Getting fair treatment from an insurance company means getting the payment you deserve when you deserve it. The whole point of having an insurance policy is getting payment in a timely manner. If you wait too long to get paid for a claim, you’re not getting what you deserve.
The Texas Legislature passed the Texas Prompt Payment Act to encourage insurance companies to resolve claims quickly. The Act penalizes the insurance company if they don’t pay what they should pay within a reasonable amount of time.
The requirements in the Act affect insurance in several ways. Our bad faith insurance lawyers explain.
7 Ways the Texas Prompt Payment Act Affects Insurance
1. Acknowledgment and Investigation
When the insurance company receives a new claim from a policyholder, it must promptly acknowledge receipt of the claim and start their investigation. The insurance company must communicate regarding the investigation and settlement of claims.
The insurance company has 15 days to:
- Acknowledge receipt of the claim;
- Start their investigation; and
- Request documentation, including the statements and forms that are needed to process the claim.
Additional documentation may be requested later, if necessary. There are exceptions to the 15-day requirement – if the insurer is an eligible surplus lines insurer, they have 30 days to acknowledge a claim. Also, if the state designates an event as a catastrophe, the insurer may also get 15 additional days added to this timeline.
2. Acceptance or Reject of Claim
Once the insurance company has all the paperwork necessary to evaluate the claim, it has 15 days to accept or reject the claim. If they reject the claim, the insurer must give the reason in writing. Typically, an insurer will request additional information to create delay, but the key is determining whether the information is reasonable. Unfortunately, that is sometimes only determined by a lawsuit and may not be easy to establish without qualified legal advice.
3. Payment of Claims
The insurance company has five days to pay a claim once they’ve accepted it. If the party making the claim needs to do something first, payment is due not more than five days after the required action is completed.
4. Damages for Non-Payment
If payment is delayed for more than 60 days, the insurer must pay damages as stated in § 542.060. Damages include:
- 18% per year interest, as damages
- Attorney’s fees
- Other remedies allowed by law
Attorney fees must be awarded as costs if a lawsuit is filed. Prejudgment interest may also be awarded. State insurance regulators determine if there is a major natural disaster. If there is a major natural disaster, deadlines are extended 15 more days.
5. Unfair settlement practices prohibited
Since the insurance company has an unfair advantage in the claims process (they’re the big insurance company, and the claimant must wait for their payment), the Act prohibits unfair practices that discourage and frustrate claimants from receiving compensation.
Prohibited practices are:
- Misrepresenting the facts or insurance coverage
- Not promptly acknowledging and investigating a claim
- Not settling the claim fairly and in good faith when liability is clear
- Leaving it to the policyholder to sue for the amount they deserve
- Failing to keep records of complaints as required
- Requiring production of tax returns, except by court order or for claims involving fire or loss of income
6. Records of Complaints and Reporting
542.005 of the Act requires the insurance company to keep records of the complaints they receive and the nature of the complaints. State insurance regulators may subject an insurance company to heightened scrutiny and require the filing of periodic reports of their complaints and grievances. § 542.008 creates a state-run system for receiving and investigating complaints to ensure minimum performance by the insurance companies under the Act.
7. Authority of State Regulators
The Act gives considerable authority to state regulators to oversee the activities of insurance companies. Because of the unequal bargaining position of the insurer and the insured, state officials have the authority to investigate complaints, issue cease and desist orders and take other enforcement and corrective action.
The Texas Prompt Payment Act in Practice
Unfortunately, the Texas Prompt Payment Act doesn’t always stop insurance companies from engaging in bad faith tactics. One common tactic was to leave it to the defendant to file suit, then get an appraisal during the lawsuit and pay the appraised amount. Then, the insurance company would deny they acted in bad faith because they paid the appraisal amount.
The problem with the insurance company’s logic is that the insured party shouldn’t have to file a lawsuit and get an appraisal. As the Texas Supreme Court affirmed, the insured deserves prompt payment without having to sue. The Court remanded a series of cases, ruling that payment of an appraisal amount during litigation does not bar a claim under the Texas Prompt Payment of Claims Act. See Alvarez v. State Farm Lloyds, No. 18-0127, Lazos v. State Farm Lloyds, No. 18-0205, Biasatti v. GuideOne Nat’l Ins. Co., No. 18-0911; affirming Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 135 (Tex. 2019).
The courts continue to act as a recourse for insured parties aggrieved by insurance company non-compliance with the Prompt Payment of Claims Act.
Texas Prompt Payment Act FAQs
What is the Texas Prompt Payment of Claims Act?
When was the Texas Prompt Payment Act passed?
The Texas Prompt Payment Act was passed in 2003, effective April 1, 2005.
Did the Texas Prompt Pay Act work?
From 2003-2015, complaints against insurance providers decreased by 75%. (Source: TAHP, Texas Prompt Pay Act: The Problem with Billed Charges)
Do other states have prompt pay laws?
Nearly all states have prompt pay insurance laws. There are variations in the requirements between states. For example, South Carolina requires “prompt” investigation and settlement of claims rather than a specific number of days to respond and settle a claim. (Source: S.C. Code § 38-59-20, Improper claim practices)
Attorneys for Texas Prompt Payment of Claims Act Cases
You have important rights. We are experienced professionals who can help you enforce your rights and receive the payment you deserve. If you have concerns about how the insurance company is handling your case, or if you believe you have a claim under the Prompt Payment of Claims Act, we invite you to contact our lawyers for a consultation. Time limits apply to file a claim, so don’t wait to contact us.