In Texas, insurance companies owe a wide range of duties to their policyholders aimed at ensuring claims are promptly adjusted and settled in a fair manner. An insurance company that breaches these duties can be liable to the policyholder for additional damages, penalties, and attorney’s fees beyond what is owed under the insurance policy.
The reason insurance companies are so closely regulated is the inherent advantage they have over their insureds who are depending on the coverage they paid for.
In Texas, there are two separate bodies of law that penalize insurance companies for acting in bad faith. The first is a common law implied covenant of good faith that requires an insurance company treat you honestly and fairly.
In addition, Chapter 541 of the Texas Insurance Code lays out in detail when an insurer engages in an unfair method of competition and unfair or deceptive acts or practices. Somewhat related is Chapter 542 of the Texas Insurance Code, which provides deadlines for an insurer to pay and settle claims.
If you believe your insurance company acted in bad faith, you should contact a Texas insurance attorney as soon as possible.
Proving a Bad Faith Claim in Texas
When proving a bad faith claim in Texas, it is important to understand that you have the burden of proof. This means that you, with the help of your lawyer, must demonstrate how the facts of your case meet the requirements of a bad faith claim.
There are two ways that you can prove your bad faith claim: either as a common law bad faith claim or a statutory bad faith claim.
Common-Law Bad Faith Claim
To prove a common law bad faith claim, you must show that your insurance company denied or delayed your claim even though liability was reasonably clear. The Texas Supreme Court recognized a common law claim for bad faith in 1983. English v. Fischer, 660 S.W.2d 521 (Tex. 1983).
Since then, the Texas Supreme Court has upheld the common law claim for bad faith despite the passage of statutes prohibiting insurers from engaging in certain actions that give rise to specific penalties.
Statutory Bad Faith Claim Under Chapter 541
There are several different causes of action you can bring against your insurance company under Chapter 541 of the Texas Insurance Code. These claims include:
- Misrepresentation of a material fact or policy provision;
- Failing to reach a settlement in good faith when liability is reasonably clear;
- Failing to reasonably explain why a claim was denied;
- Failing to affirm or deny coverage within a reasonable time; and
- Refusing to pay a claim without conducting a reasonable investigation.
Insurance companies, adjusters, and other personnel can be sued and held liable for bad faith insurance claim handling. There are numerous business practices that insurance companies may engage in that fall under the umbrella of bad faith. For example:
- Undervaluing claims
- Delaying adjustment of claims
- Delaying payment of claims
- Misrepresenting terms of the insurance policy
- Pressuring a policyholder not to hire an attorney
- Ignoring portions of the claim during investigation and adjustment
- Canceling or changing the terms of insurance after making a claim
- Failure to communicate with the policyholder
- Not providing reasons for the insurance company’s determinations
- Failing to assign qualified personnel to adjust and investigate your claim
- Request unnecessary information to delay the claim adjustment process
- Alleging the insured engaged in fraud or criminal behavior without reasonable justification
Bad faith normally requires you to prove that the insurance company didn’t just make an error, but that it engaged in intentional or grossly negligent conduct aimed at harming its insured. I often like to classify bad faith claims as either being obvious or not so obvious.
An example of an obvious bad faith claim is where the insurance company knowingly makes misrepresentations to a policyholder. For example, the insurance company denies your insurance claim after being told by its own experts that the claim is covered by your policy.
Another example of obvious bad faith may be an insurance company that misrepresents the terms of your insurance policy or changes the terms of the insurance policy without your knowledge.
Not so obvious bad faith often deals with the valuation of your claim. In many cases, an insurance company will estimate the value of your claim on the lower end. Although frustrating, this itself may not be bad faith.
You need to compare the insurance company’s investigation and reports to what you are claiming. If your dispute with the insurance company is over the value of specific items that you are claiming, there may not be bad faith if the insurance company can prove that its valuation was reasonable.
However, if the insurance company has ignored portions of your claim or estimated your damage in ways that are unreasonable, you may have a good claim for bad faith.
Damages for Bad Faith Conduct and Unfair Trade Practices
If you establish bad faith, the following damages can be recovered:
- Treble Damages, i.e. three times the amount the insurance company should have paid you. To get treble damages, courts tend to require that you prove the insurance company intentionally or knowingly acted in bad faith.
- Attorney’s fees, interest, and court costs.
- Interest on the delayed payments.
Don’t Forget About the Prompt Payment Statute
Chapter 542 of the Texas Insurance Code creates a number of requirements for insurers to respond to, investigate, and pay insurance claims. These requirements are separate and apart from the bad faith practices prohibited under Chapter 541. If an insurer violates this law, you are entitled to recover attorney’s fees and damages in the form of an annual 18% penalty.
To collect these damages, the law requires: (1) the policyholder had a claim under the policy; (2) the insurer is liable for the claim; and (3) the insurer failed to comply with a requirement of the statute.”
There are a number of specific requirements that you need to meet to collect attorney’s fees and damages for breach of the prompt payment requirements. For example, you need to notify the insurance company in writing of your claim or allegation of underpayment.
Once the insurer receives written notice, it has fifteen days to acknowledge the claim, begin an investigation, and request additional information from the policyholder.
Once the insurance company receives the information it has requested to evaluate the claim, it has 15 days to make a claim determination, but can extend that deadline to 45 days. The law also says that If the claim is accepted, the insurance company must pay within 5 business days of acceptance. If the claim is denied, the insurance company must provide reasons for the denial.
In short, insurance companies have a duty to promptly complete their investigations, make claim determinations, and pay claims. In most cases, the insurance company’s determination should be made within 60 days. Failure to comply with the technical requirements under the prompt payment law can entitle you to attorney’s fees and other penalties.
What Should You Do If You Believe Your Insurance Company Has Acted in Bad Faith?
If you believe your insurance company has acted in bad faith, you should contact a Texas insurance lawyer today. We at The Johns Law Firm will determine the appropriate avenue to prove your bad faith claim. We will fight your insurance company and strive to get you the compensation you deserve. Contact us today to schedule your free consultation.