In Texas, a statute may appear to read very specifically but courts can construe it very liberally. A liberal interpretation is the construction Judge Harmon of the Southern District assigned to Section 542 of the Texas Insurance Code. The court provided a certain degree of latitude when determining whether prompt means by a certain deadline or just a bit after the deadline has passed.

In Mag-Dolphus, Inc. v. Ohio Casualty Insurance Company,1 the court held an insurer’s issuance of first payment to insured for hurricane damage satisfied the statutory provision requiring payment of claim within 60 days after insurer received all reasonably requested and required documents, although insurer did not complete its payments to insured until 17 months after the hurricane. The Mag-Dolphus insureds asserted a claim for violation of the Texas Insurance Code’s prompt payment of claims requirements based on the carrier’s failure to promptly pay the claim, failure to acknowledge receipt of insureds’ claim, commence investigation of the claim, request all necessary documents within fifteen business days, failure to notify insureds of carrier’s acceptance of the claim within fifteen business days after receiving all necessary documents, and failure to pay the claim within five business days after sending notice of acceptance.

Ruling in favor of the carrier, the Southern District court explained the purpose of § 542 is to obtain prompt payment of claims pursuant to policies of insurance, and its provisions are to be liberally construed to promote this purpose.2 If an insurer delays payment of a claim after receiving “all items, statements, and forms reasonably requested and required” for more than sixty days, the insurer “shall pay damages and other items as provided for in § 542.060.”3 In addition, an insurer must, within fifteen business days after receiving a claim, commence investigation, request documentation that the insurer reasonably believes will be required from the claimant, and acknowledge receipt of the claim.4 If the insurer does not acknowledge receipt of the claim in writing, the insurer “shall make a record of the date, manner, and content of the acknowledgment.”5 Further, the insurer must notify the claimant in writing of the acceptance or rejection of the claim within fifteen days after it receives the required documentation for proof of loss.6 Finally, the insurer must pay a claim within five business days after the insured gives the claimant notice that the claim, or part of the claim, will be paid.7

The Mag-Dolphus insureds alleged that the carrier violated the Texas Insurance Code when it made the appraisal award payment over seventeen months after Hurricane Ike, well after the statute’s sixty-day limit.8 Under Texas law, however, “full and timely payment of an appraisal award under the policy precludes an award of penalties under the Insurance Code’s prompt payment provisions as a matter of law.”9

In 2008, Hurricane Ike brought a rise in carriers defending actions for failing to promptly pay insureds’ claims as required by § 542. Since violating the statute can require the insurer to pay an 18% penalty, insureds closely monitor the statutory deadlines. With the 2012 ruling in Mag-Dolphus, Texas courts may have put the breaks on the insured’s dash to the courthouse when the claim surrounds violation of the prompt payment statute.

1 Mag-Dolphus, Inc. v. Ohio Casualty, Inc. Co., 906 F. Supp.2d 642 (S.D. Tex 2012).
2 Tex. Ins. Code Ann. § 542.054.
3 Id. § 542.058.
4 Tex. Ins. Code Ann. § 542.055(a).
5 Id. § 542.055(c).
6 Id. § 542.056(a).
7 Id. § 542.057.
8 Tex. Ins. Code Ann. § 542.058.
9 In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d at 556, 563–64 (Tex.App.-Houston [14th Dist.] 2010).