Summary
In Hinojos, the insurance company paid about $4,000 before the appraisal on a loss later valued by the appraisers at about $26,000 after subtracting the deductible and depreciation.
Summary of this case from Roeder v. Allstate Vehicle & Prop. Ins. Co.Opinion
No. 19-0280
03-19-2021
Louis HINOJOS, Petitioner, v. STATE FARM LLOYDS and Raul Pulido, Respondents
David P. Wilson, Beaumont, Andrew B. Bender, Houston, Sharon S. McCally, Chad T. Wilson, Webster, for Petitioner. Jeffrey L. Raizner, Benjamin Wickert, Andrew P. Slania, Houston, for Amicus Curiae. Ruben S. Robles, Angela Morrow Nickey, El Paso, Craig T. Enoch, Melissa A. Lorber, Austin, for Respondents.
David P. Wilson, Beaumont, Andrew B. Bender, Houston, Sharon S. McCally, Chad T. Wilson, Webster, for Petitioner.
Jeffrey L. Raizner, Benjamin Wickert, Andrew P. Slania, Houston, for Amicus Curiae.
Ruben S. Robles, Angela Morrow Nickey, El Paso, Craig T. Enoch, Melissa A. Lorber, Austin, for Respondents.
Justice Bland delivered the opinion of the Court, in which Chief Justice Hecht, Justice Lehrmann, Justice Boyd, Justice Devine, Justice Busby, and Justice Huddle joined.
The Texas Prompt Payment of Claims Act, codified in Insurance Code Chapter 542, imposes deadlines on insurers to pay valid claims. If an insurer fails to comply with Chapter 542, then it is liable for statutory interest on the amount of the claim and attorney's fees. The insurer in this case accepted a homeowner's claim and paid part of it before the statutory deadline.
Tex. Ins. Code §§ 542.057 –.058; see Barbara Techs. Corp. v. State Farm Lloyds , 589 S.W.3d 806, 812 (Tex. 2019).
Dissatisfied with that amount, the homeowner sued, seeking full payment of the claim plus interest and attorney's fees under Chapter 542. While suit was pending—and after the statutory deadline for payment had passed—the insurer invoked the policy's appraisal process. The appraisers awarded the homeowner substantially more than the amount the insurer had paid.
The insurer paid the difference and then moved for summary judgment on the homeowner's Chapter 542 claim, contending that its payment of the appraisal award precluded liability. Without the benefit of our decisions in Barbara Technologies Corp. v. State Farm Lloyds and Alvarez v. State Farm Lloyds , the trial court granted summary judgment, and the court of appeals affirmed. We granted the homeowner's petition for review.
589 S.W.3d 806 (Tex. 2019).
601 S.W.3d 781 (Tex. 2020).
569 S.W.3d 304, 313 (Tex. App.—El Paso 2019).
Applying Barbara Technologies and Alvarez , we hold that payment of an appraisal award does not absolve the insurer of statutory liability when an insurer accepts a claim but pays only part of the amount it owes within the statutory deadline. Because the insurer in this case did not pay the amount that "must be paid" on the claim before the statutory deadline, it was not entitled to summary judgment. Accordingly, we reverse the judgment of the court of appeals and remand the case to the trial court.
I
Chapter 542, subchapter B, imposes liability when an insurance company misses a statutory payment deadline for a documented claim that it owes under an insurance policy. In the statute, the Legislature instructs that the subchapter's provisions be "liberally construed to promote the prompt payment of insurance claims."
Id. § 542.060 ; see Barbara Techs. , 589 S.W.3d at 812–13.
When an insurer receives a claim, it has fifteen days to acknowledge its receipt, begin an investigation, and request from the claimant all "items, statements, and forms" that the insurer reasonably believes are necessary to evaluate the claim. Within a further fifteen business days of receiving the "items, statements, and forms," the insurer must inform the claimant, in writing, whether it accepts or rejects the claim. If an insurer accepts the claim, in whole or in part, it has five business days to pay the insured. To enforce these deadlines, Chapter 542 provides that a claimant may recover statutory interest and attorney's fees, in addition to the amount of the claim, when an insurer violates the statute:
Id. § 542.055(a).
Id. § 542.056(a).
Id. § 542.057(a).
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.
Id. § 542.058(a).
Section 542.060(a), in turn, sets out that interest accrues at 18% per year and assesses attorney's fees against a liable insurer:
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 ..., 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.
Id. § 542.060(a).
This case stems from a dispute over State Farm Lloyds' liability for statutory damages under section 542.060(a).
II
After a summer wind and hail storm in 2013, Louis Hinojos reported a claim to State Farm for damage to his home. A State Farm adjuster inspected the home on June 12, nine days after Hinojos reported the claim. The adjuster valued the damage at $755.02, an amount below Hinojos's policy deductible. On June 20, State Farm informed Hinojos that, because the value of the claim was below his policy's deductible, State Farm owed nothing on the claim. Hinojos requested a second inspection. At the second inspection, the adjuster identified additional damage. On August 7, State Farm sent Hinojos a letter agreeing that there was "covered damage" in the amount of $3,859.22. The letter enclosed payment of $1,995.11, reflecting State Farm's assessment of the value of the claim, less the deductible and depreciation.
Hinojos sued State Farm and its adjuster the following February. Among other claims, Hinojos alleged that State Farm had violated Chapter 542 by delaying payment on the claim.
Hinojos filed the operative First Amended Petition in April. We refer to State Farm and its adjuster, Raul Pulido, collectively as "State Farm."
Hinojos alleged: "State Farm's conduct constitutes multiple violations of the Texas Insurance Code, Prompt Payment of Claims. All violations made under this article are actionable by Tex. Ins. Code § 542.060.... State Farm's delay of the payment of Plaintiff's claims following State Farm's receipt of all items, statements, and forms reasonably requested and required, for longer than the amount of time provided ... constitutes a non-prompt payment of the claims. Tex. Ins. Code § 542.058."
Nearly two years after Hinojos submitted his claim, and fifteen months after he filed suit, State Farm invoked the policy's appraisal clause. The appraisal process results in a binding determination of the amount owed for a covered loss under the policy:
If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent disinterested appraiser.... The appraisers shall then set the amount of the loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the amount of the loss....
The appraisers valued Hinojos's loss at $38,269.95 on a replacement cost basis and $26,259.86 on an actual cash basis. Within a week of the appraisers' decision, and about two-and-a-half years after Hinojos submitted his claim, State Farm tendered an additional $22,974.75, reflecting payment of the appraisal award net of the earlier payment it made to Hinojos, the deductible, and depreciation.
Following the appraisal, State Farm moved for summary judgment, contending that "timely tendering of the appraisal award precludes prompt payment damages under Chapter 542 of the Texas Insurance Code." Hinojos responded that State Farm was subject to statutory liability because it had "failed to issue any payment within the deadlines provided by section 542.057." In the alternative, Hinojos argued that, even if State Farm's first payment was timely, State Farm is liable for statutory interest on the difference between the appraisal award and the partial payment "for the period August 7, 2013 to the present." The trial court granted summary judgment.
See Tex. Ins. Code § 542.057(a) ("[I]f an insurer notifies a claimant ... that the insurer will pay a claim or part of a claim, the insurer shall pay the claim not later than the fifth business day after the date notice is made.").
Hinojos appealed, contending that "the payment of the appraisal award should allow him to receive interest penalties under the statute because the appraisal payment was ultimately paid outside the sixty-day statutory-window." The court of appeals rejected this reasoning and affirmed. It concluded that "because State Farm made a reasonable payment on Hinojos's claim within the sixty-day statutory limit," State Farm had not violated Chapter 542.
569 S.W.3d 304, 312 (Tex. App.—El Paso 2019).
Id. at 313. The court of appeals referred to section 542.058(a) of the Texas Insurance Code as a potential basis for a statutory violation. Id. at 312–13.
Hinojos petitioned for review. He argues that "[w]hile State Farm paid part of the claim ‘not later than the fifth business day after the notice was made,’ it did not pay the rest of the claim within the statutory time frame." In response, State Farm asserts that it "undisputedly paid Hinojos's claim within 60 days after receiving all information required to evaluate the claim," notwithstanding the fact that it later paid more on that claim after the appraisal. We granted review.
III
The parties agree on the key facts: (1) State Farm "accepted" Hinojos's claim and paid some money toward that claim within the statutory window; and (2) State Farm fully paid the amount it owed to satisfy the claim after the deadline had passed. The issue presented is whether State Farm can avoid liability under Chapter 542 as a matter of law based on these facts.
In the parties' briefing, including in the courts below, some ambiguity exists as to which statutory deadline State Farm's post-appraisal payment failed to meet. Compare Tex. Ins. Code § 542.057(a), with id. § 542.058(a). That discrepancy does not affect our analysis, and we do not address it here.
After the court of appeals in this case ruled, we decided Barbara Technologies Corp. v. State Farm Lloyds. In that case, State Farm rejected a claim because it valued the property damage below the policy's deductible. State Farm later paid the claimant an appraisal award. We held that the payment of an appraisal award does not foreclose prompt payment damages when an insurer rejects an insurance claim. An appraisal payment, we concluded, "is neither an acknowledgment of liability nor a determination of liability under the policy for purposes of TPPCA damages under section 542.060" and "has no bearing on any deadlines." Thus, "[n]othing in the TPPCA would excuse an insurer from liability for TPPCA damages if it was liable under the terms of the policy but delayed payment beyond the applicable statutory deadline, regardless of use of the appraisal process." We followed Barbara Technologies with Alvarez v. State Farm Lloyds . There, in contrast to Barbara Technologies , State Farm accepted the claim. The facts in Alvarez parallel those here: State Farm initially assessed the claim to be worth less than the homeowner's deductible; the homeowner objected; State Farm revised its assessment and paid an amount toward the claim; appraisers eventually determined that State Farm owed more on the claim than it had paid; and State Farm paid the appraisal amount. We reversed summary judgment for State Farm, holding that the later payment of the appraisal award did not bar Chapter 542 liability.
589 S.W.3d 806 (Tex. 2019).
Id. at 809, 813.
Id. at 810.
Id. at 809, 817–19. Barbara Technologies addressed "whether an insured party can prevail on its claim for damages for delayed payment pursuant to the [Act] ... when it is undisputed that the insurer investigated the claim, rejected it, invoked the policy's provision for an appraisal process, and ultimately paid the insured in full in accordance with the appraisal." Id. at 809.
Id. at 820.
Id. at 817–18.
Id. at 819 ; see Ortiz v. State Farm Lloyds , 589 S.W.3d 127, 135 (Tex. 2019) ("As we hold today in Barbara Technologies , an insurer's payment of an appraisal award does not as a matter of law bar an insured's claims under the Prompt Payment Act.").
601 S.W.3d 781 (Tex. 2020) (per curiam).
Id. at 782.
Id.
Id. at 783 ("The court of appeals concluded that Alvarez could not maintain his TPPCA claim due to State Farm's payment of the appraisal award. Under Barbara Technologies and Ortiz , this was error."). The disposition in Alvarez demonstrates that the Court in Barbara Technologies did not endorse Breshears v. State Farm Lloyds , 155 S.W.3d 340 (Tex. App.—Corpus Christi–Edinburg 2004, pet. denied), in the respects that Justice Blacklock suggests. Post at 661 (citing Barbara Techs. , 589 S.W.3d at 821–22 ).
Our holdings in Barbara Technologies and Alvarez apply in this case. State Farm does not dispute that it is "liable under the terms of the policy" or that it fully satisfied the claim only after the statutory deadline had passed. As we stated in our earlier decisions, State Farm's payment of the appraisal award outside the statutory deadline does not relieve it of Chapter 542 liability.
Contrary to the suggestion that the issue was not before the Court, in its brief in Alvarez , State Farm raised arguments concerning "whether the insurer's partial payment of a claim before the deadline precludes liability under the Act." Post at ––––.
The court of appeals in this case added that State Farm was also entitled to summary judgment because Chapter 542 requires only "a reasonable payment" within the sixty-day statutory limit, not full payment. State Farm adopts that position in this Court. Its new position is similarly unavailing. The Legislature defines "claim" as:
569 S.W.3d 304, 313 (Tex. App.—El Paso 2019). The court of appeals adopted this interpretation from Breshears .
a first party claim that:
(A) is made by an insured or policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract; and
(B) must be paid by the insurer directly to the insured or beneficiary.
Nothing in Chapter 542 discharges prompt payment liability based on the partial payment of the amount that "must be paid" under the policy. Otherwise, an insurer could pay a nominal amount toward a valid claim to avoid the prompt payment deadline that the Legislature has imposed. We rejected such a contention in Republic Underwriters Insurance Co. v. Mex-Tex, Inc. , holding in that case that an insurer owes interest on the amount of the claim it did not promptly pay when it makes a partial payment. The phrase "must be paid by the insurer" in the definition of "claim" includes the amount of the claim and "limits ‘claim’ to the amount ultimately determined to be owed, which of course would be net of any partial payments made prior to that determination." We explained that "[t]his encourages insurers to pay the undisputed portion of a claim early, consistent with the statute's purpose ‘to obtain prompt payment of claims made pursuant to policies of insurance.’ "
State Farm's reliance on the Fifth Circuit's decision in Mainali Corp. v. Covington Specialty Insurance Co. , 872 F.3d 255 (5th Cir. 2017), is misplaced. State Farm incorrectly understands the case as holding that "reasonable" partial payments within the deadline establish compliance with Chapter 542. See id. at 259. Instead, the Fifth Circuit held in Mainali that an insurer did not violate Chapter 542 when the insurer timely paid more than the amount the appraisers determined it owed under its policies. Id. at 257. The appraisers found that the insurance company owed a lower overall amount but allocated the amount differently across the insured's various coverages; the insurer then paid an additional amount "out of an abundance of caution." Id. at 257, 259. Because the insurer in that case paid more than the total amount it owed pursuant to the appraisal, the Fifth Circuit rejected a claim under Chapter 542. Here, in contrast, State Farm paid significantly less within the statutory deadline than the amount the appraisers ultimately determined that it owed on the claim.
150 S.W.3d 423, 426–28 (Tex. 2004) (interpreting the definition of "claim" in Chapter 542's substantively similar predecessor statute).
Id. at 426 ; see Tex. Ins. Code § 542.051(2) (defining "claim").
Mex-Tex , 150 S.W.3d at 426 ; see also id. at 427–28 ("We conclude that from November 4, 1999, 75 days after [the insurer] tendered Mex-Tex partial payment of $145,460, to the date of judgment, Mex-Tex was entitled to the statutory penalty only on the $33,540 difference between the tendered payment and the amount of Mex-Tex's claim."). Our recent decision in Alvarez further undercuts State Farm's argument. There, like here, State Farm made a partial payment on the claim within the deadline, and we held that statutory liability was not precluded. Alvarez v. State Farm Lloyds , 601 S.W.3d 781, 782–83 (Tex. 2020).
In urging that we depart from Mex-Tex in this case, JUSTICE BLACKLOCK distinguishes between the statutory definition of "claim" and the amount ultimately owed under the policy, contending that "claim" is the amount that State Farm agreed to pay, not the amount it owed. Chapter 542, however, expressly defines "claim" to include the amount that "must be paid by the insurer," not the amount the insurer agrees to pay. Chapter 542's definition of claim, in the context of sections 542.058 and 542.060, comprises both liability for the loss and the amount owed for that loss. The amount "that must be paid" may not be established until after an insurer's investigation (or an appraisal), but it does not make the statute's use of the word "claim" inconsistent. While an insured's demand constitutes a claim on the policy for the full amount of the loss, the statute provides deadlines for finalizing that amount. Removing the amount that "must be paid" from the statutory definition, as the dissenting Justices would do, fails to cohere with Chapter 542's primary remedy, which is "interest on the amount of the claim" that was not promptly paid.
Tex. Ins. Code § 542.051(2). The dissenting Justices would have us read "must be paid by the insurer" out of the definition of "claim." However, we must "read statutes contextually to give effect to every word, clause, and sentence because every word or phrase is presumed to have been intentionally used with a meaning and a purpose." Fort Worth Transp. Auth. v. Rodriguez , 547 S.W.3d 830, 838 (Tex. 2018) (citation omitted).
Tex. Ins. Code § 542.060(a) (emphasis added).
Finally, although the statute provides that an insurer may "notif[y] a claimant ... that the insurer will pay ... part of a claim," it does not authorize partial payment of an accepted claim— JUSTICE BLACKLOCK conflates a partial acceptance with a partial payment when the statute expressly separates the two. Chapter 542 does not provide that a partial payment of a valid claim discharges liability for statutory interest. Accordingly, we hold that an insurer's acceptance and partial payment of the claim within the statutory deadline does not preclude liability for interest on amounts owed but unpaid when the statutory deadline expires.
Id. § 542.057(a).
Compare id. ("[I]f an insurer notifies a claimant ... that the insurer will pay a claim or part of a claim , the insurer shall pay the claim not later than the fifth business day after the date notice is made." (emphasis added)), with id. § 542.060(a) ("[I]f 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 ..., 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." (emphasis added)). "When the Legislature uses a word or phrase in one part of a statute but excludes it from another, the term should not be implied where it has been excluded." Cadena Comercial USA Corp. v. Tex. Alcoholic Beverage Comm'n , 518 S.W.3d 318, 329 (Tex. 2017).
Our holding accords with our past decisions in Mex-Tex, Barbara Technologies , and Alvarez , as well as the statute's stated purpose of "promot[ing] the prompt payment of insurance claims." By requiring insurers to promptly satisfy claims that they owe in their entirety, the Legislature incentivizes insurers to resolve disputes and invoke the appraisal process sooner rather than later. Although the statute says nothing about reasonableness, a reasonable payment should roughly correspond to the amount owed on the claim. When it does not, a partial payment mitigates the damage resulting from a Chapter 542 violation. Interest accrues only on the unpaid portion of a claim.
Tex. Ins. Code § 542.054. Justice Blacklock offers that "statutory claims are available against insurers who make low offers in bad faith." Post at ––––. His position ignores that the remedy for insurers' bad-faith acts is actual damages, Tex. Ins. Code § 541.151, which payment of an appraisal award, however delayed, negates. See Ortiz v. State Farm Lloyds , 589 S.W.3d 127, 129 (Tex. 2019) (holding that the insurer's payment of an appraisal award "bars the insured's common law and statutory bad faith claims to the extent the only actual damages sought are lost policy benefits"); Biasatti v. GuideOne Nat'l Ins. Co. , 601 S.W.3d 792, 794 (Tex. 2020) (per curiam) ("[W]e held in Ortiz v. State Farm Lloyds that payment of an appraisal award forecloses an insurer's liability for breach of contract and common-law and statutory bad faith unless the insured suffered an independent injury.").
See Republic Underwriters Ins. Co. v. Mex-Tex, Inc. , 150 S.W.3d 423, 426 (Tex. 2004).
A significant delay in requesting an appraisal, as in this case, may cause additional interest to accrue. Although "[a]ccess to the appraisal process to resolve disputes is an important tool in the insurance claim context," it is the insurer's responsibility to seek prompt resolution of a disputed claim through appraisal to avoid statutory interest on amounts that were not promptly paid.
Barbara Techs. Corp. v. State Farm Lloyds , 589 S.W.3d 806, 814 (Tex. 2019).
* * *
This appeal from a summary judgment in State Farm's favor does not address Hinojos's affirmative claim for relief under Chapter 542. To prevail on his claim, Hinojos must establish: (1) the amount for which State Farm is contractually liable under the insurance policy; (2) that State Farm failed to comply with statutory deadlines; and (3) statutory damages based on the amount contractually owed less the amounts paid within the statutory deadline. We reverse the judgment of the court of appeals and remand the case to the trial court for proceedings consistent with this opinion.
In Barbara Technologies , we noted that the appraisal amount may bind the parties as to the amount of the loss, even though it does not establish liability. Id. at 822 n.12 (opining that if an insurer is adjudicated liable, the insurer owes "the amount of the claim, as fixed by the binding appraisal"); see also id. at 823 n.14 ("An appraisal is binding only as to the amount of the loss on the claim, not as to liability.").
Justice Guzman filed a dissenting opinion.
Justice Blacklock filed a dissenting opinion, in which Justice Guzman joined.
Justice Guzman, dissenting.
I fully join JUSTICE BLACKLOCK 's dissent but write separately to further explain why I joined the Court's opinion in Barbara Technologies Corp. v. State Farm Lloyds but cannot do so here. Barbara Tech applies to this case to the extent it holds that engaging a contractual appraisal process does not extend the deadlines in the Texas Prompt Payment of Claims Act (TPPCA). But Barbara Tech neither involved nor answered the dispositive question in this case: whether the insurer's partial payment of a claim before the deadline precludes liability under the Act. On that issue, the Act's plain language favors judgment for the insurer.
589 S.W.3d 806 (Tex. 2019).
See Ortiz , 589 S.W.3d at 135 (summarizing Barbara Tech 's holding) ("As we hold today in Barbara Technologies , an insurer's payment of an appraisal award does not as a matter of law bar an insured's claims under the Prompt Payment Act.").
The Legislature designed the Act "to promote the prompt payment of insurance claims." To that end, it provides a series of payment windows and imposes liability on insurers for non-compliance. One of those payment windows, provided in section 542.057(a), requires an insurer that has accepted "a claim or part of a claim" to "pay the claim" within five days after so notifying the insured. Paying "part of a claim" is thus paying "the claim" under the TPPCA. Section 542.058(a), which immediately follows, provides a catch-all sixty-day payment window and entitles insureds to damages when an insurer "delays payment of the claim." Because paying "part of [the] claim" amounts to "pay[ing] the claim," State Farm cannot be subject to liability for "delay[ing] payment of the claim."
The Court also relies on Alvarez v. State Farm Lloyds , 601 S.W.3d 781 (Tex. 2020) (per curiam). That case also involved a partial payment within the TPPCA deadline. However, as in Barbara Tech and Ortiz , the Court had no occasion to squarely address whether the partial payment precluded liability under the TPPCA. Just as in Barbara Tech and Ortiz , we held only that the invocation of appraisal and payment of the appraisal award did not bar recovery under the TPPCA. Alvarez , 601 S.W.3d at 783. Although the facts in Alvarez were similar to this case, we are not bound by unstated, implied holdings on legal issues the Court's opinion did not squarely address. See Canadian Helicopters Ltd. v. Wittig , 876 S.W.2d 304, 307 (Tex. 1994).
Id. § 542.057(a) (emphases added).
An insurer that deliberately paid less than it determined it owed would face separate statutory liability for its bad-faith handling of the claim. Tex. Ins. Code §§ 541.060(a)(2) & 542.003(b)(4).
Id.
Id. § 542.058(a).
Although the Court holds that paying "part of a claim" is not "payment of the claim," it does not rely on the analysis in Barbara Tech to reach that conclusion. In Barbara Tech , the insurer had rejected the full amount of the claim and paid nothing before the sixty-day payment window closed. After an appraisal established the amount of the loss, State Farm paid the claim and argued the payment was timely because initiation of the contractual appraisal process extended the TPPCA's payment deadline. The Court rejected that argument as unsupported by the statutory text: "We hold that neither State Farm's invocation of the policy's appraisal process for resolution of a dispute as to the amount of loss, nor State Farm's payment based on the appraisal amount, exempt[ed] State Farm from TPPCA damages as a matter of law." To the extent the Court reaches the same conclusion here—that State Farm's payment of the appraisal award did not absolve it of TPPCA liability—it is consistent with Barbara Tech .
Barbara Tech , 589 S.W.3d at 809-10.
Id. at 810-11.
Id. at 829.
But this case involves a claim-payment scenario that was not at issue in Barbara Tech : timely payment of "part of a claim." As to that matter, the TPPCA's plain language compels the conclusion that State Farm complied with the TPPCA as a matter of law by paying, within the statutory deadlines, the part of the claim it believed it owed. As JUSTICE BLACKLOCK 's dissent elucidates more comprehensively, paying "part of a claim" is "pay[ing] the claim," so State Farm did not "delay payment of the claim." In holding to the contrary, the Court strays from our obligation to construe statutes as written.
Tex. Ins. Code §§ 542.057, .058.
Just as Barbara Tech does not support the Court's disposition, neither do the other cases the Court relies on. The facts in this case are similar to Republic Underwriters Insurance Co. v. Mex-Tex, Inc. and Alvarez v. State Farm Lloyds , but neither opinion addresses, resolves, or even mentions the legal issue here: whether paying "part of a claim" amounts to "payment of the claim." The statute instructs, in express language, that it does.
150 S.W.3d 423 (Tex. 2004).
601 S.W.3d 781 (Tex. 2020).
See id. at 783 (holding "State Farm's payment of the appraisal award" did not entitle it to summary judgment on the insured's TPPCA claim); Mex-Tex , 150 S.W.3d at 427-28 (holding the insurer did not owe prompt-pay damages on the amount paid before the statutory deadline).
The Court is understandably concerned that an insurer could too easily avoid TPPCA liability by paying a nominal amount. But (1) courts have no authority to expand or contract statutory text to achieve policy objectives and (2) the Legislature has enacted other remedies to address bad-faith conduct. Our duty is to construe statutes as written, and this statute, as written, permits a prompt, partial payment to eliminate liability under the TPPCA. If the amount of an otherwise prompt payment indicates bad faith, the insured can seek recompense under other statutes. But the Legislature has not authorized prompt-pay damages when an insurer has promptly paid.
See ante at ––––.
See Christus Health Gulf Coast v. Aetna, Inc. , 397 S.W.3d 651, 654 (Tex. 2013) (construing the Insurance Code and noting that "[w]e must take the Legislature at its word, respect its policy choices, and resist revising a statute under the guise of interpreting it").
Morrison v. Chan , 699 S.W.2d 205, 208 (Tex. 1985).
I joined Barbara Tech because it comported with the TPPCA's plain language. Because the Court's holding today does not, I respectfully dissent.
Justice Blacklock, joined by Justice Guzman, dissenting.
The Court suggests the outcome of this case is controlled by our recent decisions in Barbara Technologies Corp. v. State Farm Lloyds , 589 S.W.3d 806 (Tex. 2019) (" Barbara Tech "), and Ortiz v. State Farm Lloyds , 589 S.W.3d 127 (Tex. 2019) (" Ortiz "). I disagree. The issue in Barbara Tech and Ortiz was whether, by invoking the contractual appraisal process, an insurer can re-set section 542.058's prompt-payment clock and thereby avoid penalties owed by an insurer who "delays payment." TEX. INS. CODE § 542.058.1 I joined the dissent in those cases, but they are now the precedent of the Court. They do not, however, answer the question posed in this case: Has an insurer who makes a timely payment to its insured but later agrees to pay a higher amount "delay[ed] payment of the claim" under section 542.058(a) and thereby subjected itself to liability under the Prompt Payment of Claims Act?
The Court relies on the following statement from Barbara Tech : "Nothing in the TPPCA would excuse an insurer from liability for TPPCA damages if it was liable under the terms of the policy but delayed payment beyond the applicable statutory deadline, regardless of use of the appraisal process." Ante at –––– (quoting Barbara Tech , 589 S.W.3d at 819 ). This sentence mirrors the statutory text by observing that an insurer who "delays payment" owes TPPCA penalties. But the question presented today is not whether insurers who "delay[ ] payment of a claim" violate the TPPCA. All agree they do. The question is what it means to "delay[ ] payment of a claim." Barbara Tech never squarely addresses that question, other than to hold that invoking a contractual appraisal provision does not excuse an otherwise "delay[ed] payment."
Barbara Tech itself described the question it was attempting to answer: "We must determine whether an insurer can be liable for TPPCA damages when it initially denied the claim but later paid the insured in full according to the amount of loss determined through the policy's appraisal process." 589 S.W.3d at 815 (emphasis added). The Court answered that insurers who initially deny a claim and later make payment after an appraisal have "delay[ed] payment" for purposes of section 542.058(a). The Court never wrestled with what it means to "delay[ ] payment of the claim," instead focusing on the impact of the appraisal process on the TPPCA's deadlines. Although I disagreed with Barbara Tech 's treatment of the appraisal process, I concede that when the insurer makes no payment at all until many months beyond the statutory deadline, it makes sense to say the insurer has "delay[ed] payment of the claim." Yet what about insurers who initially make a timely payment? If the insurer pays a claim in the amount it thinks it owes by the deadline, I find it difficult to see how the insurer has "delay[ed] payment of the claim." The insurer may have paid the claim in an amount less than the claimant hoped, and it may incur additional liability if it has done so in bad faith, but the payment of the claim was timely, not delayed.
Barbara Tech repeatedly states its holding as applicable to claims that have been initially "rejected" or "denied." Id. at 809, 813, 815, 817, 820, 823, 825–28. But in today's case, Hinojos's claim was never rejected or denied. It was partially paid, on time. The closest Barbara Tech comes to addressing Hinojos's situation actually points in the other direction. The Court in Barbara Tech quoted at length from Breshears v. State Farm Lloyds , 155 S.W.3d 340 (Tex. App.—Corpus Christi–Edinburg 2004, pet. denied), a court-of-appeals case this Court endorsed as "persuasive." The passage from Breshears quoted favorably in Barbara Tech is worth reproducing in full:
The Breshears argue that because of the appraisal process, they were not actually paid until after State Farm paid them the difference between the first payment and the appraisal award, which occurred long after the sixty-day statutory limit.
The Breshears also argue that by invoking the appraisal process, State Farm did not notify them as to whether it intended to pay their claim within the time required by the code. We disagree. The Breshears were paid by State Farm within the sixty-day limit, and they were notified that State Farm would pay the claim when State Farm sent them an estimate of the cost of their repairs accompanied by a check. The fact that the appraisal process was later invoked does not alter the fact that State Farm complied with the Insurance Code....
Barbara Tech , 589 S.W.3d at 821–22 (quoting Breshears , 155 S.W.3d at 345 ).
Breshears thus involved a situation much like today's case. The insurer made an initial timely payment. Then later, after an appraisal, it paid more. The court of appeals rejected the Breshears' argument that State Farm's later payment of the higher amount gave rise to prompt-pay liability. The court sided with State Farm and held that, by virtue of the initial timely payment that turned out to be too low, "The Breshears were paid by State Farm within the sixty-day limit," and State Farm thereby "complied with the Insurance Code." Id. In Barbara Tech , this Court endorsed the above-quoted passage from Breshears . Thus, far from indicating that a timely initial payment cannot satisfy section 542.058 if it turns out to be lower than the amount ultimately paid, Barbara Tech suggests the opposite by quoting Breshears with approval. Today, however, the Court says State Farm owes prompt-pay damages for doing exactly what it did in Breshears. Barbara Tech is no doubt a dense thicket, but surely it cannot both endorse Breshears as "persuasive" and also compel the Court to abrogate Breshears in today's case.
Although the Court's opinion relies principally on Barbara Tech and Ortiz ,2 by my reading the case truly doing the heavy lifting under the Court's reasoning is Republic Underwriters Insurance Co. v. Mex-Tex, Inc. , 150 S.W.3d 423 (Tex. 2004). Unlike Barbara Tech , Mex-Tex does deal to some extent with what it means to "delay[ ] payment of a claim" under the Insurance Code. Mex-Tex construed the statutory definition of "claim" in Chapter 542's predecessor statute. Then and now, the definition reads:
"Claim" means a first-party claim that:
(A) is made by an insured or policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract; and
(B) must be paid by the insurer directly to the insured or beneficiary.
TEX. INS. CODE § 542.051(2). In resolving the issue before it, the Court in Mex-Tex focused on the definition's use of the phrase "must be paid by the insurer." The Court stated, "The emphasized phrase—‘that must be paid’—limits ‘claim’ to the amount ultimately determined to be owed, which of course would be net of any partial payments made prior to that determination." Mex-Tex , 150 S.W.3d at 426 (dashes added). The Court today takes this statement from Mex-Tex to be a judicial paraphrase of the entire statutory definition of "claim." Because of Mex-Tex , the Court reasons, "claim" now means "the amount ultimately determined to be owed." If that is right, then an insurer would always "delay[ ] payment of a claim" until it finally pays the "amount ultimately determined to be owed." But it is not right.
For four reasons, the quoted language from Mex-Tex should not be understood to provide a definition of "claim" that can automatically be applied in today's case. First, Mex-Tex itself does not purport to do that. It does not say that the definition's use of the phrase "must be paid by the insurer" means that a "claim" and "the amount ultimately determined to be owed" are the same thing. Instead, it says the phrase " ‘must be paid by the insurer’ ... limits ‘claim’ to the amount ultimately determined to be owed." (emphasis added). In other words, Mex-Tex says the "claim" on which prompt-pay damages are calculated can be no higher than "the amount ultimately determined to be owed."
Second, the dispute the Court was resolving in Mex-Tex further demonstrates that its characterization of the word "claim" was intended to place an upward limit on the amount from which prompt-pay damages are calculated, not to restrictively define the word "claim" for all purposes in the prompt-pay statute. In Mex-Tex , the insured sought prompt-pay damages on the total amount the insurer ultimately paid. Id. at 425. The Court rejected that request, holding that prompt-pay damages could only be recovered on the amount that was paid late. Id. at 427–28. In effect, the Court held that Mex-Tex could not recover damages on more than it was owed when the prompt-pay clock ran out. Under Mex-Tex , for purposes of calculating prompt-pay liability, a "claim" can never be higher than the amount determined to be owed, but Mex-Tex says nothing about whether the amount of a "claim" can ever be lower than that amount. Considering the sentence from Mex-Tex in its context, it is clear to me that the Court did not intend to restrictively redefine the statutory word "claim" to mean only "the amount ultimately determined to be owed."
Third, it makes no difference that the outcome of Mex-Tex was that the insurer paid prompt-pay damages even after making, as State Farm did here, an initial timely payment. The insurer in Mex-Tex never argued—as the insurer in Breshears did and as State Farm does here—that its initial payment satisfied section 542.058. Instead, in Mex-Tex , the insurer argued only that it did not owe prompt-pay damages on amounts it paid on time. This Court agreed with that argument but never considered whether the initial payment was a timely payment that discharged the insurer's prompt-pay obligations. Needless to say, this Court' silence on an issue never raised has no precedential effect.
Fourth, and perhaps most importantly, the result of understanding the word "claim" as the Court believes Mex-Tex requires would be to make several passages in Chapter 542 unintelligible. To begin with, an insurer cannot "receive[ ] notice of a claim ... acknowledge receipt of the claim ... or commence an[ ] investigation of the claim ," TEX. INS. CODE § 542.055, if the "claim" is "the amount ultimately determined to be owed." Likewise, the insurer could not "accept[ ]" or "reject[ ]" the "claim" by the deadline in section 542.056 because the insurer would not yet know "the amount ultimately determined to be owed." And if "claim" means "the amount ultimately determined to be owed," then the statutory definition of "claim" is internally contradictory. A claim cannot be "made by an insured or policyholder under an insurance policy," id. § 542.051(2)(A), for an amount that will not be determined until it is later decided how much "must be paid by the insurer," id. § 542.051(2)(B).
In sum, although Mex-Tex comes closer to addressing the pertinent question than does Barbara Tech , neither case answers the question presented here: Has an insurer who timely pays a claim in the amount it decides it owes and then later agrees to pay a larger amount "delay[ed] payment of a claim"? To answer that question, we should look anew at the text of the statute. The first thing to notice about the way the prompt-pay statute uses the word "claim" is that it does so in many different ways. As indicated above, the word "claim" is used repeatedly throughout Chapter 542. A claim is made by an insured, its receipt is acknowledged, it is investigated, more information may be requested, the claim is accepted or rejected, the claim (or "part of a claim") is paid, and finally, if the insurer "delays payment" or otherwise violates the subchapter, a penalty is calculated based on the claim. TEX. INS. CODE § 542.051 et seq. Throughout this process, the amount of the "claim" may increase or decrease depending on the parties' decisions and on the context in which the statute uses the word. There is no talismanic "amount" of a claim that is fixed across time and across the statute's multiple uses of the word "claim."
There is, however, a strong textual indication that an insurer who timely pays "a claim or part of a claim" does not "delay[ ] payment of the claim" under section 542.058. Under section 542.057(a), "if an insurer notifies a claimant under Section 542.056 that the insurer will pay a claim or part of a claim , the insurer shall pay the claim not later than the fifth business day after the date notice is made." TEX. INS. CODE § 542.057(a) (emphasis added). Under section 542.057(a), when State Farm notified Hinojos that it "will pay ... part of a claim," State Farm incurred an obligation to "pay the claim not later than the fifth business day after" the notice. The statute thus contemplates that paying the "part of the claim" the insurer agrees it owes amounts to "pay[ing] the claim." Id. The obligation to "pay the claim" by the fifth business day was discharged when State Farm paid the "part of the claim" it told Hinojos it would pay. No obligation arose to pay a yet-to-be-determined-amount-ultimately-owed by the fifth business day.
Even though partial payment of a claim unquestionably counts as "pay[ing] the claim" in section 542.057, the Court concludes that partial payment does not count as "payment of the claim" in the very next section, 542.058. I can see no basis in the statute for such an odd result. To the contrary, the premise of section 542.058 is that the prompt-pay clock begins to run after the insurer has had time to gather "items, statements, and forms reasonably requested and required" so that the insurer can determine how much of the claim to pay. As the Court sees it, however, the amount paid as a result of that investigation is not "payment of the claim." So the obligation to make "payment of the claim" within 60 days arises after the insurer receives all materials required for its investigation, but making payment based on the results of the investigation is not "payment of the claim." This puts the insurer in no man's land. It has no way of knowing whether it has paid the claim or delayed paying the claim until the insured accepts a settlement or an amount owed is fixed through appraisal or litigation.
By my reading, the statute's use of the verb "delay" suggests a deliberate act. E.g., Delay , BLACK'S LAW DICTIONARY (10th ed. 2014) ("The act of postponing or slowing"). One who timely pays what he believes he owes does not "delay," as that word is commonly understood.3 Under the Court's reasoning, however, the insurer "delays payment" not by paying too late, but by not paying enough. Yet at the time of payment, the insurer cannot know what is enough. It "delays payment" without knowing whether it has done so and with no way of knowing whether it will later be found to have done so. It cannot make a timely "payment of the claim" by paying "part of the claim," despite section 542.057's clear indication to the contrary. Instead, it can only make "payment of the claim" by paying an amount that is unknowable at the time of payment. The statutory text does not compel so curious an outcome, and we should not adopt one.
As I see it, the simple approach that best comports with the statutory text is that an insurer who timely pays its insured's claim at an amount lower than the insured would like has not "delay[ed] payment of the claim." I acknowledge that insurance companies have an incentive to low-ball insureds and hope they will accept the initial offer. But statutory claims are available against insurers who make low offers in bad faith. TEX. INS. CODE §§ 541.060(a)(2) & 542.003(b)(4). Our job is to apply the statutory text, not to worry about whether the text wisely aligns the incentives. The text we are applying is the Prompt Payment of Claims Act, not the Maximum Payment of Claims Act. Its stated goal is to "promote the prompt payment of insurance claims." Id. § 542.054 (emphasis added). It does just that. If some believe the statute should encourage insurers to offer higher payments in addition to prompt ones, their concerns should be directed to the Legislature.
I respectfully dissent.