With Hurricane Harvey finally gone and the floodwaters slowly beginning to recede, the magnitude of damage left behind becomes more apparent every day. Fortunately, Houston is one of the most resilient cities in the United States, and optimism can be found on every corner. Neighbors are helping neighbors rip out drywall, deliver supplies, and pull up carpet. The city has already started to rebuild on a massive scale.

Despite the optimism, the cost of rebuilding can be daunting. Some residences need to be completely scrapped. In the business sector, many companies have discovered damaged equipment and machinery, causing disruption. Worse, there may be fears about the possibility of contamination of a business’s work site. With rumors swirling that the Texas Legislature recently made it harder to recover on insurance claims through HB 1774, some may put off making an insurance claim out of fear that doing so is a waste of time.

Fortunately, many businesses have business or property insurance that covers damages outside of flooding. Such policies may cover damage from disruptions to business continuity, pollution releases, damage to other people’s property, contamination, and so on. The first step any business should take is to review policy coverage and determine whether any damage suffered is covered.

Business owners must be extremely careful not to miss any deadlines provided for in their policies. Many policies require claims to be reported within a certain time after the incident in question, be it 30 days, three months, six months, or some other period of time. Missing a deadline might prevent a business from successfully making a claim.

However, it is equally important to remember that insurance companies face their own deadlines. Getting insurance reimbursements is often critical to allow businesses to restore positive cash flow. Yet because many insurance policies fail to specifically mention the deadlines for payout required by Texas law, businesses do not always get the timely funding they need to immediately start the rebuilding process.

The Texas “Prompt Pay Act,” codified in Chapter 542B of the Insurance Code, governs the amount of time that insurance companies have to process and pay claims. Tex. Ins. Code. § 542.051 et seq. The Prompt Pay Act sets strict deadlines, which are extended by only 15 days in the event of a major natural disaster like a hurricane. Id. § 542.059. This article discusses the deadlines in the context of a hurricane, assuming that the “Hurricane Extension” applies because of Harvey.

First, once you submit written notice of the claim, the insurance company has obligations that must generally be completed within 30 days:

• The insurer must acknowledge receipt of the claim;

• The insurer must commence investigation of the claim; and

• The insurer must request all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.
Id. § 542.055.

After sending the forms to the insurance company and providing them with any information necessary to secure final proof of loss, the insurer must either accept or reject the claim within 30 days. Id. § 542.056. Importantly, after receiving this documentation, the insurer only has 60 days to pay the claim. Id. § 542.058.

If an insurer needs longer to process the claim, it has only 30 days after receiving the necessary documents to send out a notification that more time is required. Even by sending the notification, the insurer only gets an additional 60 days to accept or reject the claim, for a maximum deadline of three months after all items are submitted to secure final proof of loss. Id. § 542.056(d).

That’s a long way of making a straightforward point: even if the insurer ultimately pays a business’s claim, the business may still be entitled to additional cash if the insurance company waited too long to do so. A business that fully cooperates with an insurance company and provides all required documentation as promptly as possible should have its claim paid or rejected within three to five months. This is separate from whether the amount paid is appropriate; it is solely related to the timing of the process.

Texas imposes severe penalties for violating the Prompt Pay Act deadlines. In addition to paying the amount of the claim, the insurer must pay interest on the amount of the claim at the rate of 18 percent per year plus any reasonable and necessary attorneys’ fees required to obtain the recovery. Id. § 542.060. In other words, the fact that an insurance company pays the right amount eventually does not obviate it of liability for paying out too slow. See id.; see generally Cox Operating, L.L.C. v. St. Paul Surplus Lines Ins. Co., 795 F.3d 496 (5th Cir. 2015); Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 515 (5th Cir. 2015).

Many business owners may have seen or heard rumors about HB 1774, which makes it more difficult to recover under other provisions of the Texas Insurance Code, such as the law against unfair settlement practices. HB 1774, however, left the Prompt Pay Act deadlines and penalties largely unaltered. See H.B. 1774 § 2 HB 1774 (leaving the deadlines under Chapter 542B intact except in those actions to which Chapter 542A applies). The new law should not deter businesses from seeking to enforce their rights against insurance companies that sit on their hands rather than paying out a meritorious claim.

In sum, best practices include:

• Review insurance policies to determine what damages are covered. Consider consulting with an attorney so that nothing is overlooked.

• Determine whether you have any damages covered by your policy.

• Make a written claim with your insurer within the deadlines and in the manner prescribed by your policy.

• As soon as you can, provide the insurance company with the necessary documents to analyze your claim. Some statutory deadlines are linked to the day the final documents are received, so giving the insurer everything up front will expedite the process of getting paid.

• Note the deadlines and monitor whether your insurance company is meeting the statutory deadlines.

• If an insurer misses a deadline, understand what rights you have to payment.

Of course, every case is different. Please understand that this article provides information about best practices, but it is far from an exhaustive analysis, and nothing in this article should be taken as legal advice about your particular situation. We encourage businesses to consult an attorney to assist in this process. An attorney may help you determine what documents need to be provided, advise your business about its own deadlines, keep pressure on the insurance company to process your claim quickly, and ultimately pursue a claim in which you may be able to recover interest plus attorneys’ fees if any deadlines are missed.

Payouts from insurance can help a business get back on its feet after a disaster such as Harvey. After all, this is why you have insurance in the first place. While the rebuilding process will undoubtedly take months, if not years, the Prompt Pay Act may help Texas businesses of all sizes get back to business as quickly as possible.

Jerry Mitchell is a partner in Houston law firm Fulkerson Lotz. He has more than 25 years of experience litigating commercial claims.

Nick Brown is an associate of Fulkerson Lotz, where his practice focuses on commercial and intellectual property litigation. Prior to joining the firm, Brown clerked for the U.S. 5th Circuit Court of Appeals.