Recently, the Texas Supreme Court reversed and remanded a court of appeals’ decision in favor of the policyholder in Hinojos v. State Farm Lloyds.[1] In Hinojos, the court of appeals affirmed the trial court’s granting of summary judgment based on the insurer’s partial payment followed years later by the payment of a sizably higher appraisal award payment. The Court found the insurer could not escape liability under TPPCA for payments not made within the required statutory period because of prior partial payments made before the appraisal process. 

The ruling clarifies the effect of the appraisal process under the Texas Prompt Payment of Claims Act. Tex. Ins. Code. Ch. 542 (the “TPPCA”). The ruling confirmed that insurers are still liable under the TPPCA following an appraisal award notwithstanding any prior partial payments expanding the Court’s prior ruling in Barbara Technologies Corporation v. State Farm Lloyds (“Barbara Tech”).[2] In other words, the payment of an appraisal award does not relieve an insurer of liability under the TPPCA.

The Texas Prompt Payment of Claims Act (TPPCA) imposes liability on an insurance company who fails to pay valid claims pursuant to the statutory deadlines and requires payment of statutory interest and reasonable and necessary attorney’s fees  plus the amount of the claim.[3] The purpose of the TPPCA’s penalties is to discourage insurance companies from delaying payment to policyholders.

Following the Barbara Tech ruling, courts began applying a reasonableness exception to liability under the TPPCA when the insurer made a “reasonable” payment before a claim went through the appraisal process and the appraisal award ultimately paid.

In Hinojos, the Court rejected this reasonableness exception and held:

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.[4]

The Court went on to hold “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.”[5]

This ruling essentially eliminates future arguments of the alleged reasonableness exception and reinforces the TPPCA’s intended purpose. The ruling will certainly impact future insurance claim litigation as well as insurance companies’ use of the appraisal process.

[1] Hinojos v. State Farm Lloyds, No. 19-0280, 2021 WL 1080854 (Tex. Mar. 19, 2021).

[2] Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806, 812 (Tex. 2019). 

[3] Tex. Ins. Code Ann. §542.060

[4] Hinojos, No. 19-0280 at *4.

[5] Id. at *5.