The Texas Prompt Payment of Claims Statute and its Application to the Duty to Defend

The purpose of this article is to provide the insurance claims handler with the basic underpinnings of Section 542.051, et. seq of the Texas Insurance Code (formerly Article 21.55 and also known as the Texas Prompt Payment of Claims Statute) and its practical application to the handling of third party claims. On August 31, 2007, the Texas Supreme Court held that the Prompt Payment of Claims Statute applies to an insurer’s duty to defend thereby resolving a split between intermediate state and federal courts on the statute’s applicability to at least one aspect of third party claims. The article will discuss the requirements and the potential pitfalls unique to third party claims under the Prompt Payment of Claims Statute.