Texas Accused Of Giving Auto Claimants The Major Run Around
By John Franklin - March 4, 2004How does anybody get out of paying a claim, whether an individual person or an insurance company? Just give the other party the run around until they burn out, that’s how. We all know this story. We’ve all experienced it; as it’s been done to every one of us in life in one way or another. That’s why we know that expression so well: Getting The Run Around.
The ability to give someone the run around when it comes to payment of money is obviously behind the reason there are such strict deadlines in California Workers’ Compensation, for example, and heavy penalties assigned for missing those deadlines.
But no deadlines existing for third-party auto claims in Texas, and light penalties for delays in first party auto claims are cited as the reason Texas auto insurers are considered to be “Run-Around-Sues” to hundreds and perhaps thousands of claimants. 2,223 justified complainants filed complaints last year over delays in their claim payments with the Texas Department of Insurance. And this doesn’t count the claimants who were so burned out with their claim at a certain point that they didn’t have the energy surplus to file a complaint.
This number of 2,223 complaints for 2003 was up 113% from the number of 1044 complaints which were filed eight years prior.
Insurance carriers defensive statements say that complicated claims take a lot of time to investigate, plus sometimes policyholders aren’t cooperative and/or are hard to reach. They claim that all claims are different, and that they can’t be held to a rigid standard.
Consumer advocates don’t believe the 18% penalties for claims delays are enough, as most claims are small—only a few to several thousand dollars—and insurance carriers don’t care about the possibility of such small penalties. They would rather grind people down and burn them out in their efforts. This way they’ll wind up paying out a lot less money in the long run. Small pay-outs with penalties along the way to the mighty and weariless aren’t going to add up to as much money as timely payments to all claimants.
Texas Supreme Court Rulings in the 1990s have made it harder for those who sue to collect much beyond the amount of the claim. Deadlines set by the insurance code don’t apply to third-party claims.
This combination has made insurance companies bolder, and left claimants springing for repairs or medical bills out of pocket as insurers put off settlements. “After you file a claim, they may respond within the proper deadlines, but come back with lowball offers or try to delay and delay and not negotiate,” said Dan Lambe, executive director of consumer group Texas Watch. “Unfortunately in many instances the deadlines just become irrelevant.”
The state insurance code says that after an accident, insurers have 15 days to start investigating a claim once a policyholder lets them know about it in writing. The courts have recognized that in some cases a phone call may be enough notice.
“Then the clock stops ticking,” said Chris Martin, a Houston insurance attorney and adjunct professor at the University of Houston Law Center. “It’s important that people realize that while the company investigates, these deadlines do not apply.”
Once the investigation is opened, insurers can take as long as they need for everything from sending adjusters and inspectors out to examine damages to collecting police reports. When the company has all it needs to make a decision, it must accept or deny the claims within 15 days. And if the claim is accepted, the company has five days to make the payment.
Technically, the code reads that if the company hasn’t asked for a 45-day extension, it has 15 days to deny or accept the claim once it has everything it asked for from the policy holder. But, the Texas Department of Insurance says the law’s been commonly interpreted to mean that the second 15-day clock only starts once the insurer has everything it reasonably needs to make a decision, including information from experts.
Not so, others contend. “Insurance companies try to argue that the deadline applies to third-party information, but when you read the statute it’s not true,” said Mark Kincaid, an Austin attorney and former head of the Office of Public Insurance Counsel. “That doesn’t keep them from trying to make the argument that it does.”
But, neither argument is of much importance in a third-party complaint. There’s not much anyone can do to get the insurer to pay up quickly. The 18 percent penalty doesn’t apply to such claims, and lawsuits may have little effect because the law doesn’t recognize any contract between the driver who was hit and either of the other parties.
If a large claim goes beyond the at-fault driver's policy limits, insurers may act more quickly because they'd be liable if the suit went to trial and they lost. But for small claims, there's really no incentive to speed up because the most the company has to lose falls within the policy limits.
Until about 10 years ago, policyholders had a bigger stick to wave at insurers who dragged their feet. If a policyholder proved a company unfairly delayed a settlement, they could be entitled to punitive damages and compensation for mental anguish, as well as the 18 percent penalty.
In 1994, the Texas Supreme Court restricted punitive damages in insurance cases through a ruling in Transportation Insurance Co. v. Moriel. The court ruled policyholders had to prove a company or individual knew their actions would harm others, and not just that one should have known. In 1995, controversial tort reform legislation capped punitive damages to the greater of twice the economic damages or $200,000, and capped noneconomic damages at $750,000. Also that year, a Texas Supreme Court ruling in State Farm Life Insurance Co. v. Beaston set a higher standard for proving mental anguish, making it harder to win noneconomic damages.
Rather than just proving an insurer unfairly delayed a claim, the court ruled policyholders also had to prove the company knowingly delayed a claim, a difficult criterion to meet. "It makes it hard to use the civil justice system to deter misconduct," said Phil Maxwell, an Austin attorney and former head of the Texas Attorney General's consumer protection division. "The incentives are all tilted in favor of delay."
Policyholders can file complaints with the state insurance department, but the state's more likely to take action if it sees a pattern in company practices rather than one delay, said Jack Evins, of the department's consumer protection division. Some say only hefty penalties will keep insurers from dragging their feet.
"Insurance companies are inherently financial animals. People say insurance companies are immoral; I say they're amoral. It's all about money," Mark Kincaid said. "As their penalties go down, it allows behavior that, over the long haul, will save money."
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