It's The Law
Knowing your rights in any insurance claim and fighting a rejection
At the end of the year, I usually get a call from my insurance agent, asking me to review my policies with her to make sure my wife Caroline and I have the coverage we need and aren’t paying for coverage that we don’t. Even if your agent isn’t as customer friendly as mine, it’s a good idea to take a look at your policies.
But what happens if you submit a claim to your insurance company, and your carrier wrongfully denies it or won’t give you an answer? What are your rights under Texas law?
Here’s an overview, but there are two things you need to remember before we get to that. First, follow the rules and procedures to the letter; there’s no reason to let some technical error get in the way of your claim. Second, always make a paper trail.
That means communicating in writing if at all possible. If it’s a phone call, sending a follow-up letter confirming what you talked about is usually a good idea. The insurance company will (usually) keep a record of your conversations, and you should too.
Please note that there are some special rules governing fire loss claims, and they’re not included in this article.
1) Take a Look at the Texas Department of Insurance’s Bill of Rights
In an effort to appear to help consumers (i.e. folks like us), the Texas Department of Insurance adopted a “Consumer Bill of Rights”. It applies both to homeowner’s and renter’s policies. Your insurance company is supposed to send you a copy of it with your policy and renewal confirmation, but in case you “misfiled” it, you can get a copy here. The Consumer Bill of Rights isn’t a comprehensive statement on your legal rights, but it’s a good place to start.
2) Know the Statutory Timing Rules for Claims Processing
Chapter 542 of the Texas Insurance Code dictates the time in which your insurance company has to process your claim, but the clock doesn’t start ticking until you provide written notice to the carrier of your claim. Once you do that, the company has two options.
First, the carrier can accept or reject the claim, but it has to make that decision within 15 business days. If the insurance company accepts the claim (this is, obviously, the best-case scenario), it has to pay you within five business days. If the insurance company rejects your claim, it has to provide you with a written explanation as to why. More about what you can do to fight a rejection, later.
Second, the insurance company can decide that it needs more information about your claim before accepting or rejecting it, but it has to begin the investigation and notify you in writing within that same 15 business days. If the carrier decides to investigate, it will probably ask you to provide a “proof-of-loss form” and documents.
The “proof-of-loss” is a signed, notarized statement detailing the damage/loss, and providing an estimate as to the replacement or repair costs. When you’re preparing a proof-of-loss, it’s a good idea to get an estimate from a contractor for the repairs, and you can go online and look at current prices for the property you need replaced. Remember to include sales tax.
As far as documents go, you’re only obligated to give your carrier documents that relate to your claim. For example, you don’t need to turn over your tax returns unless you’re claiming lost income. Conversely, you would need to turn over receipts and any estimates for repair.
Once the insurance company receives the information that it asked you for, it then has 15 business days to do one of three things. It can accept the claim, reject the claim or notify you in writing that it needs additional time to make the determination. If it needs additional time, the insurance company must accept or reject your claim within 45 days (not business days) from the date it notified you in writing that it needed more time. Clear as a bell?
3) Know What the Insurance Company Has to Do and Can’t Do
Throughout the claims process, you should know the things that the insurance company is and is not allowed to do. The main requirement is that the insurance company has to follow the accept/reject/investigate schedule, so keep track of those dates and deadlines.
Here are some of the things the insurance company can’t do, which we call “unfair settlement practices”: (1) misrepresent “pertinent facts” or the terms in your policy; (2) failure to establish and use procedures for the “prompt investigation” of claims; and (3) refusing “to pay claims without conducting a reasonable investigation based upon all available information[.]” The complete list of the unfair settlement practices is in the Texas Administrative Code.
4) Your Legal Remedies
If the insurance company doesn’t follow the rules, you have options. Assuming that you can’t work it out with your carrier, you can file a complaint with the Texas Department of Insurance. They even have a handy online complaint form. Filing a complaint is probably the best way to go if the violations are relatively minor and your claim isn’t for a significant amount of money. If, however, that’s not the case, Texas law affords you some pretty strong remedies at the courthouse.
If an insurance company violates Chapter 524 for wrongfully refusing to pay the claim, you can recover the amount of the claim plus 18 percent interest. If you hire a lawyer, you’ll be entitled to (reasonable) attorney fees as well. But here’s the real kicker: In a lawsuit, the insurance company has to prove that it wasn’t obligated to pay the claim.
In other words, the insured does not have to prove that the claim was valid.
I want to stress two final points about suing your insurance company. First, in the vast majority of cases, you have to bring a suit within two years of the date your claim was denied or when the “unfair act” happened. That can be hard to pinpoint, so if you think you might have a legal claim against your insurance company and you’re coming up on the second anniversary of the loss, you should consider contacting legal counsel ASAP.
Second, if you bring a lawsuit and the court decides that it was groundless or brought in bad faith, the court can order you to pay the insurance company’s costs and attorney fees.
(Special thanks to my colleagues at Buck Keenan LLP, Les Little and Caroline E. Strange, who contributed to this article.)
This column is written for general informational purposes only. Even small changes in the facts can change the legal posture of individual cases, and the law may impose a deadline for persons to bring claims. Therefore, if you think that you need for legal services or expert advice, you should consult a licensed attorney. Unless otherwise noted, the content of this column is based on the laws of the State of Texas.
Jared G. LeBlanc is an attorney licensed to practice in all state and federal courts in Texas, the United States Fifth Circuit Court of Appeals, and the United States Supreme Court. He is an associate with Buck Keenan, LLP in Houston.