When you file an insurance claim, you trust your insurer to handle it fairly and promptly. Unfortunately, not all companies live up to this standard. Some engage in practices that intentionally delay, underpay, or deny valid claims. This behavior is known as insurance bad faith, and it can leave policyholders feeling frustrated and overwhelmed at a time when they need support the most.
Common law and state statutes in Texas safeguard individuals with bad faith insurance practices. These laws give you the right to hold insurers accountable for failing to act in good faith when handling claims.
This guide will explain what constitutes bad faith, outline the legal framework for these claims, and highlight the steps you can take if you suspect your insurer isn’t treating you fairly.
Along the way, we’ll look at key Texas Supreme Court rulings that have shaped this area of law and discuss how you can protect your rights. By the end, you’ll have a clearer picture of your options and what it takes to seek justice in pursuing insurance bad faith claims in Texas.
What Is Insurance Bad Faith?
Insurance companies are legally obligated to act in good faith when processing claims. They must treat policyholders fairly and reasonably, ensuring that valid claims are paid promptly and disputes are handled honestly. When an insurer violates this duty, it is considered bad faith.
Examples of Bad Faith Insurance Practices
Bad faith can take many forms, but some common examples include:
- Unreasonable Delays: Delaying the investigation or payment of a claim without a valid reason.
- Inadequate Investigations: Failing to properly investigate a claim before denying it.
- Misrepresentation of Facts: Providing false or misleading information about coverage or claim status.
- Denial Without Explanation: Rejecting a claim without offering a legitimate reason or providing supporting evidence.
- Lowball Offers: Offering settlements far below the claim’s value, knowing it doesn’t cover the policyholder’s losses.
When you encounter these behaviors, it may be a sign that your insurer is acting in bad faith. Recognizing these tactics is the first step in protecting your rights.
The Legal Framework for Bad Faith Claims in Texas
Texas law provides two main avenues for pursuing bad faith claims: common law claims and statutory claims under the Texas Insurance Code. Both serve to hold insurers accountable but have different requirements and remedies.
Common Law Bad Faith Claims
Under Texas common law, policyholders can sue insurers for bad faith if they can prove:
- The insurer denied or delayed payment of a claim when liability was reasonably clear.
- The claim denial or delay lacked a reasonable basis, and the insurer knew or should have known this.
For example, in USAA Texas Lloyds Co. v. Menchaca, the Texas Supreme Court clarified that policyholders could recover damages beyond the policy benefits if the insurer's bad faith caused additional harm. This case highlighted the importance of demonstrating how the insurer’s actions negatively impacted the policyholder.
Statutory Bad Faith Claims
The Texas Insurance Code provides additional protections through Chapters 541 and 542:
- Chapter 541 prohibits unfair settlement practices, such as misrepresenting policy provisions or failing to act in good faith to settle claims.
- Chapter 542, also known as the Prompt Payment of Claims Act, establishes strict timelines for insurers to acknowledge, investigate, and resolve claims.
For instance, Barbara Technologies Corp. v. State Farm Lloyds reinforced that policyholders could still pursue prompt payment penalties even if the insurer paid an appraisal award. This decision emphasized that payment does not automatically absolve insurers of bad faith claims.
How to Identify Bad Faith Insurance Practices
If you suspect your insurer isn’t acting in good faith, look for these warning signs:
- Lack of Communication: Unreturned calls or vague updates about your claim.
- Unreasonable Requests: Excessive demands for documentation beyond what is necessary.
- Inconsistent Statements: Contradictory explanations for claim decisions.
By staying vigilant and documenting these behaviors, you can build a stronger case if you pursue a bad faith claim.
Steps to Take if You Suspect Bad Faith
If you believe your insurer is acting unfairly, follow these steps to protect yourself:
- Document Everything: Keep a detailed record of all communications, including emails, phone calls, and letters.
- Review Your Policy: Familiarize yourself with your insurance contract's terms, conditions, and exclusions.
- Seek Legal Advice: Consult an attorney experienced in Texas insurance law to evaluate your case and advise on the next steps.
Taking proactive steps can help you hold the insurer accountable and recover the compensation you’re entitled to under the law.
Other Notable Texas Supreme Court Cases Shaping Bad Faith Claims
In addition to the two cases mentioned above, the Texas Supreme Court has issued rulings impacting policyholders' pursuit of bad faith claims. These decisions clarify the relationship between statutory protections and common law principles and the remedies available to policyholders.
Ortiz v. State Farm Lloyds (2019)
This decision clarified how appraisal awards affect bad faith claims. While payment of an appraisal award may bar some claims, policyholders can still pursue violations under the Prompt Payment of Claims Act. This ruling underscores the importance of statutory remedies in holding insurers accountable.
Safeco v. Rodriguez (2024)
This recent ruling addressed the recovery of attorney’s fees after paying an appraisal award. The court held that while attorney’s fees are available under certain circumstances, the insurer’s compliance with the appraisal process can limit their recoverability.
These cases highlight the evolving legal landscape for bad faith claims in Texas, demonstrating the importance of understanding statutory and common law rights.
Damages You May Recover in a Bad Faith Claim
When an insurer acts in bad faith, policyholders may be entitled to various types of compensation:
- Policy Benefits: Payment for the original claim amount owed under the policy.
- Additional Damages: Compensation for economic losses and mental anguish caused by the insurer’s bad faith actions (per Chapter 541).
- Statutory Penalties: Under Chapter 542, insurers may face penalties for delayed payments, typically set at 18% per year.
- Attorney’s Fees: Policyholders can recover reasonable attorney’s fees incurred while pursuing the claim (e.g., as highlighted in Allstate Insurance Co. v. Irwin).
These damages aim to make policyholders whole and deter insurers from unfair practices.
The Role of Legal Counsel in Bad Faith Claims
Handling a bad faith claim can be overwhelming, especially when dealing with an uncooperative insurer. An experienced attorney can provide critical support by:
- Investigating the Insurer’s Conduct: Attorneys can review the insurer’s actions to identify violations of Texas law.
- Building a Strong Case: They gather evidence, analyze legal precedents, and prepare a compelling argument.
- Negotiating or Litigating: Whether through settlement discussions or court proceedings, attorneys advocate for fair compensation.
Insurance companies generate profit by collecting premiums, not by paying claims. Unfortunately, many insurers look for any possible reason to deny a claim, often to delay or avoid paying what is owed.
While they may aim to reduce their financial liability, they are not allowed to use dishonest strategies to deny or postpone payment on a legitimate claim unfairly.
While pursuing a bad faith insurance claim in Texas might feel daunting, seeking legal advice can help you understand your options and strengthen your position.
Dealing with an insurance company that refuses to act in good faith can be frustrating and challenging. However, Texas law provides policyholders with tools to hold insurers accountable. By recognizing bad faith practices, understanding your legal rights, and taking appropriate action, you can protect yourself and recover the compensation you deserve.
If you suspect your insurer isn’t treating you fairly, don’t wait to seek help. Consulting a Texas insurance lawyer with experience in bad faith insurance lawsuits can clarify your next steps and uphold your rights. Contact us today for a no-obligation case review and take the first step toward holding your insurer accountable.
Contact Francis Injury and Protect Yourself Against Insurance Bad Faith
If you believe your insurance company has acted in bad faith, don’t wait to seek legal help. Insurance companies often rely on policyholders’ lack of experience to delay payments, deny valid claims, or pressure you into accepting less than you’re owed. Protect yourself from becoming a victim twice.
Call 817-329-9001 today to speak with a Texas bad faith insurance attorney at the Francis Injury law firm. Our team understands the tactics insurers use to undermine claims and will fight to protect your rights. We will:
- Evaluate your bad faith claim and provide clear legal advice.
- Investigate your case to gather the evidence to hold the insurer accountable.
- Advocate for your financial recovery, including penalties and damages you may be entitled to under Texas law.
At Francis Injury Car & Truck Accident Lawyers, we prioritize every case—large or small—because your fight is ours. Whether you’re in Dallas, Fort Worth, Southlake, or anywhere else in Texas, we are here to help. We'll come to you if you cannot visit one of our offices.Don’t let an insurance company’s unfair practices leave you without the compensation you deserve. Call 817-329-9001 now to get started, or use our online contact form. Let Francis Injury stand by your side and hold insurers accountable for their actions.