SETTLEMENT OFFERS ARE NOT CONSIDERED NOTICE OF PAYMENT OF A CLAIM IN ORDER TO TRIGGER THE FIVE DAY PAYMENT PROVISION UNDER CHAPTER 542 OF THE TEXAS INSURANCE CODE

In Terry v. Safeco Ins. Co. of Am., CIV.A. H-10-0340, 2013 WL 5214315 (S.D. Tex. Sept. 17, 2013) Judge Lee Rosenthal (Federal District Court Judge from the Southern District of Texas) granted Safeco’s Motion for Summary Judgment on Plaintiff’s Chapter 542 (Prompt Payment) causes of actions.  Judge Rosenthal determined that the five-day-payment provision under Chapter 542 of the Texas Insurance Code does not require payment of every settlement offer within 5 days.  Nor does 542 require “rolling” payments out every five days even if the insured rejects a settlement offer and demands more, and the insurer increases its offer.  In Terry, Plaintiffs and the insurer entered into negotiations to settle Plaintiffs’ medical costs under uninsured motorist coverage.  Safeco rejected Plaintiff’s initial demand because it determined that the plaintiffs’ were partially at fault for the auto accident.  After several negotiation moves by both parties to settle all of the claims, the insurer sued Safeco alleging that Safeco failed to “timely acknowledge, investigate, accept, and pay the claim.”

In her opinion, Judge Rosenthal explained that the Court does not consider Safeco’s settlement offers as a partial acceptance of claim under the prompt-payment statute. Further, Safeco rejected the plaintiffs’ demand before offering settlement, and Safeco’s settlement offers “stated the reasons why Safeco was not approving payment of the full amount.  The Court determined the fact that Safeco “approved” part of the claim for settlement purposes is not a notice of acceptance for the purpose of the prompt-payment statute.