Should any debtor hold on to money that is agreed owed? It seems like an absurd question, but in the insurance claims world, many insurance companies know that it is very profitable to "play the float." Even the most famous insurer admits that "playing the float" is very profitable, as I noted in Playing the Float and the Wisdom of Warren Buffett.

There is an extraordinary need for regulators and the law to reflect a public policy that all insurers should pay claims as soon as they can determine amounts due. Partial payments of amounts determined to be payable should be the standard, and extreme penalties should be the norm for slow paying insurers seeking to wrongfully profit from "playing the float."

Texas is a state where I practice law. It is a conservative state and they uphold a lot of conservative values – one is keeping a promise and paying on time. Texas statutes give insurance companies five days to pay claims after they are determined to be due. And you know what? We get lots of insurers scrambling to make timely payments because Texas made it the law for these otherwise slow-paying insurers to promptly pay what they owe.

If they are late, Texas statutes require those insurers pay interest at the rate of 18%. It is my impression that Texans get claims paid quicker than other states because Texans do not tolerate insurers that pay only lip service to obligations of prompt payment – they have laws that support public policy. (If you think about it, this is the type of interest penalty credit card companies demand when you are late with your credit card payment, so it obviously is not too harsh. In Colorado, an insurance company that delays payment can be subject to a lawsuit that requires it to pay twice, including attorneys fees and costs, as discussed in How Will Colorado Courts Calculate Damages and Penalties Under Colorado’s Prompt Payment Statutes?

I also hold licenses and practice in New York and New Jersey where those same insurers pay claims at a snail’s pace. New York has almost no insurance pro-consumer legislation and does not recognize a common law cause of action for unfair claims practices. New Jersey is better, but seems to delay claims practice lawsuits because policyholders are now being required to litigate the insurance contract cases before a claims practice lawsuit can be brought. Superstorm Sandy insurance claimants and legislators need to get it right in New York and New Jersey.

For me, I do not idly raise issues. Doing so would be a waste of time. I think people should participate in our democracy. Our forefathers paid a dear price to allow us to do so. Laws, common law, and how we want justice to be reflected in our day to day lives should be on our minds and reflected in our participation as citizens of our democracy.

So, I will get working, and get others working, on making laws in New York and New Jersey that reflect how other states understand the basic value of enforcing the promise of prompt payment by insurers. There seem to be more rules and regulations on $5 cab rides than payments of $5 Million dollars for insurance claims in New Jersey and New York. Something seems very wrong about that. My friends and clients in New York and New Jersey deserve payment as promptly as those fast thinking, but slow southern drawl talking, friends and clients in Texas.

  • James Purcell

    Great post, Chip. This goes towards the larger issue you’ve blogged about in regards to NFIP claims. When carriers have no financial incentive to adjust and pay claims appropriately, or fear any risk of significant and painful penalties when they do not, many insurers will choose to place their own interests above those of the policyholder. I think this problem can only be solved legislatively and I hope you’re successful in doing so.

  • Insurance contracts are no stronger than the good faith and law behind them. In the absence of the former, only the latter is available. As a public adjuster, I see these situations regularly.
    Thanks for this analysis and the weight it carries.

  • Hi Chip – great blog- in New Zealand we totally relate to what you’re saying – there is no legislation in place at all to ensure insurers pay on time and as a consequence there are literally thousands of claims still unresolved some four and a half years post the Christchurch earthquakes. There are still some 25,000 properties yet to be settled. The insurers are certainly in no hurry – and yes the float is bloating. Our Government doesn’t seem to be in any kind of hurry to put legislation in place either. Very curious!

  • Debidas Ganguly

    claim has been placed along with all relevant documents, but no response is received so far. What happened to the fate of that claim.
    the Car No.WB-02-C4568
    repairing was made by ZOvan

    More than one month has elapsed. No respond from your end.