Don’t Let Them Get Away With It: Understanding Texas Insurance Bad Faith Claims

When disaster strikes, you rely on your insurance company to be there for you. You pay your premiums faithfully, trusting that when you need them most, they will uphold their end of the contract. Unfortunately, some insurers fail in this duty, engaging in practices that can be legally categorized as bad faith.

In Texas, policyholders have strong legal protections to fight back against this misconduct. Understanding what constitutes a bad faith claim and the remedies available is the first step toward securing the compensation you deserve.

What is Bad Faith Insurance?

In Texas, every insurance contract includes an implied covenant of good faith and fair dealing. This means your insurance company has a duty to handle your claim honestly, fairly, and promptly.

Bad faith occurs when an insurer breaches this duty by unreasonably denying, delaying, or underpaying a valid claim when they knew, or should have known, that their liability was reasonably clear. It goes beyond simple negligence or a good-faith dispute over coverage—it’s a deliberate or reckless disregard for the policyholder’s rights.

Two Paths to a Bad Faith Claim in Texas

 Texas law allows for two primary types of bad faith claims:

1. Common Law Bad Faith

This claim is based on the insurer’s fundamental breach of the duty of good faith and fair dealing. To prove common law bad faith, you must show that:

• The insurer denied or delayed payment of a claim.
• The insurer had no reasonable basis for the denial or delay.
• The insurer knew or should have known that it lacked a reasonable basis.

2. Statutory Bad Faith (Texas Insurance Code)

This is often a more powerful tool for policyholders, as it focuses on specific violations of the Texas Insurance Code, primarily Chapters 541 and 542. These statutes explicitly outline unfair and deceptive practices.

 Common Examples of Bad Faith Tactics

While every case is unique, several tactics repeatedly appear in Texas bad faith claims:

• Unreasonable Claim Denial: Denying a claim without conducting a thorough or proper investigation.
• Unjustified Delays: Excessively prolonging the claims process, often hoping the policyholder will give up or settle for less. This includes repeatedly requesting unnecessary or redundant documentation.
• Lowball Offers: Offering a settlement amount significantly—and unreasonably—lower than the true value of the covered loss.
• Misrepresenting Policy Terms: Lying or misleading the policyholder about the coverage, policy limits, or applicable deductibles.
• Failing to Explain Denial: Denying a claim without promptly providing a clear, detailed, and reasonable explanation for the decision.

Recoverable Damages in a Bad Faith Lawsuit

A successful bad faith claim can allow you to recover damages that go far beyond the original policy benefits. In Texas, recoverable damages may include:

• Actual Damages (Policy Benefits): The amount of money the insurance company should have paid for your covered loss under the policy.
• Interest/Statutory Penalties: Under Chapter 542 (Prompt Payment of Claims Act), if an insurer delays payment, you may be entitled to an additional 18% interest per year on the claim amount, plus attorney’s fees.
• Extracontractual Damages: Damages caused by the insurer’s bad faith conduct that are independent of the policy benefits. This may include damages for mental anguish.
• Treble Damages: If you can prove that the insurer acted knowingly (or with conscious indifference) in violating the Insurance Code (Chapter 541), you may be awarded up to three times the amount of your actual damages.
• Attorney’s Fees and Court Costs: A successful claim under the Texas Insurance Code typically requires the insurer to pay the policyholder’s reasonable attorney’s fees.

What to Do If You Suspect Bad Faith

If you feel your insurance company is mistreating you, the actions you take can be critical for any future legal action.

1. Document Everything: Keep a detailed record of every interaction, including dates, times, names of adjusters/representatives, and a summary of what was discussed. Save all correspondence (letters, emails, texts).
2. Read Your Policy: Review your insurance policy thoroughly to understand your coverage, duties, and the steps required to file a claim.
3. Hire Legal Counsel: Bad faith claims are complex and highly fact-dependent. An attorney experienced in Texas insurance law can help determine if the insurer’s actions crossed the line and guide you through the process of holding them accountable.

Don’t wait and don’t settle for less than you are owed. If you are facing an unreasonable delay or denial from your insurer in Texas, it may be time to contact the Lawrence Law Firm.