An unreasonable delay or refusal to process your claim is not just bad customer service — it may be illegal under state law. Most States (including Texas) have laws requiring carriers to investigate and resolve claims in certain amounts of time. Failure to do so makes the carrier liable for more than the value of the initial claim.
If you are currently dealing with an insurance company that is intentionally delaying your claim, here are the details you need to understand:
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Texas prompt payment of claims law
Texas has no intention of leaving its insurance carriers to dawdle. The Texas Prompt Payment of Claims Act sets forth specific time frames that carriers must follow upon receipt of a claim.
The law provides that a carrier must acknowledge receipt of your claim in 15 days (for most types of policies, 30 days for surplus lines). If the carrier Requests Documentation subsequent to your submission of a claim, they have 15 business days to either approve or reject the claim. Upon approval of a claim, the carrier must pay the approved claim within 5 business days.
If the carrier needs additional time to investigate, they must provide you with written notice of such extension and can only extend such time frame by up to 45 days.
Failure to comply with the above-described procedures results in the carrier owing not only what they owed in the first place, but also 18% annual interest on such amount, in addition to your attorney fees. As stated earlier, this is a significant financial disincentive intended to motivate carriers to comply with the provisions of the Texas Prompt Pay Statute.
In addition to the procedural aspects previously discussed regarding Texas prompt pay law, property damage claims are subject to a separate statutory requirement. Pursuant to Texas Property Code section 542a.006(a), prior to initiating litigation against a carrier regarding a covered loss related to residential property or commercial property (other than construction projects), you must send to the carrier a written notice of intent to litigate at least 61 days prior to filing suit. The notice requirement has limited exemptions – e.g., it does not apply to workers’ compensation or marine insurance claims; however, if it does apply to your claim and you fail to provide such notice, the trial judge may abate your case. This is another reason why having a qualified attorney assist you with your claim is prudent prior to initiating any type of litigation.
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Similar requirements exist in other States
Most States have substantially similar statutes. Generally speaking, carriers are obligated to make a determination regarding coverage and pay valid claims within 30-60 days of receiving all requested Documentation. If a carrier fails to meet the applicable timeline, most States allow for imposition of automatic interest penalties.
Some States have taken alternative approaches. Massachusetts is one example. Rather than setting strict timelines for carriers to respond to claims, Massachusetts law simply requires carriers to act in “good faith.” Whether or not a carrier acts reasonably and promptly is determined on a case-by-case basis through judicial evaluation.
Washington state has perhaps the strongest consumer protection statutes regarding bad faith practices by carriers. Pursuant to the Washington Insurance Fair Conduct Act (“IFCA”), carriers are required to investigate and settle claims fairly and in a timely manner. More specifically, IFCA prohibits carriers from continually seeking Documentation from claimants which the claimants have already furnished. Additionally, IFCA permits plaintiffs to seek punitive Damages (up to treble actual Damages) and attorneys’ fees where the court determines that a carrier has engaged in unreasonable denial or delay of a first-party claim. These provisions serve as strong incentives for carriers to avoid engaging in questionable practices and are particularly relevant to situations involving insureds who are claiming losses due to fires, thefts, etc.
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While you do not have unlimited time to pursue litigation against a carrier, there are generally established time limits (statutes of limitation) for pursuing bad faith/ prompt pay actions. In Texas, the general statute of limitations for bad faith/prompt pay lawsuits is 2 years. However, Washington state provides consumers with slightly longer time frames pursuant to IFCA – 3 years. In addition to the statutorily prescribed limitations periods, contractual limitations provisions contained in the policy itself may establish shorter time frames for bringing suit.
Takeaway: do not wait. There are numerous procedural hurdles that can terminate your claim early if you do not properly document everything and timely submit claims for review. A skilled bad faith attorney can help ensure that you do not lose your rights because of missed deadlines.
Determining what constitutes reasonable delays
Not every delay constitutes a bad faith practice. Carriers frequently have valid reasons for delays – e.g., investigating complex issues resulting from large-scale disasters; awaiting production of medical records from claimants that have not produced yet; etc. Such delays represent the realities of processing claims.
However, there is a discernible distinction between a reasonable investigation of a claim and intentional delay.
Reasonable delays vs. Bad faith practices include:
- carrier repeatedly asks for Documentation that claimants have previously furnished;
- claimants experience weeks/months without receiving communications or updates from their carrier;
- carriers cannot articulate a logical reason for their delay(s);
- carriers admit liability but still refuse to pay the admitted liability;
- carriers make an offer for significantly less than the value of the claim;
- carriers use spurious excuses or request irrelevant Documentation solely as a means to delay payment;
Conversely, legitimate reasons an Insurer may deny or delay payment include:
- damage/injury excluded under terms of policy;
- policy limit reached;
- claimant allowed his/her policy to lapse prior to occurrence of loss;
- questions exist as to misrepresentations made by applicant on application;
- claimant failed to report his/her loss within an acceptable timeframe without sufficient justification;
- insured failed to produce necessary Documentation at reasonable request of carrier.
The standard for determining bad faith is one of good faith. Carriers have a fiduciary obligation to conduct a reasonable investigation of each claim and make fair settlement decisions consistent with the evidence presented. Carriers engage in bad faith when they deliberately ignore relevant evidence; stonewall their claimants; or make unconscionable offers solely as a means to exhaust their claimants financially.
Action steps if carrier is intentionally delaying processing your claim
Documentation: from the minute you determine your carrier is treating you unfairly, begin documenting everything. Document every phone conversation/email exchange/letter exchange, including date/time, name(s) and title(s) of everyone you spoke with and what they communicated. Keep copies of all letters/exchange(s). If your carrier provides you with verbal explanations for delays, follow up in writing confirming what they communicated.
Documentation can be crucial evidence in future disputes, and without documentation it will be your word against theirs.
Timely response to requested Documentation
Do not create additional excuses for your carrier to stall further. Even though you believe your carrier is intentionally stalling, do not create an opportunity for them to say that you delayed providing requested Documentation. Provide requested Documentation expeditiously and document that you provided it. Your carrier will likely attempt to turn the tables and point out that the delay was caused by you.
Written complaint: if you have exhausted all internal avenues for resolving your issue (i.e., discussing with your agent/broker/supervisor/etc.), then write a formal complaint letter to your carrier detailing the history of your claim (date filed/submitted; Documentation submitted; communication from carrier; length of time since last contact; etc.). Specify that you expect a written response explaining any delays experienced in processing your claim and specify a reasonable deadline for completion/resolution.
The purpose behind writing a formal complaint letter is twofold: it creates a paper trail, and it occasionally motivates carriers into taking action.
Internal escalation and external complaint submission
Request an interview with someone higher up in your carrier’s organization (e.g., claims manager/supervisor/etc.) than the person initially assigned to your case. Sometimes a claim will become “stuck” with one adjuster, and moving it up the organizational chart will result in movement towards resolution.
If that does not occur, file an official complaint with your state’s insurance department. In Texas, this would involve submitting a complaint form electronically or by mail with the Texas Department of Insurance (TDI). TDI can investigate complaints; impose fines upon carriers found guilty of violating state prompt pay laws; and/or compel compliance with such laws. While TDI regulators cannot force your carrier to pay you money, the potential threat of regulatory sanctions may encourage action on behalf of your carrier. Moreover, filing a complaint with TDI creates an official public record.
Engaging an experienced bad faith attorney
It is generally recommended that you consult with a competent attorney specializing in bad faith practices before filing any litigation against your carrier.
Your attorney can examine your claim objectively and inform you whether any delays experienced are legally actionable. Your attorney will know the pertinent laws; how to document your case correctly; and how to comply with presuit notice requirements which may otherwise cause your case to be dismissed.
Wyly & Cook handles bad faith matters on a contingent fee basis; therefore, you will not incur any attorney fees until we successfully recover compensation on your behalf. Moreover, if we prevail in obtaining judgment against your carrier, you will likely receive an award for reimbursement of your attorney fees from your carrier – in addition to Damages recovered on account of your losses.
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As mentioned supra, when a carrier commits unfair treatment under the Texas prompt payment statute, it is entitled to recover compensation in excess of simply recovering payment on its claim. Pursuant to Texas law, when a carrier commits unfair treatment under the Texas Prompt Payment Statute, a successful litigant may recover:
- the original amount claimed by the insured (Damages owed by carrier);
- 18% per annum interest on the aforementioned Damages amount commencing from the date such amount became due;
- attorney fees associated with pursuit and recovery on account of such Damages;
- in some instances – treble Damages – i.e., three times actual Damages owed (if court finds carrier acted knowingly).
Lastly, emotional distress damages may be awarded as well; however, this requires establishing that the carrier committed egregious misconduct causing severe documented emotional distress. Emotional distress awards are difficult for plaintiff’s counsel to obtain independently – they generally succeed better when combined with other forms of relief
