Chapter 541 of the Texas Insurance Code, entitled, Unfair Methods of Competition and Unfair or Deceptive Acts or Practices, protects the rights of policyholders, laying out in detail when an insurer engages in an unfair method of competition and unfair or deceptive acts or practices. Under this law, insurance companies in Texas have a duty to represent their services fairly and to adjust policyholders’ claims in a fair, just, and timely manner. If an insurance company fails to fulfill these duties, policyholders may have cause for legal action.
McLaurin Law encourages policyholders in Texas to understand their rights in relation to the duties of insurance companies. The rules regarding deceptive acts and unfair competition methods described in Chapter 541 are among the most important and apply to policyholders statewide. The insurance company must meet a threshold of fairness any time a policy is sold, or a claim is made by a policyholder. As a Texas insurance lawyer, Jason McLaurin is well-prepared to assist you if you have an insurance law case.
Good Faith Versus Bad Faith
The essential message in Chapter 541 of the Texas Insurance Code is that insurance companies in Texas must treat policyholders in good faith. To deal with policyholders in good faith means they must be honest in their representations of policies and applicable facts, and they also must be fair in how they handle, adjust, and pay claims in light of the applicable policies and facts. If an insurance company does not meet standards of honesty or fairness, then they are acting in bad faith. Bad faith behavior not only defeats the purpose of the specific mutually-agreed transaction but also erodes confidence.
As a Texas policyholder, you may have legal grounds to bring an action against your insurance company for bad faith. However, the policyholder, like any claimant, bears the burden of proof in such a case. You would need evidence that is compelling enough to prove dishonest or unfair actions toward you by the insurance company, and it can be a challenge to collect such evidence. An experienced Texas insurance attorney is well equipped to aid you in a bad faith insurance case.
There Are Two Types of Bad Faith To Consider
There are two definitions of bad faith, and you will need to convince the court that the insurance company’s behavior meets one of them. These two types are Common Law Bad Faith and Statutory Bad Faith.
Proving Common Law Bad Faith
To prove Common Law Bad Faith, you need to demonstrate that either your claim was wrongfully denied altogether, or the adjustment of your claim was unreasonably delayed despite clear evidence of coverage or liability. If you bought an insurance policy, and you made a legitimate claim, then you should be paid accordingly and in a timely manner. However, because an insurance company has business incentives to minimize the claims they pay, a delay in the adjustment and payment of your claim may arise in the time it takes for the insurance company to exhaust its efforts to disprove liability or coverage for your claim.
Proving Statutory Bad Faith
To prove Statutory Bad Faith, you would need to prove the Texas Insurance Code was violated by the insurance company in either Chapter 541 or Chapter 542. While Chapter 541 requires honest and fair dealings by the insurance company, Chapter 542 identifies timelines for addressing your claim and paying on valid claims. Misrepresentation of facts regarding your claim or the failure to pay a valid claim in a timely manner may potentially satisfy statutory bad faith requirements.
Bringing Action Under Chapter 541
There are a variety of types of claims a Texas insurance policyholder can bring against an insurance company. The Texas Insurance Code allows claims that:
- The insurance company and/or adjusters misrepresented the provisions of your policy
- The insurance company failed to provide a reasonable explanation for why your claim was denied
- The insurance company failed to either confirm or deny liability within a reasonable span of time
- The insurance company refused to conduct a reasonable investigation
As for the timelines imposed on insurance companies for responding to claims, these are covered in Chapter 542 of the Texas Insurance Code. We will address these timelines in a separate article dedicated to Chapter 542.
Know Your Rights as a Policyholder in Texas
Insurance policyholders in Texas are owed fair and honest dealings in regards to claims on their insurance policies. We sue insurance companies. It is their legal duty to be fair and honest with you, but valid insurance claims are denied in Texas every day. Work with an experienced insurance law attorney who has secured fair and appropriate recoveries for previously-denied claims throughout the Houston, TX area.
If you are a Texas policyholder and believe you have been a victim of bad faith, call (713) 461-6500 today to schedule a consultation with McLaurin Law and discuss whether you have a case. Alternatively, fill out the form on our website so we can follow up with you and answer your questions. Don’t let a denial for a valid claim stop you from recovering. McLaurin Law: When you need more than luck.