The Texas Prompt Pay Statute Post Lamar: Understanding its Application to Defense Costs

03/27/2008

After several years and numerous conflicting Texas state and federal cases, the Texas Supreme Court finally put to rest the raging debate and controversy over whether an insured’s request for defense costs under a liability policy constitutes a “first-party claim” thereby placing an insurer’s handling of such a claim under the governing deadlines and penalties afforded under Section 542.061 of the Texas Insurance Code known as the Prompt Pay Statute. The high court in Lamar Home, Inc. v. Mid-Continent Cas. Co. 242 S.W. 3d 1 (Tex. 2006) held that an insured’s right to a defense benefit under a liability policy is a “first-party claim” within the meaning of the Prompt Pay Statute.

In so holding that the statute applies to defense costs, the Court correctly rejected the insurance industry’s argument that the statute is unworkable in the context of the insured’s claim for a defense benefit. Yet, both carriers and policyholders are still left with understanding the practical and day-to-day applications of the statute to an insured’s claim for defense costs.

The purpose of this article will be to twofold: first, to explore practical applications of the statute to an insured’s request for defense and submission of defense invoices and, second, to suggest additional ramifications of the Court’s ruling.

Excerpted from a presentation to State Bar of Texas Advanced Insurance Law Course, March 27-28, 2008. To read the full article click on the PDF linked below.

PDF - TX_Prompt_Pay_Statute.pdf

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