The Texas Supreme Court recently handed down an important decision relating to insurer’s duty to make payment to an insured under the Prompt Payment of Claims Act. In Louis Hinojos v. State Farm Lloyds, et al., the Texas Supreme Court held that an insurer is not absolved of its statutory liability when it pays only part of a claim within the statutory deadline set forth in the statute. An insurer that fails to pay all amounts that “must be paid” under the applicable policy will be liable for interest and attorney’s fees.
In 2013, the insured suffered hail and wind damage to his roof. The insured filed a claim with State Farm, which determined that the amount of damage was below the insured’s deductible. The insured filed suit and alleged that State Farm violated Chapter 542 of the Texas insurance Code for not making timely payment. After two years of litigation, State Farm invoked the policy’s appraisal clause. State Farm promptly tendered the amount set forth in the appraiser’s decision and then moved to dismiss the insured’s claim that State Farm failed to make timely payment of the claim under the Prompt Payment of Claims Act.
The trial court and court of appeal ruled in favor of State Farm upon finding that it made a reasonable payment on the insured’s claim within the sixty-day statutory limit. The Texas Supreme Court reversed, ruling that State Farm did make a payment within the statutory time limit. The court reasoned that Chapter 542 specifically states that claims “must be paid by the insurer directly to the insured or beneficiary.” The Hinojos court noted that a claim must be paid in full, not in part, within the applicable time period. The court further held that the partial payment of a claim within the statutory limit does not preclude liability for interest on amounts owed but unpaid when the statutory deadline expires. The court concluded that an insurer has a responsibility to seek prompt resolution of a disputed claim through appraisal to avoid statutory interest on amounts that were not promptly paid.
This case illustrates the importance of promptly settling a claim and not delaying the appraisal process. An attempt by an insurer to prolong payment of a valid claim may result in the accrual of additional interest under Prompt Payment of Claims Act.