Texas Insurance Prompt Payment Act

Legislative Framework and Purpose

The Texas Insurance Prompt Payment Act, codified in Chapter 542 of the Texas Insurance Code, establishes mandatory timeframes for insurance claim processing and creates penalties for violations. Enacted to prevent unreasonable claim delays, this statute applies to most property and casualty insurance policies issued in Texas, including homeowners, auto, and commercial coverage. The Act represents one of the nation's most policyholder-friendly prompt payment laws, providing clear deadlines and substantial penalties that exceed those in most other states. The legislation recognizes that delayed claim payments cause additional hardship to policyholders already dealing with losses, creating financial incentives for insurers to process claims promptly and fairly.

Mandatory Processing Timelines

The Act establishes specific deadlines for each phase of claim processing. Insurers must acknowledge claim receipt within 15 days of notification and commence investigation during this same period. After receiving all reasonably requested documentation from policyholders, insurers have 15 business days to accept or reject claims, though this extends to 30 days for complex claims requiring additional investigation. When claims are accepted, payment must be issued within five business days. These deadlines create predictable timeframes for claim resolution, allowing policyholders to plan their recovery while ensuring insurers process claims efficiently. The Act's specific timeframes eliminate ambiguity about reasonable processing periods that often cause disputes under common law standards.

Penalty Structure

Violations of the prompt payment deadlines trigger automatic financial penalties designed to encourage compliance. The primary penalty is 18% annual interest on the claim amount, calculated from the date payment was due until actually paid. This substantial interest rate—well above market rates—creates meaningful financial consequences for delays. Additionally, insurers who violate prompt payment requirements must pay policyholders' reasonable attorney fees when legal action becomes necessary to secure proper payment. For knowing violations, courts may impose treble damages (triple the claim amount), creating severe penalties for deliberate non-compliance. These penalties apply automatically once violations are established without requiring proof of bad faith or intentional misconduct.

Scope and Limitations

The Act applies broadly to most Texas insurance policies but contains specific exceptions and limitations. Health insurance claims often fall under separate regulatory frameworks with different timing requirements. Workers' compensation claims have specialized procedures that may modify standard prompt payment timelines. Some commercial insurance policies with negotiated terms may contain different deadlines, though these cannot be less favorable to policyholders than statutory minimums. The Act doesn't apply to liability claims where insurers pay third parties rather than their own policyholders. Despite these limitations, the Prompt Payment Act covers the vast majority of first-party insurance claims in Texas, providing comprehensive protection for policyholders seeking timely claim resolution.