10.1 Texas Prompt Payment of Claims Act (TIC Chapter 542, Subchapter B)
Key Takeaways
- Under Texas Insurance Code Chapter 542 Subchapter B (Prompt Payment of Claims Act), an insurer must acknowledge receipt of a claim, commence investigation, and request all required information within 15 calendar days of written notice.
- Within 15 business days after receiving all requested verification items, the insurer must provide written notice of acceptance or rejection; this is extended to 30 calendar days for suspected arson or up to 45 additional calendar days if the carrier gives timely written notice explaining why additional time is needed.
- Once a claim or part of a claim is accepted, the insurer must pay the agreed proceeds within 5 business days of the acceptance notice under TIC § 542.057(a), or within 20 business days under § 542.057(c) for an eligible surplus lines insurer.
- In a catastrophe weather event or natural disaster declared by the Insurance Commissioner, all claim handling deadlines are extended by an additional 15 calendar days.
- TIC § 542.060(a) makes a non-compliant insurer liable for the claim plus interest at 18 percent a year as damages and reasonable and necessary attorney's fees, but § 542.060(c) substitutes simple interest at the Finance Code § 304.003 judgment rate plus five percent in any action governed by Chapter 542A, added by HB 1774 effective September 1, 2017, which covers first-party claims for damage to real property caused wholly or partly by forces of nature.
10.1 Texas Prompt Payment of Claims Act (TIC Chapter 542, Subchapter B)
Quick Answer: The Texas Prompt Payment of Claims Act (TIC Chapter 542, Subchapter B) imposes four mandatory statutory deadlines on insurers handling first-party property and casualty claims: (1) Acknowledge, commence investigation, and request items within 15 calendar days of receiving written claim notice; (2) Accept or reject the claim in writing within 15 business days of receiving all requested verification documents (or 30 calendar days for suspected arson, or up to 45 additional calendar days upon written notice stating reasons for delay); (3) Pay the claim within 5 business days of notifying the claimant of acceptance; and (4) If the Commissioner declares a catastrophe weather event, all deadlines extend by 15 calendar days. An insurer that violates any prompt payment deadline must pay the claim, statutory interest as damages, and the claimant's reasonable and necessary attorney's fees under TIC § 542.060. The damages rate is 18% a year under § 542.060(a) — except in an action governed by Chapter 542A (first-party claims for damage to real property caused wholly or partly by forces of nature), where § 542.060(c) substitutes simple interest at the judgment interest rate plus five percent.
Core Purpose & Statutory Scope of Chapter 542, Subchapter B
The prompt and equitable resolution of insurance claims is a cornerstone of Texas public policy. Prior to the enactment of the Texas Prompt Payment of Claims Act (codified at Texas Insurance Code [TIC] Chapter 542, Subchapter B, §§ 542.051–542.061), policyholders possessed limited statutory recourse when carriers engaged in bureaucratic stalling tactics, unreasonable requests for cumulative documentation, or prolonged delays in releasing settlement funds.
The explicit statutory purpose of Subchapter B is to promote the prompt handling, processing, and payment of first-party claims by insurers licensed to operate in Texas. It creates an affirmative, self-executing legal framework designed to eliminate claims department lethargy and protect policyholders from financial duress following a catastrophic property or casualty loss.
Applicability to First-Party Claims
The Prompt Payment of Claims Act applies strictly to first-party insurance claims—meaning claims submitted by the named insured, an additional insured, or a designated beneficiary directly against their own insurance carrier (e.g., homeowners roof damage, commercial property fire, personal auto comprehensive or collision). It does not apply to third-party liability claims where an injured claimant seeks compensation against a negligent policyholder, nor does it govern workers' compensation, marine insurance, or title insurance.
Calendar Days vs. Business Days Under Texas Law
A critical source of adjuster errors on both licensing examinations and civil claims litigation is confusing calendar days with business days under Chapter 542. The Texas Insurance Code maintains precise definitions:
- Calendar Days: Every consecutive day on the calendar, including Saturdays, Sundays, and legal public holidays. Deadlines measured in calendar days run continuously from the triggering event.
- Business Days (TIC § 542.051(1)): Defined specifically as a day other than a Saturday, Sunday, or holiday recognized by the State of Texas. Under Texas Government Code § 662.003, official state holidays (such as Texas Independence Day on March 2, San Jacinto Day on April 21, and Juneteenth on June 19) along with national federal holidays do not count toward business-day deadlines.
CRITICAL ADJUSTER RULE:
Step 1 (Acknowledgment & Document Request) = 15 CALENDAR DAYS
Step 2 (Acceptance or Rejection Decision) = 15 BUSINESS DAYS
Step 3 (Statutory Extension of Time) = 45 CALENDAR DAYS
Step 4 (Payment of Accepted Claim) = 5 BUSINESS DAYS
The Four-Step Statutory Claims Timeline: The Golden Rules of Texas Adjusting
Texas adjusters must memorize and strictly implement the four statutory milestones established under TIC Chapter 542:
[Notice of Claim]
│
▼ (15 Calendar Days - TIC § 542.055)
[Step 1: Acknowledge Claim + Begin Investigation + Request All Required Items]
│
▼ (Claimant submits all requested items)
[Step 2: Decision Window - 15 Business Days - TIC § 542.056]
┌───┴───────────────────────────────────────┐
│ │
[Accept or Reject in Writing] [Need More Time? (TIC § 542.056(d))]
│ │ Written notice to claimant
│ ▼
│ [Grants +45 Calendar Days to Decide]
│ │
│◄──────────────────────────────────────────┘
▼ (If Accepted)
[Step 4: Pay Claim - 5 Business Days - TIC § 542.057]
Step 1: Notice of Claim & Initial Acknowledgment (TIC § 542.055)
Not later than the 15th calendar day after the date the insurer receives written notice of a claim, the insurer must perform three mandatory actions simultaneously:
- Acknowledge receipt of the claim: The insurer must formally confirm receipt. If acknowledgment is not made in writing initially (e.g., verbal acknowledgment via telephone), the adjuster must make an immediate written notation in the contemporaneous claim log, documenting the date, time, and content of the acknowledgment.
- Commence any investigation of the claim: The carrier must initiate investigative activities, such as assigning a field adjuster, ordering weather reports, or contacting the insured to schedule an inspection.
- Request all items, statements, and forms: The insurer must request from the claimant all items, statements, and verification documents that the insurer reasonably believes, at that time, will be required from the claimant.
Surplus Lines Exception: Under TIC § 542.055(a), an eligible surplus lines insurer has 30 business days (rather than 15 calendar days) to acknowledge receipt, commence investigation, and request required documentation.
Note on Supplemental Requests: The carrier is permitted to make subsequent written requests for additional necessary information if the ongoing investigation reveals that further documentation is reasonably required (TIC § 542.055(b)). However, an insurer cannot use sequential, piecemeal document requests as a pretext to postpone its decision deadline.
Step 2: Notice of Acceptance or Rejection (TIC § 542.056)
Once the claimant delivers all items, statements, and forms originally requested by the carrier under Step 1, the carrier's decision clock begins to tick. Under TIC § 542.056(a), the insurer must notify a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the date the insurer receives all required items.
- If the Claim is Rejected: The written notice must state the specific reasons for the rejection, explicitly citing the policy exclusions, conditions, or provisions relied upon. A generic denial letter violates Texas unfair claims practices standards.
- If Part of the Claim is Rejected: If the insurer accepts liability for certain items of damage (e.g., roof decking and shingles) but denies others (e.g., pre-existing foundation cracks), the written notice must clearly specify which portions are accepted and which are rejected, with supporting contractual grounds.
- Suspected Arson Exception (TIC § 542.056(b)): If the insurer has reasonable grounds to suspect that a fire loss resulted from arson committed by or with the knowledge of the insured, the deadline for providing written notice of acceptance or rejection is extended from 15 business days to 30 calendar days after receipt of all requested items.
Step 3: Statutory Extension of Time (TIC § 542.056(d))
Insurance losses are often highly complex, involving structural engineering assessments, origin-and-cause forensic experts, forensic accounting audits, or delayed laboratory metallurgical tests. If an insurer is unable to accept or reject a claim within the statutory 15-business-day window, it may invoke a statutory extension under TIC § 542.056(d):
- Requirements: The insurer must provide written notice to the claimant on or before the expiration of the original 15-business-day deadline.
- Content of Notice: The notice must explicitly state the precise, legitimate reasons why the carrier requires additional time to complete its investigation.
- Length of Extension: Giving this written notice automatically extends the deadline to accept or reject the claim for a period of up to 45 additional calendar days from the date the notice is transmitted.
- Absolute Deadline: The carrier cannot grant itself multiple consecutive 45-day extensions. Once the 45-calendar-day extension lapses, the insurer must issue its final written acceptance or rejection.
Step 4: Payment of Claim (TIC § 542.057)
Once an insurer issues written notice to a claimant that a claim or part of a claim is accepted, the legal obligation to disburse funds becomes immediate and mandatory under TIC § 542.057:
- Standard Payment Deadline: The insurer must pay the claim not later than the 5th business day after the date the notice of acceptance is given.
- Payment Conditioned on Execution of an Act: If payment is conditioned on the claimant performing an act (such as executing a formal sworn proof of loss, signing a partial release, or executing a loan receipt), the insurer must disburse payment not later than the 5th business day after the date the insurer receives the executed document or completed act.
- Surplus Lines Payment Deadline: For an eligible surplus lines insurer, the statutory payment deadline under TIC § 542.057(c) is 20 business days after the notice or after the date the required act is performed. (Subsection (b) is the act-conditioned rule; the surplus lines extension sits in subsection (c).)
Catastrophe Weather Event Modification (TIC § 542.059)
Texas is subject to extreme catastrophic weather, including Gulf Coast hurricanes, destructive tornado outbreaks, and massive inland hailstorms producing tens of thousands of simultaneous claims across single metropolitan areas. When a major disaster strikes, the claims handling resources of admitted carriers and independent adjusting firms can be stretched to capacity.
Under TIC § 542.059, in the event of a weather-related catastrophe or natural disaster as defined by the Commissioner of Insurance, the standard statutory claim-handling deadlines imposed by Chapter 542 are extended by an additional 15 calendar days:
- Commissioner's Formal Declaration: The extension does not trigger automatically; the Texas Commissioner of Insurance must issue a formal bulletin or administrative order declaring a designated geographic region or event a catastrophe under the statute.
- Application to Deadlines: The additional 15 calendar days are added to each successive statutory deadline (e.g., Step 1 acknowledgment becomes 30 calendar days; Step 2 decision becomes 15 business days + 15 calendar days).
- Beneficiary: This statutory relief allows carriers to mobilize emergency catastrophe response teams, license emergency out-of-state adjusters, and triage emergency living expenses without immediately incurring statutory penalties.
The Formidable Texas Statutory Penalty (TIC § 542.060)
To ensure absolute compliance, the Texas Legislature enacted one of the most punitive statutory penalty mechanisms in American insurance jurisprudence. Codified at TIC § 542.060, the penalty provision applies whenever an insurer fails to comply with any prompt payment requirement or delays payment beyond statutory limits.
When the Penalty Triggers
The statutory penalty is triggered if an insurer:
- Fails to meet any individual deadline specified in §§ 542.055, 542.056, or 542.057; OR
- Fails to pay a valid, covered claim within 60 calendar days after receiving all reasonably required verification items submitted under Step 1, even if the insurer issued an extension notice.
Statutory Remedy Components Under TIC § 542.060
When a court or arbitrator determines that an insurer violated Chapter 542, the insurer is statutorily liable for:
- The Full Amount of the Claim: The actual covered damages determined to be owed under the policy terms.
- Statutory Interest as Damages — and the Rate Depends on the Claim:
- § 542.060(a) — the general rule: interest on the amount of the claim at the rate of 18 percent a year as damages.
- § 542.060(c) — the Chapter 542A rule: in an action to which Chapter 542A applies, the insurer instead owes simple interest on the amount of the claim each year at a rate determined on the date of judgment by adding five percent to the judgment interest rate under Finance Code § 304.003. Interest awarded under this subsection accrues beginning on the date the claim was required to be paid.
- Reasonable and Necessary Attorney's Fees: Plus, if suit is filed, the fees are taxed as part of the costs in the case (§ 542.060(b)). Nothing in § 542.060 prevents an additional award of prejudgment interest.
The HB 1774 / Chapter 542A Overlay — The Single Most Misremembered Fact in Texas Claims Law
Effective September 1, 2017, House Bill 1774 added TIC Chapter 542A and rewrote § 542.060. Because Chapter 542A captures the overwhelming majority of residential and commercial property claims a Texas adjuster will ever touch, the reflex answer "18 percent" is wrong far more often than it is right.
When does Chapter 542A apply? Under § 542A.001(2), a "claim" means a first-party claim that:
- (A) is made by an insured under a policy providing coverage for real property or improvements to real property;
- (B) must be paid by the insurer directly to the insured; and
- (C) arises from damage to or loss of covered property caused, wholly or partly, by forces of nature, including an earthquake or earth tremor, wildfire, flood, tornado, lightning, hurricane, hail, wind, snowstorm, or rainstorm.
Who is an "insurer" for 542A purposes? Section 542A.001(4) sweeps in insurance companies, reciprocal and interinsurance exchanges, mutuals, capital stock companies, county mutuals, farm mutuals, Lloyd's plans, eligible surplus lines insurers, and the FAIR Plan Association (unless a claim dispute procedure is available under Chapter 2211). It expressly excludes the Texas Windstorm Insurance Association (TWIA) — TWIA claims run through the Chapter 2210 dispute process instead.
The presuit notice and attorney's fee mechanism (§§ 542A.003, 542A.007): A claimant must give written presuit notice stating the specific amount alleged to be owed, generally at least 61 days before filing suit. Section 542A.007 then scales the recoverable attorney's fees to the ratio between the judgment amount and the amount demanded in that notice: the claimant recovers full fees when the ratio is 0.8 or greater, recovers no fees at all when the ratio is less than 0.2, and recovers a proportionally reduced amount in between. If the defendant pleads and proves it was entitled to but did not receive a compliant presuit notice at least 61 days before filing, the court may not award fees incurred after that pleading is filed.
WHICH INTEREST RATE APPLIES UNDER Sec. 542.060?
|
+---------------------+---------------------+
| |
First-party claim for damage to REAL PROPERTY Everything else
caused wholly or partly by FORCES OF NATURE (e.g., a first-party
(hail, wind, hurricane, flood, wildfire, auto physical damage
tornado, lightning, rain, snow, earthquake) or contents-only claim
| outside Chapter 542A)
v v
Sec. 542.060(c): JUDGMENT RATE + 5% Sec. 542.060(a): 18% PER YEAR
simple interest, accruing from the date as damages
the claim was required to be paid
Why this matters at the desk, not just on the exam. A hail claim mishandled by three days does not automatically generate 18% interest anymore. It generates judgment-rate-plus-5% simple interest under § 542.060(c), plus fees that are themselves rationed by the § 542A.007 ratio. Adjusters who quote "18 percent" to a policyholder or to their own file notes on a weather claim are quoting pre-2017 law.
Adjuster Takeaway: Unlike common-law bad faith tort actions, liability under TIC § 542.060 does not turn on the carrier's state of mind. The policyholder is not required to prove malicious intent, ill will, or bad faith on the part of the carrier or adjuster — only that the insurer is liable for the claim and failed to comply with Subchapter B. Missing a statutory deadline by a single day exposes the carrier to statutory interest as damages plus attorney's fees by operation of law. What the adjuster must get right is which rate applies: 18% a year under § 542.060(a), or judgment rate plus five percent under § 542.060(c) for a Chapter 542A forces-of-nature property claim.
Summary Comparison Table: Texas Prompt Payment Statutory Deadlines
| Claims Phase | Standard Admitted Insurer | Eligible Surplus Lines Insurer | Suspected Arson Loss | Catastrophe Declaration (TIC § 542.059) |
|---|---|---|---|---|
| Step 1: Acknowledge, Investigate & Request Items | 15 Calendar Days (TIC § 542.055) | 30 Business Days (TIC § 542.055(a)) | 15 Calendar Days | +15 Calendar Days added (30 Calendar Days) |
| Step 2: Notice of Acceptance or Rejection | 15 Business Days (TIC § 542.056(a)) | 15 Business Days | 30 Calendar Days (TIC § 542.056(b)) | +15 Calendar Days added |
| Step 3: Extension of Time (Written Notice) | Up to 45 Calendar Days (TIC § 542.056(d)) | Up to 45 Calendar Days | Up to 45 Calendar Days | Up to 45 Calendar Days |
| Step 4: Payment of Claim (Upon Acceptance) | 5 Business Days (TIC § 542.057(a)) | 20 Business Days (TIC § 542.057(c)) | 5 Business Days | +15 Calendar Days added |
| Statutory Damages for Violation | Claim amount + 18% a year (§ 542.060(a)) or judgment rate + 5% if Chapter 542A applies (§ 542.060(c)) + attorney's fees | Same analysis; surplus lines insurers are within the Chapter 542A definition of "insurer" | Same analysis | Same analysis |
Practical Adjuster Scenario: Calculating Prompt Payment Timelines
To master Chapter 542 on licensing examinations and in claims operations, consider the following real-world calendar calculation:
Scenario: The Hail Claim Timeline
• October 1 (Tuesday): Insured homeowner emails written Notice of Claim reporting hail damage to roof.
→ Step 1 Deadline: 15 CALENDAR DAYS = October 16 (Wednesday).
• October 8: Adjuster acknowledges claim, inspects roof, and requests completed Sworn Proof of Loss.
→ Insurer complied with Step 1 well within the 15-calendar-day deadline.
• October 21 (Monday): Insured submits the completed Sworn Proof of Loss and repair estimates.
→ Step 2 Decision Clock Starts: 15 BUSINESS DAYS.
→ Counting business days (excluding Saturdays, Sundays, and legal holidays):
Week 1: Oct 22 (Tue), 23 (Wed), 24 (Thu), 25 (Fri) = 4 days
Week 2: Oct 28 (Mon), 29 (Tue), 30 (Wed), 31 (Thu), Nov 1 (Fri) = 5 days (cumulative 9)
Week 3: Nov 4 (Mon), 5 (Tue), 6 (Wed), 7 (Thu), 8 (Fri) = 5 days (cumulative 14)
Week 4: Nov 11 (Monday is Veterans Day - State/Federal Holiday - DOES NOT COUNT!)
Nov 12 (Tuesday) = 15th Business Day!
→ Step 2 Deadline: Tuesday, November 12.
• November 12: Insurer mails written notice accepting the claim for $18,500.
→ Step 4 Payment Clock Starts: 5 BUSINESS DAYS.
→ Counting business days:
Nov 13 (Wed), Nov 14 (Thu), Nov 15 (Fri), Nov 18 (Mon), Nov 19 (Tue).
→ Step 4 Deadline: Tuesday, November 19.
• November 18: Insurer issues and mails settlement draft for $18,500.
Adjuster Outcome: FULL COMPLIANCE. No statutory interest or penalties attach.
Under the Texas Prompt Payment of Claims Act (TIC § 542.055), what are the mandatory actions and statutory deadline an admitted insurer must observe upon receiving written notice of a first-party property claim?
Once an admitted insurer notifies a claimant in writing that a residential property claim or part of a claim has been accepted, what is the maximum statutory deadline to pay the claim under TIC § 542.057?
An adjuster evaluating a complex commercial roof loss in San Antonio determines that forensic engineering test results cannot be completed within the initial 15-business-day decision window. Under TIC § 542.056(d), how can the insurer obtain additional time to decide the claim?
A Texas homeowner sues an admitted carrier for missing the prompt payment deadlines on a wind and hail claim to the roof of the insured dwelling. What damages rate applies under Texas Insurance Code § 542.060?