AMARILLO FEDERAL DISTRICT COURT HOLDS MARINE-INSURANCE CLAIM EXPRESSLY EXCLUDED FROM INSURANCE CODE PROMPT PAYMENT ACT

Last month, a federal court in Amarillo dismissed a Prompt Payment claim under Chapter 542 of the Insurance Code. In Beef Source Int'l, LLC v. Certain Underwriters at Lloyd's London, No. 2:14-CV-104-J, 2015 WL 5666716, at *1 (N.D. Tex. Sept. 24, 2015), Beef Source International had attempted to ship beef by sea from Texas to Chile when the beef partially spoiled because of a refrigeration malfunction on the vessel. Brit PLC, the Lloyd’s underwriter that subscribed to 100% of a marine-insurance contract covering multiple shipments of the beef, denied the claim. Beef Source sued for breach of the insurance contract and extra-contractual claims, including violations of the Prompt-Payment statute. Brit PLC filed a motion to dismiss the claims under Federal Rule of Civil Procedure 12(b)(6).

Beef Source argued that Brit PLC violated the Prompt Payment statute because it failed to accept or deny a claim within 15 days as required by Chapter 542 of the Texas Insurance Code. The court held that claims under this Chapter were expressly excluded under Chapter 542.053, which excludes from the Insurance Code claims under “marine insurance as defined by Section 1807.001.” Because Beef Source’s pleadings asserted claims under a marine-insurance policy, which fell under the Insurance Code’s definition of “marine insurance,” the Court held that the pleadings failed to state a Prompt Payment claim under Chapter 542.

Editor’s Note:  This case is a helpful reminder that not all types of insurance are subject to the usual insurance-code penalties and provisions that apply to real property or auto insurance. Other exceptions under Chapter 542.053 are claims under (1) workers’ compensation insurance; (2) mortgage guaranty insurance; (3) title insurance; and (4) fidelity, surety, or guaranty bonds.