The U.S. Fifth Circuit Court of Appeals would not disturb a judgment awarding an 18% interest penalty under the Texas Insurance Code accruing from the date of notice over the handling of a claim for coverage when a jury found that no investigation was timely commenced. Cox Operating, LLC v. St. Paul Surplus Lines Insurance Co., No. 13-20529 (5th Cir. July 30, 2015).
An oilfield operator sustained extensive damage to its wells and incurred costs cleaning up pollution and debris as a result. The insured provided notice of the claim under its liability policies (which provided coverage for pollution cleanup costs). According to the district court, neither the insurer nor its independent adjuster requested invoices substantiating the claim until nine months later. Then, after paying some funds, the insurer sought a declaration that the remainder of the operator's costs were not covered. The operator counterclaimed for breach of contract, and after a jury trial, the court entered judgment for damages due to breach of contract and penalty interest for failure to respond promptly to the claim in not commencing an investigation the 30 days required by the Texas Insurance Code. The district court concluded that the insurer's failure to investigate timely "signaled" to the operator that the insurer had all the information it required and that payment should have been made within 60 days pursuant to the Texas Insurance Code. Thus, according to the district court, the penalty for the failure to pay started accruing 60 days after notice was given.
The insurer appealed, arguing that the penalty should accrue only 60 days after the insurer receives "all items, statements, and forms required by the insurer to secure final proof of loss." The Fifth Circuit affirmed, finding that the Texas Insurance Code clearly states that the penalty provision applies if an insurer is liable for a claim "not in compliance with this subchapter." Thus, according to the Fifth Circuit, the penalty could accrue beginning 60 days after notice of a loss.