Recently, our firm has been questioned about the appraisal of Hurricane Ike claims. Appraisal is an informal process which determines the monetary amount of disputed damage claimed under a property insurance policy. Questions have come from policyholders and public adjusters regarding a variety of issues.
There are some important issues that may get public adjusters into trouble with their policyholder clients concerning legal issues of appraisal under Texas law. We are posting a memo outlining cases involving appraisal in Texas. I want to warn anybody not licensed to practice law against giving legal advise based on these cases. I strongly urge those with questions about their rights in appraisal and what they may give up by invoking appraisal to contact an attorney.
Each case going into appraisal is unique. The manner of presentation and whether a dispute is better resolved for a policyholder by appraisal is sometimes complex. The bottom line is that there needs to be analysis of what is in the policyholder’s best interest. Other methods of resolving a claim, including litigation, offer valuable legal rights which may be foreclosed by electing appraisal.
For example, we are cautioning that public adjusters may be jeopardizing their clients’ rights to interest under the Texas Prompt Payment statute, which provides 18% simple interest. One appellate case suggests that by invoking appraisal, the policyholder waives the interest penalty. It is our opinion that public adjusters should obtain permission from their clients before invoking appraisal. Additionally, they should be careful not to provide legal advice to their clients.
Texas has a number of policyholder protection statutes involving claims conduct. Four very relevant statutes provide:
§ 542.055. Receipt of Notice of Claim
(a) Not later than the 15th day or, if the insurer is an eligible surplus lines insurer, the 30th business day after the date an insurer receives notice of a claim, the insurer shall:
(1) acknowledge receipt of the claim;
(2) commence any investigation of the claim; and
(3) request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.
(b) An insurer may make additional requests for information if during the investigation of the claim the additional requests are necessary.
(c) If the acknowledgment of receipt of a claim is not made in writing, the insurer shall make a record of the date, manner, and content of the acknowledgment.
§ 542.056. Notice of Acceptance or Rejection of Claim
(a) Except as provided by Subsection (b) or (d), an insurer shall notify a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the date the insurer receives all items, statements, and forms required by the insurer to secure final proof of loss.
(b) If an insurer has a reasonable basis to believe that a loss resulted from arson, the insurer shall notify the claimant in writing of the acceptance or rejection of the claim not later than the 30th day after the date the insurer receives all items, statements, and forms required by the insurer.
(c) If the insurer rejects the claim, the notice required by Subsection (a) or (b) must state the reasons for the rejection.
(d) If the insurer is unable to accept or reject the claim within the period specified by Subsection (a) or (b), the insurer, within that same period, shall notify the claimant of the reasons that the insurer needs additional time. The insurer shall accept or reject the claim not later than the 45th day after the date the insurer notifies a claimant under this subsection.
§ 542.058. Delay in Payment of Claim
(a) Except as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060.
§ 542.060. Liability for Violation of Subchapter
(a) If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer 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 attorney’s fees.
(b) If a suit is filed, the attorney’s fees shall be taxed as part of the costs in the case.
An insurance company that delays payment can face significant penalties under Texas law. We strongly encourage every policyholder considering appraisal to determine what rights they will give up by invoking the appraisal process. Each case is different, and some claims may be best resolved through appraisal.