A New Frontier: Article 21.55 and the Duty to Defend

June 22, 2000

Introduction
For years, Article 21.21 of the Texas Insurance Code has dominated the spotlight of statutory claims against insurance carriers. Through the rise and fall (and, some would say, resurgence) of "bad faith" law in Texas, Article 21.21 has been extensively scrutinized, dissected, and interpreted—both in CLE articles and in court opinions. Meanwhile, its lesser known cousin—Article 21.55—has remained comparatively anonymous. Until recently.
 
With increasing regularity, savvy policyholders are adding Article 21.55 claims to their litigation arsenals. Article 21.55 imposes an 18% penalty on insurance carriers who drag their feet in paying claims beyond a statutory deadline, whether they ultimately do pay those claims or deny them altogether. Policyholders have found Article 21.55 to be a valuable tool in holding carriers accountable for paying valid claims on time, or paying the consequences for their delay. Because of Article 21.55's rising popularity, policyholders and carriers alike should take a closer look at this poorly understood, and potentially dangerous, statute.
 
This article first explains how Article 21.55 works. It explains the deadlines imposed on carriers, and the penalties imposed for missing those deadlines. This article then addresses an emerging issue in Texas insurance law: the applicability of Article 21.55 to a carrier’s duty to defend under a liability policy.

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