How Interest Applies to Damages Awarded in Texas Insurance Cases

Texas law allows for interest to be awarded to a policyholder as a penalty for the insurer delaying payment of a claim, in addition to the amount of the claim. Section 542.060 of the Texas Insurance Code states:

If an insurer that is liable for a claim under an insurance policy is not in compliance with [Chapter 542, Subchapter B – Prompt Payment of Claims], the insurer is liable to pay the holder of the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages… .

The statutory interest is typically added after a judge or jury has determined the amount of damages. Until very recently, however, many policyholders felt entitled to additional interest for the time between the verdict and actual payment of the damages. On July 22, 2010, the Fifth Circuit Court of Appeals weighed in on this issue.

In Great American Insurance Company v. AFS/IBEX Financial Services, No. 09-10262, — F. 3d — (5th Cir. July 22, 2010), AFS/IBEX Financial Services argued that the lower court erred in finding that the 18% statutory interest accrues only until the date of judgment. AFS argued that the 18% percent statutory interest should continue to accrue until the claim was paid by Great American Insurance Company.

The Fifth Circuit noted that while Section 542.060 of the Texas Insurance Code does not expressly state when the 18% interest stops accruing, in Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W 3d 423 (Tex. 2004), the Texas Supreme Court held that such interest only accrues until the date judgment is rendered in the trial court. Because the District Court stopped the accrual of the 18% interest on the date judgment was rendered, the Fifth Circuit affirmed the lower court’s decision.

In other words, although Texas Insurance law grants policyholders an 18% statutory interest penalty against the carrier, it only accrues until judgment is rendered. This does not necessarily mean that all interest stops accruing after judgment. A non-penalty amount of interest may still apply. Policyholders can look to other codes, such as the Texas Finance Code, for any post-judgment interest that may apply to their monetary judgment.