Texas Bad Faith Insurance Claim Lawyer

What Is a Bad Faith Insurance Claim in Texas

Common-law bad faith arises from court decisions recognizing an implied covenant of good faith and fair dealing between insurers and policyholders. In the landmark case State Farm v. Simmons, the Texas Supreme Court established that insurers act in bad faith when they deny or delay payment on claims where liability is reasonably clear.

A bad faith claim occurs when your insurance company violates its duty to act honestly and fairly when handling your claim. Texas law requires insurers to investigate claims reasonably, communicate promptly, and pay valid claims on time. When they fail to meet these obligations, they act in bad faith. There are two types of bad faith claims:

Common Law Bad Faith

To prove common law bad faith, you must show: you filed a valid insurance claim, the insurer unreasonably denied or delayed payment, and the insurer knew or should have known their liability was reasonably clear.

Statutory Bad Faith

Statutory bad faith refers to violations of the Texas Insurance Code, particularly Chapters 541 and 542. These statutes outline specific prohibited practices and establish deadlines for insurers to investigate, communicate about, and pay claims.

Chapter 541 prohibits unfair methods of competition and unfair or deceptive acts or practices, including misrepresentation of policy terms, failing to promptly settle claims, and refusing to pay claims without conducting a reasonable investigation.

Chapter 542 establishes strict deadlines for insurers to acknowledge claims (15 days), make decisions (15 business days after receiving necessary materials), and issue payment (5 business days after approval).

Bad Faith Insurance Claims We Handle

Insurance companies can mishandle any type of claim, including those filed by the policyholder and those filed by someone damaged by the policyholder. Some examples of claims we handle include:

• Property damage
• Homeowners insurance
• Commercial property insurance
• Business interruption claims
• Life insurance claims
• Fire damage claims
• Wind damage claims
• Water damage claims
• Flood damage claims
• Hail damage claims
• Car accident damage claims
• Hurricane & tornado damage claims

Examples of Bad Faith Tactics

Insurers use many bad-faith tactics during the claims process:

• Denying a claim without conducting an investigation
• Unreasonably delaying your claim
• Failing to acknowledge or respond to your communications
• Reducing the amount of your claim without a reasonable basis
• Deliberately trying to get you to miss the statute of limitations deadline
• Refusing to negotiate in good faith
• Failing to accept or deny coverage within a reasonable time
• Providing no reasonable explanation for denying a claim
• Misleading you or lying to you
• Using procedural delays, like changing adjusters, to slow down your claim

Remember, a bad faith insurer wants to frustrate you into dropping your claim or accepting a subpar settlement. These are just some of the tactics insurers can use. Other actions that breach your policy or violate the insurer's legal duties might rise to the level of bad-faith tactics.

If you feel you are being treated unfairly, document your interactions with the insurer and talk to a lawyer. Many insurers know how to walk up to the bad faith line without crossing it.

First-Party vs. Third-Party Claims

The nature of your bad faith claim will depend on your relationship with the insurance company.

First-party claims happen when you are the policyholder and the claimant. For example, suppose that you buy a homeowner's policy and suffer wind damage in a tornado. If the insurer refuses to investigate the claim fairly, you have a first-party claim based on a breach of the insurance policy and bad faith handling of your claim.

Third-party claims happen when you are not the policyholder but simply a claimant. This typically happens when the insurer issues a liability claim to someone who injured you. For example, a malpractice insurance company might improperly handle your claim against a doctor. Texas does not recognize third-party bad faith claims.

What Damages Can You Recover in a Texas Bad Faith Claim?

When you successfully prove bad faith, Texas law allows you to recover damages far beyond your original claim amount:

• Original policy benefits: The full amount your insurance company should have paid under your policy.
• Treble damages: Under the Texas Insurance Code, if you prove the insurer knowingly violated the law, you may recover up to three times your actual damages.
• Attorney's fees and court costs: Texas law allows you to recover your attorney's fees and court costs in successful bad faith claims.
• Interest: Interest on the amounts the insurer should have paid, compensating you for the time value of money.
• Emotional distress and mental anguish: Compensation for stress, anxiety, and mental suffering caused by your insurer's actions.
• Punitive damages: In cases involving malicious, fraudulent, or grossly negligent conduct, courts may award punitive damages to punish the insurer and deter future misconduct.
• Consequential damages: Additional living expenses, lost income, medical expenses incurred during delays, depreciation in property value, and credit damage from unpaid bills.

The Stowers Doctrine and Third-Party Claims

If an insurer rejects a Stowers demand from a third-party claimant and the claimant wins a judgment against the policyholder at trial, the insurer must pay the entire judgment even if it exceeds the demand or the policy limits.

To take a simple example, suppose that you have an auto insurance policy with a $30,000 policy limit. You hit a pedestrian, who offers to settle for $25,000. Your insurer refuses the settlement, and the pedestrian wins a jury award of $40,000. The insurer is on the hook for $40,000 even though you only had $30,000 in insurance because the insurer refused the pedestrian's Stowers demand.

Statute of Limitations for Texas Bad Faith Claims

Texas sets a statute of limitations for filing a bad faith insurance lawsuit of two years from the date of the first bad faith act (Tex. Civ. Prac. & Rem. Code § 16.003). It's difficult to determine the exact date, so contact our attorney sooner rather than later. If you miss the deadline, your case will be dismissed.

The clock typically starts running on the date of the first bad faith act, though determining that exact date can be complex. It might start when: the insurer denies your claim, the insurer misses a statutory deadline for payment, you discover the insurer's deceptive practices, or the insurer's investigation concludes.

ERISA and Employer-Provided Insurance

Some types of insurance policies cannot be the subject of a bad faith claim. Insurance policies provided by your employer are governed by federal ERISA law rather than Texas law. Examples of these insurance policies include employer-based:

• Group health insurance Group life insurance
• Long-term disability insurance Short-term disability insurance

Since these policies fall under ERISA, you may have limited rights to pursue a bad faith claim against the insurers. Instead, you will need to rely on the insurer's duties outlined in the policy and the implied covenant of good faith and fair dealing. You can speak to an experienced insurance lawyer to determine whether you can use these rights to obtain relief against the insurer.

What to Do If You Suspect Bad Faith

If you believe your insurance company is acting in bad faith, taking the right steps early can strengthen your case: