Chapter 5-1 Unfair Insurance Practices—Violations of the Texas Prompt Payment of Claims

• Jurisdiction: United States

5-1 Unfair Insurance Practices—Violations of the Texas Prompt Payment of Claims

5-1:1 Overview

5-1:1.1 Related Causes of Action

Bad Faith, Breach of Contract, Breach of Stowers Duty, DTPA, Chapter 541 Insurance Code Violations

5-1:1.2 Notice

Similar to the DTPA, chapter 541 requires a plaintiff to give notice of their intent to file suit claiming a 541 violation. If they fail to give notice, the suit is abated.

MUST READ CASES & STATUTES

The Texas Prompt Payment of Claims Act (TPPCA)—Texas Insurance Code Chapter 542 Subchapter B (requiring insurers to follow certain procedures and meet certain deadlines when it receives, accepts, rejects or pays insurance claim)¹

Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007)

Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019)

Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019)

Allstate Ins. v. Bonner, 51 S.W.3d 289, 291 (Tex. 2001)

5-1:2 Elements

(1) Chapter 542 applies to claims that are personal to the insured; therefore, Chapter 542 does not apply to third-party claims.² The proper party plaintiff may be either the policy holder or a beneficiary making a claim under the policy.³

"Claimant" means a person making a claim.⁴

(2) The insurer is liable for a claim under the insurance policy.

Chapter 542 Subchapter B applies to any insurer authorized to engage in business as an insurance company or to provide insurance in Texas.⁵ For a non-exhaustive list of insurers this subchapter applies to see § 542.052.⁶
"Claim" means 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.⁷
An insurer is not liable for a claim under an insurance policy "until it (1) has completed its investigation, evaluated the claim, and come to a determination to accept and pay the claim or some part of it; or (2) been adjudicated liable by a court or arbitration panel."⁸

(3) The insurer failed to follow one or more of the statutory deadlines with respect to the claim.⁹

Within 15 days of receiving notice of a claim¹⁰, the insurer must acknowledge receipt of the claim, commence any investigation of the claim, and request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.¹¹
Within 15 business days of the insurer receiving all items, statements, and forms required to secure final proof of loss, the insurer must notify the insured in writing of acceptance or rejection of the claim.¹² If an insurer rejects a claim, its written notice of rejection to the insured must state the reasons for rejection.¹³If the insurer notifies insured that it will pay all or part of a claim, the insurer must make the payment within five business days after the date notice is made.¹⁴ However, if payment of the claim or part of the claim is conditioned on the performance of an act by the claimant, the insurer must pay the claim not later than the fifth business day after the date the act is performed.¹⁵
If an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060.¹⁶ However, this provision does not apply in a case in which it is found as a result of arbitration or litigation that a claim received by an insurer is invalid and should not be paid by the insurer.¹⁷

5-1:3 Damages and Remedies

5-1:3.1 Actual Damages

The amount of the claim is recoverable by the policy holder or beneficiary making the claim under the policy for the insurer's violation of...