Texas: Misuse of Insurance Settlement Payments Increasing

September 13, 2010

The Texas Department of Insurance (Department) has issued a bulletin stating that misdirection, misapplication and improper use of insurance settlement payments appear to be on the rise.

The bulletin is in response to a report from the State Bar of Texas (Bar) that such incidents are increasing. In the one-year period ending in August 2009, the Bar’s Client Security Fund, which compensates clients whose funds were misdirected, misapplied or used improperly, paid over $266,800 in grants to such clients.

The department is encouraging all insurance companies issuing settlement payments, payable to both the insurance claimant and the claimant’s representative, to provide written notice to the claimant at the same time payment is made to a claimant’s representative. Such notice should state the amount and method of the payment and the name and address of the party to whom the payment is made

This process, called “Payee Notification,” notifies claimants whenever a settlement payment is made payable to both the insurance claimant and the claimant’s representative, but is issued or delivered to the claimant’s representative.

Currently, 14 states require payee notification by statute, rule, or bulletin. States that have enacted payee notification report a dramatic decrease in misapplication, misdirection and improper use of settlement payments made by insurance companies.

Source: Texas Department of Insurance

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