When you’re making an insurance claim, it can seem daunting. Too often, insurance companies try to delay and confuse people into settling for less than they deserve.
Texas has created laws to help ensure that insurance companies treat people fairly. The Texas Unfair Claim Settlement Practices Act requires insurance companies to process claims honestly, quickly, and fairly.
The law is Texas Insurance Code Chapter 542. It’s important to understand what the Unfair Claim Settlement Practices Act is and how it can protect you when you make an insurance claim. Our insurance claims attorneys will explain the requirements and procedures of Texas Insurance Code Chapter 542.
What is Texas Insurance Code Chapter 542?
Texas Insurance Code Chapter 542 is a series of laws that apply to insurance companies. The laws require insurance companies to process and settle claims fairly and honestly. They must investigate within a reasonable amount of time and pay promptly when the loss is covered.
What actions by an insurance company could be unfair settlement practices?
Under § 542.003(b), any of the following actions could be unfair settlement practices in Texas:
- Knowingly misrepresenting the facts or the policy provisions regarding the situation (1)
- Waiting too long to acknowledge communications about a claim (2)
- Not investigating claims promptly (3)
- Failing to work in good faith to resolve a claim when liability is clear (4)
- Offering too little for a settlement, so the policyholder must sue to get a fair amount (5)
- Not keeping records of previous complaints as required by § 542.005 (6)
- Other unfair acts (7)
The insurance company must act in good faith. They are in the business of both selling insurance policies and fairly settling claims. Because the insured party must rely on the insurance company to make payment, the law requires the insurance company to process each claim in good faith and in a reasonable amount of time.
How long does an insurance company have to acknowledge receipt of a claim?
An insurance company has 15 days to acknowledge receipt of a claim. The time limit is 30 days for eligible surplus lines insurers. (§ 542.055)
What does the insurance company have to do when they receive a claim?
Within 15 days of receiving a claim, the insurance company must:
- Acknowledge receipt of the claim
- Start investigating
- Request information needed to process the claim
- Make a record of the date they acknowledge the claim
In other words, the insurance company has 15 days to let you know that they have received the complaint and start processing it.
How long does the insurance company have to accept or deny a claim?
Chapter 542 of the Texas Insurance Code requires an insurer to pay claims promptly. In general, a claim must be paid within 15 days of receiving the documentation required to adjust the loss.
However, insurers often dispute what information is needed and will drag claims out unnecessarily, claiming that key documents are still missing. These issues are unfortunately common, making the interpretation of the timelines provided in Chapter 542 critical to the success of a bad faith claim in Texas.
If the insurer rejects the claim, they must give a reason.
How long does the insurance company have to pay a claim?
If the insurance company approves a claim, they must pay within five business days. (§ 542.057)
What happens if the insurance company delays payment of a claim?
Beyond the timeline set out by law, if the insurance company delays payment of a claim beyond what’s allowed by law, they must pay damages. For damages to be due, the insurer must have had the forms, statements, and documents that they requested that were needed to process the claim. Damages do not apply if the arbitration or litigation ruling is that the claim was invalid.
How does Texas Insurance Code Chapter 542A apply to claims?
The amendment Chapter 542A of the Texas Insurance Code was enacted in 2017 and includes changes to procedures for weather-related claims like hail storms and floods. Under Section 542A.003(b) specifically, claimants must:
- Provide a presuit notice letter including a statement of the acts or omissions of the insurance company within 61 days of filing suit (1)
- Include the alleged amount owed for damage to and loss of property (2)
- Include a reasonable amount of attorney’s fees up to the date of the notice (3)
Failing to provide this notice can result in abatement of the suit and prevention of recovering attorney’s fees.
With Chapter 542A, more claims fall under this amended code than Chapter 542.
What damages are there for a violation of Texas Insurance Code Chapter 542?
If an insurance company delays a claim in violation of Chapter 542, they must pay interest on the claim at a rate of 18% per year. They must also pay attorney fees. Other remedies may be available under law.
Does Texas Insurance Code Chapter 542 require anything else?
In addition to the requirements to act in good faith and refrain from dishonest practices, Chapter 542 requires insurance companies to keep records of complaints. § 542.005 requires an insurance company to keep a complete record of complaints received in the last three years or since the last government examination, whichever is shorter. Government officials can compile reports and investigate as needed to ensure that an insurer performs up to minimum standards.
Although the complaint tracking law doesn’t directly help the consumer, it gives the government the authority to oversee fair insurance practices throughout the state. If the department finds that an insurer is in violation of the requirements of Chapter 542, the department may revoke, limit or regulate their activity.
Are there circumstances where Texas Insurance Code Chapter 542 does not apply?
Texas Insurance Code Chapter 542 does not apply to:
- Workers’ compensation claims
- Title insurance
- Mortgage guaranty insurance
- Marine insurance
- Fidelity, surety, or guaranty bonds
- Health Maintenance Organizations, in some circumstances
Sec. § 542.053 states the exceptions to Chapter 542.
Texas Insurance Code Chapter 542 – Violations and Remedies
The purpose of Chapter 542 of the Texas Insurance Code is to punish insurers who do not pay claims promptly. It also forces insurers to be transparent in their investigations, payments and denials by requiring an explanation in writing.
If an insurance company does not comply with the law, the customer may recover extra damages that punish the insurance company, including penalties, interest and attorney’s fees. These damages allowed by law make it dangerous for insurers in Texas to wrongfully delay or deny claim payments.
An insurance company who acts “knowingly” or “intentionally” also runs the risk of paying treble (or triple) damages, in addition to the damages available under Chapter 542 of the Texas Insurance Code.
Lawyers for Chapter 542 Violations
At Haun Mena, we believe that you deserve a fair playing field when you’re up against the insurance company. If you have questions about the response you’ve received from the insurance company, or if you’re wondering if you’re being treated fairly, we invite you to contact us.
Let our insurance lawyers put our experience to work, helping you evaluate your situation and proceed in the best way. Our lawyers know how to help you fight back. Contact us today for your consultation.