Unfair Claims Settlement Law in Texas
Legal Framework
The Texas Unfair Claim Settlement Practices Act, codified as Texas Insurance Code Chapter 542, requires insurance companies to process claims honestly, quickly, and fairly. This law protects consumers from dishonest or unreasonable insurance company behavior during the claims process.
Prohibited Practices
Under Texas law, unfair claim settlement practices include: knowingly misrepresenting facts or policy provisions; failing to acknowledge communications with reasonable promptness; failing to adopt reasonable standards for prompt investigation; not attempting in good faith to effect a prompt, fair, and equitable settlement when liability is clear; and compelling policyholders to sue by offering substantially less than ultimately recovered amounts. Additional prohibited actions include refusing to pay claims without reasonable investigation, failing to provide proper explanations for denials, and delaying settlements based on other available coverage.
Time Requirements
Insurance companies have 15 days to acknowledge receipt of a claim (30 days for surplus lines insurers). They must notify claimants whether they've accepted or rejected the claim, or request additional information within this timeframe. Once all required documentation is received, claims must generally be paid within 15 days.
Penalties for Violations
If an insurer violates these requirements, they become liable to pay the policyholder not only the claim amount but also interest at 18% annually as damages, plus reasonable attorney's fees. Under the Texas Deceptive Trade Practices Act, insurers may face actual damages, court costs, attorney fees, and potentially treble damages if they acted knowingly.
Consumer Protection
The law punishes insurers who don't pay claims promptly and forces transparency by requiring written explanations for investigations, payments, and denials. This creates significant financial incentives for insurance companies to handle claims properly, protecting Texas consumers from wrongful delays or denials.
