Has the insurance company delayed, lowballed, underpaid, or flat-out denied your claim without a clear or valid reason? You may be able to file a lawsuit against your insurance company for bad faith.
What Is Bad Faith in Insurance?
Texas law requires insurance companies to act in good faith toward policyholders. “Good faith” is an umbrella legal term for dealing in an honest and reasonable manner.
However, that doesn’t mean insurers don’t try various abusive tactics to discourage insureds and deny claims. If your insurer is acting in bad faith, you may have grounds to file a lawsuit for common law bad faith.
Grounds for Filing a Bad Faith Insurance Lawsuit Under Common Law
Generally, you need to prove the following to file a common law bad faith lawsuit in Texas:
- Valid insurance claim: You must have had a valid insurance claim for damages covered by your policy that your insurance company wrongfully denied or underpaid, or otherwise handled in an unreasonable or unfair manner.
- Unreasonable withholding: Mere negligence isn’t enough — the insurance company must have withheld benefits unreasonably.
- Damages: You must show that you have suffered damages due to the insurer’s conduct, such as nonpayment of insurance policy proceeds for a claim for damages covered under your policy.
Examples of Common Law Bad Faith
Typical examples of common law bad faith in Texas by insurance companies include:
- Refusing to investigate your claim appropriately or at all
- Delaying your claim unreasonably and unnecessarily, often in the hope that you’ll drop it
- Lying about or intentionally misrepresenting your policy or the claims process, such as by failing to disclose coverage or deadlines
- Withholding documents or information
- Offering you less than what your claim is worth
- Forcing you to file a lawsuit to recover the full amount of your claim
- Denying your valid claim without a reasonable explanation
What’s the Difference Between Common Law Bad Faith and Statutory Bad Faith?
Texas law allows you to bring two types of bad faith lawsuits: a common law bad faith claim or a statutory bad faith claim.
Common law is “unwritten” law that court decisions establish and shape over time, whereas statutory law arises from specific Texas statutes, laws, or regulations enacted by the legislature. In cases of bad faith, you may be able to bring a statutory claim under Chapter 541 of the Texas Insurance Code, the Texas Unfair Claims Practices Act, the Texas Consumer Bill of Rights, and/or under Chapters 542/542A of the Texas Insurance Code, the Prompt Payment of Claims Act. Sections 542.055 and 542.057 of the Texas Insurance Code.
What’s the difference between common law and statutory bad faith? Statutory bad faith only allows you to file first-party claims. A first-party claim happens when you seek compensation from your insurer after an accident or injury. Statutory law allows you to file both first-party and third-party bad faith claims. In a third-party claim, you seek compensation from another party’s insurance company.
What Compensation Can You Seek in a Bad Faith Insurance Claim?
The following types of damages are available in bad faith lawsuits in Texas:
- Up to three times the amount the insurance company would have paid had it dealt with your claim correctly
- Additional damages for mental suffering
- Money to cover your attorney fees, court costs, and interest
- Punitive damages if the insurer’s behavior was particularly egregious
An experienced Houston insurance attorney can review your claim and advise on what compensation you may be eligible for and how much.
The Future of Common Law Bad Faith in Texas
Texas courts and policymakers have been encouraging claimants to file for statutory rather than common law bad faith for several years. While the same factual circumstances can be grounds for making either type of claim, common law bad faith has limitations. For instance, you can only bring a bad faith claim against your insurance company, not a third party.
The Texas Supreme Court held in State Farm v. Simmons that in order to establish common law bad faith, you must show the insurer denied or delayed payment when it knew, or should have known, that its liability was reasonably clear. Establishing this knowledge isn’t easy, so it’s often easier to file for statutory bad faith instead.
Insurer Acting in Bad Faith? Speak with a Houston Insurance Attorney Today.
Has your insurance company broken the covenant of good faith? You may have grounds to file a lawsuit. At McLaurin Law, PLLC, we know how to deal with insurance companies. We’re the insurance lawyer that insurance lawyers call for advice because bad faith insurance attorney Jason C. McLaurin worked as an insider for insurance companies and knows their tactics.
McLaurin Law: When you need more than luck on your side.