ins. Co., No. 3:12-CV-2199-B, 2014 WL 4796967, at *25 (N.D. Tex. Sept. 26, 2014)
