Property and Casualty Insurance · Texas statutes and rules pertinent to property and casualty insurance · 9 min read
Loss settlement and prompt payment of claims in Texas
- Identify the insurer types, claim categories, and statutory exceptions governed by the Texas prompt payment requirements.
- Explain the specific statutory deadlines for acknowledging, investigating, evaluating, and paying claims under Texas law.
- Describe the liquidated demand rule for total fire losses and the notice rules for third-party casualty settlements.
Scope of the Texas Prompt Payment Statute
For a first-party claim covered by Subchapter B of Chapter 542, Texas law sets deadlines for the insurer’s response and payment. Under Texas law, a claim governed by Subchapter B of Chapter 542 is defined as a first-party claim made by an insured, policyholder, or beneficiary named in the policy or contract (Tex. Ins. Code §542.051(2)(A)). This claim must be paid directly to the insured or beneficiary (Tex. Ins. Code §542.051(2)(B)). A claimant is defined simply as a person making a claim (Tex. Ins. Code §542.051(3)). A notice of claim means any written notification provided by a claimant to an insurer that reasonably apprises the insurer of the facts relating to the claim (Tex. Ins. Code §542.051(4)). A business day means a day other than a Saturday, Sunday, or holiday recognized by the state of Texas (Tex. Ins. Code §542.051(1)). The law dictates that this subchapter must be liberally construed to promote the prompt payment of insurance claims (Tex. Ins. Code §542.054).
The prompt payment requirements apply to many types of insurance organizations operating in Texas. These include stock life, health, or accident insurance companies (Tex. Ins. Code §542.052(1)); mutual life, health, or accident insurance companies (Tex. Ins. Code §542.052(2)); stock fire or casualty insurance companies (Tex. Ins. Code §542.052(3)); mutual fire or casualty insurance companies (Tex. Ins. Code §542.052(4)); Mexican casualty insurance companies (Tex. Ins. Code §542.052(5)); Lloyd's plans (Tex. Ins. Code §542.052(6)); reciprocal or interinsurance exchanges (Tex. Ins. Code §542.052(7)); fraternal benefit societies (Tex. Ins. Code §542.052(8)); stipulated premium companies (Tex. Ins. Code §542.052(9)); nonprofit legal services corporations (Tex. Ins. Code §542.052(10)); county mutual insurance companies (Tex. Ins. Code §542.052(16)); farm mutual insurance companies (Tex. Ins. Code §542.052(17)); risk retention groups (Tex. Ins. Code §542.052(18)); purchasing groups (Tex. Ins. Code §542.052(19)); eligible surplus lines insurers (Tex. Ins. Code §542.052(20)); and guaranty associations operating under Chapter 462 or 463, except as provided by Section 542.053(b) (Tex. Ins. Code §542.052(21)).
However, the Texas Legislature explicitly exempted several lines of insurance and entities from these prompt payment requirements. The rules do not apply to workers' compensation insurance (Tex. Ins. Code §542.053(a)(1)); mortgage guaranty insurance (Tex. Ins. Code §542.053(a)(2)); title insurance (Tex. Ins. Code §542.053(a)(3)); fidelity, surety, or guaranty bonds (Tex. Ins. Code §542.053(a)(4)); or marine insurance as defined by Section 1807.001 (Tex. Ins. Code §542.053(a)(5)). They also do not apply to a guaranty association created and operating under Chapter 2602 (Tex. Ins. Code §542.053(a)(6)), a health maintenance organization except as provided by Section 1271.005(c) (Tex. Ins. Code §542.053(c)), or a claim governed by Subchapter C, Chapter 1301 (Tex. Ins. Code §542.053(d)). A guaranty association operating under Chapter 462 or 463 is not subject to the damage provisions of Section 542.060 (Tex. Ins. Code §542.053(b)).
Common mistakes
- Assuming the liquidated demand rule applies to all property lost in a fire. In Texas, a fire policy is considered a liquidated demand for the full policy amount only in the case of a total loss to real property; it does not apply to personal property (Tex. Ins. Code §862.053(a)).
- Confusing calendar days with business days for prompt payment deadlines. For instance, initial claim acknowledgment for standard insurers is 15 calendar days (Tex. Ins. Code §542.055(a)(1)), while claim acceptance or rejection is 15 business days (Tex. Ins. Code §542.056(a)), and payment after notice of intent to pay is 5 business days (Tex. Ins. Code §542.057(a)).
- Believing prompt payment rules apply equally to third-party liability claims and first-party claims. Under Subchapter B of Chapter 542, prompt payment rules apply to first-party claims made by an insured, policyholder, or beneficiary (Tex. Ins. Code §542.051(2)(A)). Casualty claims against an insured have separate notice rules regarding settlement offers and completed settlements (Tex. Ins. Code §542.153(a), (b)).
Key points
- Prompt payment rules under Chapter 542 apply to first-party claims made by an insured, policyholder, or beneficiary, and do not apply to workers' compensation, mortgage guaranty, title insurance, surety bonds, or marine insurance (Tex. Ins. Code §542.051(2)(A), §542.053(a)).
- An insurer must acknowledge receipt, begin the investigation, and request necessary items within 15 days of receiving notice, or within 30 business days for eligible surplus lines insurers (Tex. Ins. Code §542.055(a)).
- An insurer must notify the claimant in writing of acceptance or rejection within 15 business days after receiving all items, statements, and forms required for final proof of loss, or within 30 days if it has a reasonable basis to believe the loss resulted from arson; if it timely notifies the claimant of the reasons it needs more time, it must accept or reject the claim within 45 days after that notice (Tex. Ins. Code §542.056(a), (b), (d)).
- Upon agreeing to pay, an insurer must pay within 5 business days, while an eligible surplus lines insurer must pay within 20 business days (Tex. Ins. Code §542.057(a), (c)).
- Weather-related catastrophes or major natural disasters extend claim-handling deadlines by an additional 15 days (Tex. Ins. Code §542.059(b)).
- In actions where Chapter 542A does not apply, an insurer that is liable for a claim and fails to comply with Subchapter B must pay the claim amount plus interest on that amount at 18 percent a year as damages and reasonable and necessary attorney's fees (Tex. Ins. Code §542.060(a)).
- A fire policy is a liquidated demand for the full policy limit upon a total fire loss to real property, but this does not apply to personal property (Tex. Ins. Code §862.053(a)).
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