Texas Prompt Payment of Claims Act

The Texas Prompt Payment of Claims Act (TPPCA), codified in Chapter 542, Subchapter B of the Insurance Code, imposes specific deadlines on insurers for acknowledging, investigating, and paying claims. Violations carry significant penalties, statutory interest (18% per annum on standard claims, 5% above post-judgment rate on Chapter 542A claims) and mandatory attorney's fees. Combined with Chapter 541 and Stowers, it forms the principal framework for insurance bad-faith and delay litigation. Chapter 542A (HB 1774, 2017) substantially modified the framework for weather-related property damage claims.

The standard TPPCA deadlines

Sections 542.055 through 542.057 impose the principal deadlines: (1) acknowledgment, insurer must acknowledge the claim, begin any investigation and request needed items within 15 days of receiving notice of the claim (30 business days for an eligible surplus lines insurer) under § 542.055; (2) claim decision, insurer must accept or reject the claim in writing within 15 business days of receiving all items, statements, and forms required to secure final proof of loss (30 days if arson is suspected), or give reasons for needing more time and decide within 45 days after that notice, under § 542.056; (3) payment, if accepted, payment must be made within 5 business days of acceptance (Section 542.057). Each deadline triggers separate consequences for non-compliance. If an insurer that is liable for the claim under the policy fails to comply with the subchapter, it owes 18% interest and attorney's fees under § 542.060(a). Under Barbara Technologies, the insured must establish both the insurer's liability under the policy and its failure to comply with the Act.

The 18% interest penalty

Section 542.060(a) provides that an insurer not in compliance with TPPCA deadlines "is liable to pay the holder of the policy or the beneficiary making the claim under 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, together with reasonable and necessary attorney's fees." The 18% interest is substantially above market rates and provides strong incentive for prompt insurer compliance. For Chapter 542A actions, § 542.060(c) provides that interest accrues beginning on the date the claim was required to be paid.

Chapter 542A, the 2017 reform

Chapter 542A, effective September 1, 2017 (HB 1774), substantially modified TPPCA application to property damage claims caused by "forces of nature", including earthquakes, wildfires, floods, tornadoes, lightning, hurricanes, hail, wind, snowstorms and rainstorms. It applies to first-party claims under policies covering real property or improvements. Key changes: (1) 61-day pre-suit notice, claimant must provide written notice 61 days before suit, with specific facts, amount alleged owed, and attorney fee calculation; (2) 30-day inspection right, insurer can request inspection within 30 days; (3) reduced interest rate, 5% above the post-judgment rate under Finance Code § 304.003, set on the date of judgment, instead of 18%; (4) attorney's fee formula, limits fees based on amount awarded vs. amount alleged; (5) insurer agent election, insurer can accept its agent's liability and dismiss claims against the agent.

Chapter 542A pre-suit notice requirements

Section 542A.003(b) requires the pre-suit notice to include: (1) statement of acts or omissions, specific facts giving rise to the claim; (2) specific amount alleged owed, dollar amount on the claim under the policy; (3) amount of attorney's fees, calculated from contemporaneous time records using customary hourly rates. Failure to provide proper notice can result in abatement and limitations on attorney fee recovery. If a defendant pleads and proves it did not receive a notice stating the specific amount owed at least 61 days before suit, the court may not award fees incurred after that pleading is filed (§ 542A.007(d)).

Rodriguez v. Safeco, the 2024 attorney's fee preclusion

Rodriguez v. Safeco Insurance Co. of Indiana, No. 23-0534 (Tex. 2024) addressed a critical Chapter 542A question: whether an insurer's full payment of an appraisal award plus interest precludes recovery of attorney's fees. The Texas Supreme Court answered yes, the § 542A.007(a)(3) attorney's fee formula calculates fees based on "the amount to be awarded in the judgment to the claimant... under the insurance policy." If the insurer pays the full appraisal award plus any possible interest before judgment, there is no "amount to be awarded in the judgment," so the fee calculation under (a)(3) yields zero, which is always the "lesser of" the three formula methods. The holding applies to actions governed by Chapter 542A where the insurer has paid the full appraisal award and any possible statutory interest.

Section 542A.006, the agent election

Section 542A.006 allows the insurer to elect to accept the legal responsibility of its agent (employee, agent, representative, or adjuster) for acts related to the claim. Once the election is made: (1) before lawsuit, no cause of action exists against the agent; if claimant nevertheless sues, the court must dismiss with prejudice; (2) after lawsuit, the court must dismiss the action against the agent. The election is irrevocable as to the specific claim.

Common TPPCA claim scenarios

Frequent TPPCA claim categories: (1) property claims with delayed payment, fire, flood, hail, wind damage; (2) first-party auto claims, such as collision and comprehensive; (3) uninsured/underinsured motorist claims; (4) commercial coverage disputes, CGL, D&O delay; (5) health insurance claims, though the subchapter excludes most HMO claims and preferred provider claims governed by Chapter 1301, Subchapter C, and many plans are subject to ERISA preemption; (6) life and disability claims, with a separate 90-day pay-or-interplead rule for life insurers facing adverse claims (§ 542.058(c)).

Coordination with Chapter 541 and Stowers

TPPCA claims typically coordinate with Chapter 541 and Stowers: (1) different remedies, TPPCA provides interest penalty; Chapter 541 provides treble damages; Stowers provides excess judgment recovery; (2) different elements, TPPCA focuses on deadlines; Chapter 541 on substantive unfair practices; Stowers on settlement decisions; (3) combined claims, a first-party claim can support both TPPCA and Chapter 541 theories, while Stowers arises from third-party claims against the insured.

Full entry: Texas Prompt Payment of Claims Act