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Policyholder Protections: Texas

This week I would like to focus on policyholder protections afforded by another state that I am currently licensed in: Texas.  While Texas is considered a conservative state, it has some very good tools to help policyholders protect themselves from unfair claims practices and treatment by insurance companies. Giving consumers the tools they need to ensure fair treatment by insurers is not a political issue, but just good sense.  Texas provides a good template for my home state of Alabama, which currently offers policyholders relatively few protections, but can learn from its larger cousin, Texas. 

Attorney’s Fees

Texas law allows an insured to recover their attorney’s fees in a variety of situations when an insurer wrongly decides not to pay a claim or doesn’t pay it promptly enough. First, under Texas law in general, an individual who is forced to sue for breach of a written contract can recover attorney’s fees if they prevail in the case as long as they have given required notice and an opportunity to correct the breach before litigation commences. An insured may also recover their attorney fees if the insured asserts a successful claim against the insurer for engaging in unfair settlement practices under the Texas Deceptive Trade Practices Act. A third situation in which a policyholder can recover attorney fees is when an insurer breaches the Texas Prompt Payment of Claims Act. In 2017, the Texas legislature passed limitations on attorneys fees for claims caused by forces of nature, requiring that an insured specifically itemize the policy benefits claimed before bringing an action and requiring that a judgment be entered in favor of the insured of at least twenty percent of the policy benefits claimed in order for the insured to recover fees. An insurer uses its policyholder’s premiums to fund its attorney’s fees. It makes sense that a policyholder should be able to recover these fees if they are forced to bring litigation to get fully paid by an insurer. 

The Deceptive Trade Practices Act

The Texas Deceptive Trade Practices Act allows for recovery of actual damages and attorneys fees for violation of its provisions which include an insurer’s or agent’s misrepresentation of policy language. In addition, the Texas Supreme Court has held that breaches of Texas’ Unfair Settlement Practices Act are enforceable under the TDTPA. These include:

(1)  knowingly misrepresenting to a claimant pertinent facts or policy provisions relating to coverage at issue;

(2)  failing to acknowledge with reasonable promptness pertinent communications relating to a claim arising under the insurer's policy;

(3)  failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer's policies;

(4)  not attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear;

(5)  compelling a policyholder to institute a suit to recover an amount due under a policy by offering substantially less than the amount ultimately recovered in a suit brought by the policyholder;

 In addition, an insurer can be held liable for treble damages if they knowingly violate the Texas Deceptive Trade Practices Act. In order to recover any damages under the Act, an insured must either be entitled to policy benefits or suffer an independent injury that results from the violation (for instance not purchasing a needed insurance coverage due to a misrepresentation that the coverage was in the policy).


The Prompt Payment of Claims Act

The Texas Prompt Payment of Claims Act requires insurers to timely pay claims or be liable for the policy benefits, attorneys fees and statutory interest from the date payment should have been made at the rate of 5% plus the prime interest rate. In Barbara Technologies Corporation v. State Farm Lloyds, the Texas Supreme Court summarized the payment requirements as follows: 

Taken together, the TPPCA imposes several key requirements on insurers: (1)  the insurer must acknowledge receipt of the claim, commence any investigation of the claim, and request any items, statements, or forms required from the claimant within fifteen days of its receipt of notice of the claim; (2) the insurer must notify the claimant of acceptance or rejection of the claim no later than fifteen business days after the insurer receives all items, statements, and forms required to secure final proof of loss; (3) if the insurer notifies the insured that it will pay all or part of the claim, it must pay it by the fifth business day after the date of notice of acceptance of the claim; [and] (4) if the insurer delays payment of a claim for more than the applicable statutory period or sixty days, the insurer shall pay TPPCA damages.

The Prompt Payment of Claims Act applies to underpayments as well as complete non-payment. However, currently it will not apply when an insurer voluntarily pays the amount of an appraisal award, even if the insurer has otherwise violated the Prompt Payment Act.


The Texas Office of Public Insurance Counsel

While Texas does have a traditional department of insurance, The Texas Department of Insurance, it also has an independent agency called the Office of Public Insurance Counsel that is specifically tasked with looking out for the rights of consumers in insurance matters. The website also provides a helpful tool for comparing and selecting insurance policies. 

Texas Consumer Bill of Rights

Texas law also requires insurance companies to inform consumers of their legal rights in Texas. This disclosure is extensive and provides a roadmap to consumers who disagree with an insurers determination of their loss or have other disagreements. 

Get a Free Consultation Today with A Texas Lawyer

Texas provides robust protections for insurance policyholders which help level the sometimes tilted playing field between the typical policyholder, and the insurer. If you need help, contact Johnstone Trial Lawyers today!

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