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Claims Handling Practices - Texas

Claims Adjusting Standards

Texas prohibits the following unfair claim settlement practices (28 Tex. Admin. Code § 21.203(1)-(19)):

  1. Misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;

  2. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies, provided that 'pertinent communications' shall exclude written communications that are direct responses to specific inquiries made by the insurer after initial report of a claim. An acknowledgment within 15 business days is presumed to be reasonably prompt;

  3. Failing to adopt and implement reasonable standards for prompt investigation of claims arising under its policies;

  4. Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear;

  5. Compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;

  6. Failure of any insurer to maintain, in substantial compliance with § 21.2504 of this title (relating to Complaint Record; Required Elements; Explanation and Instructions), a complete record of all complaints, as that term is defined in § 21.202(4) of this title (relating to Definitions), which it has received during the preceding three years or since the date of its most recent financial examination by the commissioner of insurance, whichever time is shorter. For purposes of this section, 'substantial compliance' has the meaning set out in § 21.2503 of this title (relating to Compliance Standard);

  7. Failing to provide promptly, when provided for in the policy, claim forms when the insurer requires such forms as a prerequisite for a claim settlement;

  8. Not attempting in good faith to settle promptly claims where liability has become reasonably clear under one portion of the policy in order to influence settlement under other portions of the policy coverage. (This provision does not apply to those situations where payment under one portion of coverage constitutes evidence of liability under another portion of coverage);

  9. Failing to provide promptly to a policyholder a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement;

  10. Failing to affirm or deny coverage of a claim to a policyholder within a reasonable time. The reasonable submission of a reservation of rights letter by an insurer to a policyholder within a reasonable time is deemed compliance with the provisions of this paragraph;

  11. Except as may be specifically provided in the policy, to refuse, fail, or unreasonably delay offer of settlement under applicable first-party coverage on the basis that other coverage may be available or third parties are responsible in law for damages suffered;

  12. Attempting to settle a claim for less than the amount to which a reasonable person would have believed she/he was entitled by reference to an advertisement, as described in § 21.102 of this title (relating to Scope), made by an insurer or person acting on behalf of an insurer;

  13. Undertaking to enforce a full and final release from a policyholder when, in fact, only a partial payment has been made. (This provision shall not prevent or have application to the compromise settlement of doubtful or disputed claims);

  14. Failing to establish a policy and proper controls to make certain that agents calculate and deliver to policyholders or their assignees funds due under policy provisions relative to cancellation of coverage within a reasonable time after such coverages are terminated;

  15. Refusing to pay claims without conducting a reasonable investigation based upon all available information;

  16. Failing to respond promptly to a request by a claimant for personal contact about or review of the claim;

  17. With respect to the Texas personal auto policy, to delay or refuse settlement of a claim solely because there is other insurance of a different type available to satisfy partially or entirely the loss forming the basis of that claim. The claimant who has a right to recover from either or both insurers is entitled to choose under which coverage and in what order payment is to be made;

  18. A violation of the Insurance Code, Article 21.55, by an insurer subject to its provisions;

  19. Requiring a claimant, as a condition of settling a claim, to produce the claimant's federal income tax returns for examination or investigation by the insurer unless the claimant is ordered to produce those tax returns by a court of competent jurisdiction, the claim involves a fire loss, or the claim involves a loss of profits or income.

Hurricane Harvey Claims Standards

The Texas Department of Insurance has issued a number of bulletins specific to Hurricane Harvey:

  1. B-0011-17 – This bulletin reminds insurers that under the current disaster circumstances, Insurance Code § 4101.002(b) and § 4101.101 authorize carriers to use nonresident and emergency adjusters to handle claims.

  2. B-0017-17 – This bulletin reminds all persons, including adjusters, building and repair contractors, and insurers, that under Insurance Code § 543.001, an insurer or its representative, or any other person, may not misrepresent the terms and provisions of a policy. Further, as stated in 28 Tex. Admin. Code § 5.9970(d) and (e), persons insured under a homeowners or dwelling policy are entitled to have their home repaired by the person of their choice. Finally, TDI reminded all insurers that Insurance Code § 542.003(a) prohibits unfair claim settlement practices, including, by way of example and not limitation, not attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear.

  3. B-0018-17 – This bulletin encourages insurers who deny coverage for wind losses to inform policyholders of potential coverage under the Texas Windstorm Insurance Association (“TWIA”) if the loss occurred in the TWIA coverage area.

  4. B-0019-17 – This bulletin encourages insurers to provide relief to those residents and policyholders who have been temporarily displaced, including the suspension of any vacancy provision in the policy, to allow continuing insurance coverage.

  5. B-0021-17 – This bulletin encourages insurers responding to flood losses not covered under their insurance policies to provide additional information to their insureds about potential Federal Emergency Management Agency assistance.

  6. B-0022-17 – This bulletin notifies insurers that TDI ordered the claims processing deadlines extended fifteen (15) days for certain enumerated counties under the authority granted under Insurance Code § 542.059 and 28 Tex. Admin. Code § 5.9303.

  7. B-0026-17 – This bulletin reminds insurers of their obligations under Insurance Code § 551. Specifically, when nonrenewing a standard fire, homeowners, or farm or ranch owners policy due to a policyholder filing three (3) or more claims under a policy in any three-year period, insurers may not consider: Losses caused by natural causes; claims filed but not paid or payable; or claims history for water damage under Insurance Code § 544.353. Further, insurers may not consider a customer inquiry as a basis for nonrenewal under Insurance Code § 551.113.

  8. B-0029-17 – This bulletin lists a host of legislative efforts affecting property and casualty insurers. The full text of each bill is available at http://www.capitol.state.tx.us/.

  9. B-0032-17 – This bulletin reminds insurers of their obligation to file updated underwriting guidelines with TDI each time the guidelines changes under Insurance Code § 38.002.

  10. B-0033-17 – This bulletin notifies insures that TDI issued Commissioner’s Order No. 2017-5226, extending the deadline for a policyholder to demand appraisal of a claim arising from Hurricane Harvey. Under the extended deadline, a policyholder will have 120 days to demand appraisal after receiving TWIA’s written notice accepting all or part of a claim arising from Hurricane Harvey. TWIA’s appraisal process and requirements are described in Insurance Code § 2210.574 and 28 Tex. Admin. Code §§ 5.4211-5.4222, as well as TWIA’s policy contracts.

Duty of Good Faith

Texas recognizes a common-law cause of action for first-party insurer bad faith. Under Texas law, an insurer has a duty to fairly and in good faith process and pay claims. This duty is breached when: (1) no reasonable basis exists for denying or delaying payment of benefits under the policy; and (2) the insurer knew or should have known that no reasonable basis existed for denying or delaying payment of the claim. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 17-18 (Tex. 1994). 

Texas also allows an insured to bring a separate statutory claim under the state’s Deceptive Trade Practices Act, codified at Tex. Ins. Code § 541.151. Prohibited conduct, enumerated at Tex. Ins. Code § 541.060, includes:

  1. Misrepresenting a material fact or policy provision relating to coverage.

  2. Failure to attempt, in good faith, a prompt, fair, and equitable settlement when coverage on a claim has become clear.
  3. Failure to provide an explanation of a denial.

  4. Failure to affirm or deny coverage, or submit a reservation of rights, within a reasonable time.

  5. Unreasonably denying settlement on the basis that other coverage may be available, or third parties are reasonable except as specifically provided in the policy.

  6. Failure to pay a claim without conducting a reasonable investigation.

An insurer found liable under the Deceptive Trade Practices Act may be liable for: (1) actual damages; (2) court costs and attorney fees; and (3) treble damages in the event the insurer acted knowingly. Tex. Ins. Code § 541.152.

While it is possible for an insurer to face bad faith exposure in the absence of coverage, extra-contractual liability will only arise if the insurer’s conduct was extreme and caused damages unrelated to and independent of the contract claim. Progressive County Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 922 (Tex. 2005).

Independent and Public Adjusters

Independent adjusters are governed by Tex. Ins. Code § 4101 and public adjusters are governed by § 4102. Under authority granted by the later statute, public adjusters are also subject to a “Code of Ethics” codified at 28 Tex. Admin. Code § 19.713.

Communication, Investigation, and Payment Deadlines

See Tex. Ins. Code Ann. § 542.055(a)(1)-(3), .056(a)-(d), .057(a)-(c) (2005).

Must acknowledge pertinent communications regarding claims within 15 business days.

Must acknowledge receipt of first-party claim within 15 days after the date of receipt of notice of claim.

Commence investigation of first-party claim within 15 days after the date of receipt of notice of claim.

Request from first-party claimant all items, statements, and forms that will be required from claimant within 15 days after the date of receipt of notice of the claim.

Notify first-party claimant in writing of the acceptance or rejection of a claim within 15 business days of receipt of all items, statements, and forms required to secure final proof of loss. When an insurer rejects a claim, it must state the reasons for rejecting the claim.

If additional time is needed to determine acceptance or rejection of first-party claim, notify claimant of reasons additional time is needed within 15 business days after the date of receipt of all items, statements, and forms required to secure final proof of loss.

After notifying first-party claimant that additional time to determine acceptance or rejection of a claim is needed, notify claimant in writing of the acceptance or rejection of a claim within 45 days after the date of notification that additional time is needed.

Pay first-party claim if claimant is notified that claim or part of claim will be paid within 5 business days after the date notice is given.

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