For the past 15 years, Texas-based insurance companies have used the appraisal process to delay payment of reasonable claims. A decision by the state Supreme Court in July 2019 set the trajectory back in favor of policyholders by upholding the original intent of Texas insurance code 542.
The Prompt Payment of Insurance Claims Act has a part of it—Section 542—that requires insurance companies to respond to claims and pay them in a reasonable manner, setting up deadlines along the way.
But there was a loophole.
If insurers began the appraisal process, even on non-controversial claims, they could draw out the process on unsuspecting businesses and consumers. As long as the claim was eventually paid, legal obligations were considered satisfied.
Insurers were emboldened by the Breshears vs. State Farm Lloyds 2004 court ruling that said as long as a claim was eventually paid, there could be no violation of Prompt Payment requirements. The ruling allowed insurance companies to do what one lawyer called “weaponize the appraisal process”.
The most recent decision moved the pendulum back in the other direction.
Barbara Tech is a San Antonio-based company that suffered weather-related damage in 2013. They filed a claim and State Farm refused to pay, estimating damages at $3,153 and the company had a $5,000 deductible.
The appraisal process began and damages came in somewhat higher than the deductible—$195,345.63, to be exact. State Farm paid the claim.
But Barbara Tech didn’t drop their legal action.
They charged that State Farm had failed to meet payment deadlines. The insurer fell back on the appraisal process loophole. This time, it didn’t work.
The Texas Supreme Court ruled that code 542 is not an invitation to delay payment and that eventual payment of claims is not prima facie (accepted as correct until proven otherwise) evidence of compliance, as courts had previously interpreted. It wasn’t the final word on Barbara Tech’s case, but it eliminated the loophole that had been abused.