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. The TPPCA is one of the most-used insurance statutes in Texas; 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

Section 542.055 imposes the principal deadlines: (1) acknowledgment, insurer must acknowledge claim within 15 days of receipt; (2) claim decision, insurer must accept or reject claim within 15 days of receiving all items, statements, and forms reasonably requested (with extension provisions in § 542.058); (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. Failure to comply with any deadline, when followed by a judgment in favor of the claimant, triggers the 18% interest penalty and mandatory attorney's fees.

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, in addition to the amount of the claim, simple interest on the amount of the claim as damages each year at the rate of 18 percent" plus reasonable and necessary attorney's fees. The 18% interest is substantially above market rates and provides strong incentive for prompt insurer compliance. Interest accrues from the date the claim was required to be paid (i.e., from the missed deadline) through judgment.

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", earthquakes, wildfires, tornadoes, lightning, hurricanes, hail, wind, snowstorms, rainstorms. The chapter responded to a perceived crisis of weather-related claim litigation following major hailstorms. 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 post-judgment rate (currently around 13.5% total) 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. The specific-amount requirement is critical, vague notices that don't state a sum certain may be deficient under Rodriguez analysis.

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. Result: insurers can substantially eliminate attorney fee exposure by promptly paying appraisal awards plus 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 prevents claimants from forcing diversity jurisdiction by joining a Texas-resident agent against an out-of-state insurer. 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) liability claims with delayed handling, auto, premises, products; (3) uninsured/underinsured motorist claims; (4) commercial coverage disputes, CGL, D&O delay; (5) health insurance claims, though many subject to ERISA preemption; (6) life and disability claims, particularly significant given the simple-interest accrual.

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, single claim can support all three theories for different damages. Sophisticated bad-faith litigation typically pleads all applicable theories.

Full entry: Texas Prompt Payment of Claims Act