In State Farm Mutual Automobile Ins. Co. & State Farm County Mutual Ins. Co. of Texas v. Greg Rumbaugh(No. 06-21-00065-CV), the Texarkana Court of Appeals held that a 12% statutory penalty imposed by §1952.157, Insurance Code, on an insurer for failing to pay personal injury protection (PIP) benefits on or before 30 days after receiving satisfactory proof of the claim is not predicated on the insured filing a lawsuit to recover PIP benefits owed under the policy.
The case arose from an automobile accident in which the insured’s son was injured. The insured’s policy with State Farm contained a $2,500 benefit for personal injury protection, for which the insured submitted a claim on March 2, 2018. State Farm did not dispute the claim and paid it by mailing a check to the insured on April 5, three days after the 30th day after the claim was received. State Farm did not pay the statutory penalty, and the insured filed suit pursuant to §1952.157(a). In cross motions for summary judgment, the trial court sided with the insured, interpreting §1952.157 to mean that the insured need not file a lawsuit to recover PIP benefits under the policy in order to recover the statutory penalty for past due payment. The trial court granted summary judgment for the insured and awarded $300 plus interest and court costs. State Farm appealed.
On appeal, State Farm renewed its argument that the “statutory penalty could be awarded only in a suit to recover PIP benefits and that, because benefits were paid before Rumbaugh filed the suit, the statutory penalty could not be recovered.” The company based this argument on the text of §1952.157, which reads:
- If the insurer fails to pay benefits under the coverage required by this subchapter when due, the person entitled to those benefits may bring an action in contract to recover the benefits.
- If the insurer is required to pay benefits described by Subsection (a), the person entitled to the benefits is entitled to recover reasonable attorney’s fees, a penalty of 12 percent, and interest at the legal rate from the date those amounts became overdue.
State Farm contended that when read together, these subsections mean that if the insured brings an action to recover benefits that are not paid when due, as authorized by (a), then the insurer is entitled to recover the penalty and other amounts. In this case, the benefits were paid before the lawsuit was filed, rendering the statute inapplicable. In other words, §1952.157 does not authorize a penalty-only lawsuit.
The court of appeals disagreed, however. It read §§1952.156 and 1952.157 together to mean that the PIP benefits to which the insured is entitled must be paid timely (not later than the 30th day after the date the insurer received satisfactory proof of a claim). If they are not, the insured may bring a penalty-only lawsuit. The statutory deadline thus triggers the insurer’s obligation to pay benefits, not the lawsuit.
This seems to us a pretty close case. State Farm did not contest that it paid the PIP benefits three days “late” under §1952.156(a), which establishes the 30-day payment period once satisfactory proof of a claim has been received. But it does seem odd that having established the “due date,” §1952.156 does not immediately prescribe the enforcement mechanism for late payment, i.e., an action only to recover the penalty. Instead, the Legislature put that language in §1952.157(b) after in (a) authorizing an action to recover benefits. In any event, the statute is not as clear as it could be. While the prompt payment penalty is meant to deter insurers from dragging their feet on paying claims upon “satisfactory proof,” it really didn’t operate that way in this case. The insurer paid the claim, albeit three days late, but without any indication of bad intent or nefarious purpose. If this is how the statute is supposed to work, as the court of appeals held, so be it, but it does seem to indiscriminately punish technical and substantive violations alike.