Unfair Claims Settlement Practices Act in Texas: Deadlines and Remedies

The Unfair Claims Settlement Practices Act in Texas is the common name for a set of Insurance Code provisions and Texas Department of Insurance rules that control how insurers handle claims from their own policyholders. It lives primarily in Chapters 541 and 542 of the Texas Insurance Code, with a detailed list of nineteen prohibited practices in 28 TAC § 21.203.¹ Unlike the national model law it loosely tracks, Texas lets an individual policyholder sue an insurer directly for a single violation, and recover penalty interest, attorney’s fees, and in some cases triple damages.²

What the Law Forbids Insurers from Doing

Section 541.060 of the Insurance Code sets out the core prohibitions on claims handling. An insurer cannot misrepresent material facts or policy provisions, fail to attempt a good-faith settlement when liability is reasonably clear, refuse to explain the basis for a denial, fail to affirm or deny coverage within a reasonable time, or refuse to pay a claim without first conducting a reasonable investigation. These rules bind insurance companies and individual adjusters alike.²

Section 542.003 lists six specific unfair settlement practices: knowingly misrepresenting facts or policy terms, failing to promptly acknowledge communications about a claim, failing to adopt reasonable standards for investigation, not attempting good-faith settlement when liability is clear, forcing policyholders to sue by offering substantially less than what they ultimately recover, and failing to keep required complaint records. The statute also lets the Commissioner of Insurance add further prohibited practices by rule.³

The Commissioner used that authority to produce the much longer catalog in 28 TAC § 21.203, which TDI treats as the “minimum standard of performance” for insurers.¹ Alongside the statutory list, the rule bars tactics such as:

Enforcing a full and final release when only a partial payment has been made.⁴
Demanding federal income tax returns as a condition of settlement, unless a court orders it or the claim involves fire loss or loss of profits or income.⁴
Attempting to settle for less than a reasonable person would believe they were owed based on the insurer’s own advertising.⁴
On auto policies, delaying or refusing settlement solely because other types of insurance are available, or dictating the order in which available coverages must be used.⁴

Item 18 on the TDI list is a catch-all: any violation of Insurance Code Chapter 542 by a covered insurer is itself an unfair claim settlement practice.¹

The Deadlines Your Insurer Has to Meet

Subchapter B of Chapter 542, the Prompt Payment of Claims Act, converts the general duty of fair handling into hard dates. Once you give your insurer written notice of a first-party claim, the clock starts.

Within 15 calendar days, the insurer must acknowledge the claim, begin an investigation, and request any documentation needed to establish proof of loss (§ 542.055).⁵
Within 15 business days after receiving all required information, the insurer must notify you whether it accepts or rejects the claim (§ 542.056). The insurer can request a single 45-day extension, but has to explain why. If arson is reasonably suspected, the deadline is 30 days.⁵
Once the insurer notifies you it will pay, payment must go out within five business days (§ 542.057).⁵

If the insurer misses any of those deadlines, or delays payment more than 60 days after receiving all required information, it owes 18% simple annual interest on the amount of the claim, plus reasonable and necessary attorney’s fees.⁵ There is no good-faith exception. An insurer that wrongfully denies coverage faces the penalty even if the denial was based on a reasonable coverage dispute.⁶

The Prompt Payment Act covers first-party claims only, meaning claims you file for your own loss under your own policy. It does not apply when your insurer is defending or indemnifying you for a claim brought by someone else.⁷

What You Can Recover If the Insurer Violates the Act

Texas policyholders have a private right of action to enforce these statutes. The Texas Supreme Court established that right in Vail v. Texas Farm Bureau Mutual Insurance Co., 754 S.W.2d 129 (Tex. 1988), holding that an insured who is wrongfully denied policy benefits may sue under the Insurance Code without having to prove some separate injury beyond the denial itself.⁸ Chapter 541 also acts as a “tie-in” statute to the Texas Deceptive Trade Practices Act, so an Insurance Code violation can support a DTPA claim under Business and Commerce Code § 17.50(a)(4).⁹

If you prevail, the remedies can include:

Actual damages for the claim amount wrongfully denied or underpaid.¹⁰
Up to three times the actual damages under Chapter 541 if the insurer acted knowingly.²
18% simple annual interest on the unpaid amount under the Prompt Payment Act.¹¹
Reasonable and necessary attorney’s fees and court costs under both Chapter 541 and Chapter 542.¹⁰
Any other relief the court deems proper.¹⁰

To proceed under the DTPA tie-in, you have to qualify as a “consumer,” show the insurer violated the Insurance Code, and prove the violation was a producing cause of actual damages.¹²

Weather and Storm Claims Work Differently

If your claim involves hail, wind, hurricane, or other “forces of nature” damage to property, a separate chapter changes the rules. House Bill 1774, codified as Chapter 542A, applies to first-party weather-damage lawsuits filed on or after September 1, 2017.¹³

Before you can file suit, you must give the insurer written notice at least 61 days in advance. The notice has to state the acts or omissions giving rise to the claim, the specific amount you say you are owed, and a calculation of the reasonable and necessary attorney’s fees incurred to date. The insurer then has 30 days to request an inspection of the property. Skip the notice or block the inspection and the insurer can move to abate the lawsuit.¹⁴

The amount you demand in that pre-suit notice matters, because Chapter 542A ties attorney’s fee recovery to how close the judgment comes to it. Win 80% or more of what you demanded, and you recover full fees. Between 20% and 80%, the recovery is proportional. Below 20%, you recover no attorney’s fees at all.¹⁴

Chapter 542A also lowers the penalty interest rate on weather claims. Instead of the flat 18%, the rate is the prime rate plus 5%, with a floor of 10% and a ceiling of 20%. Claims made before September 1, 2017, keep the 18% rate.¹⁴ And the insurer can elect in writing to accept liability for its adjuster or agent, which forces dismissal of that individual from the lawsuit with prejudice, though the factfinder can still evaluate the agent’s conduct.¹³

Filing a Complaint With the Texas Department of Insurance

You do not have to file a lawsuit to get the Department involved. TDI accepts consumer complaints about insurers through its online portal and through its Help Line at 800-252-3439. After a complaint is filed, TDI contacts the insurer and demands a response; for auto and home insurers, the company has 25 days to reply. TDI then evaluates whether the insurer followed the law and paid according to the policy.¹⁵

TDI cannot order an insurer to pay more than a policy allows, but it can require the insurer to justify its payment amounts and review coverage determinations.¹⁵ For patterns of serious misconduct, the Fraud and Enforcement Division pursues disciplinary action, and the resulting orders are published in TDI’s databases of Commissioner’s Orders.¹⁶

Court Decisions That Affect Your Claim

A handful of recent decisions change how these rules play out in practice.

In Hinojos v. State Farm Lloyds, 625 S.W.3d 60 (Tex. 2021), the Texas Supreme Court shut down a common insurer tactic: paying something within the statutory deadline and then arguing that any later shortfall discovered through appraisal didn’t trigger the Prompt Payment Act. The Court held that an insurer’s acceptance and partial payment within the deadline does not eliminate liability for 18% interest on the remaining unpaid portion, and that paying an appraisal award after the deadline does not retroactively satisfy the Act.¹⁷ Interest accrues on the amount that remained unpaid after the statutory deadline expired.¹⁸

If your dispute involves underinsured motorist coverage, the procedure changed again in In re State Farm Mutual Automobile Insurance Co. (Tex. 2025). When an insured sues a UIM insurer for both coverage and extracontractual Insurance Code claims, the Insurance Code claims must be abated until the coverage dispute is resolved. A favorable judgment on the underlying coverage issues is a condition precedent to the accrual of the extracontractual claims.¹⁹

The Vail rule allowing recovery without a separate injury has drawn later tension from decisions including Provident American Insurance Co. v. Castaneda, 988 S.W.2d 189 (Tex. 1998), which has introduced ongoing litigation over whether an insured must prove injuries independent of the denial of the claim itself.⁸ And a 2024 federal decision, Barron v. Century Surety Co. (E.D. Tex. 2024), predicted that Texas would treat Chapter 542 penalty claims as penal rather than contractual and therefore not survive the death of the insured. The court dismissed the statutory bad faith, interest, and attorney’s fee claims after the insured died during litigation, though the Texas Supreme Court has not yet weighed in.²⁰

1
Texas Department of Insurance. 28 TAC Chapter 21
2
Johns Law Group. Texas Insurance Code 541 and 542
3
FindLaw. Tex. Ins. Code § 542.003
4
Cornell Law Institute. 28 Tex. Admin. Code § 21.203
5
Justia. Texas Insurance Code Chapter 542
6
Thompson Coe. Texas Prompt Payment to Claims
7
vLex. Chapter 5.1 Unfair Claims Settlement Practices
8
Cooper & Scully. Vail v. Texas Farm Bureau Mutual Insurance Company
9
St. Mary’s Law Journal. Vail v. Texas Farm Bureau
10
Enjuris. Bad Faith Insurance in Texas
11
Johns Law Group. Bad Faith Insurance Texas: Your Rights
12
Woodlands Law. Insurance Misrepresentations
13
Amy Stewart Law. 2017 Insurance Law Update
14
Segal McCambridge. Texas Insurance Law Alert: Storm Claim Litigation Reform
15
Texas Department of Insurance. Ways We Can Help
16
Texas Department of Insurance. Commissioner Actions
17
Supreme Court of Texas. Hinojos v. State Farm Lloyds
18
FindLaw. Hinojos v. State Farm Lloyds
19
FindLaw. In Re State Farm Mutual Automobile Insurance Company
20
Dykema. Insurance Bad Faith Report