You may have heard the term “bad faith insurance,” but not be sure what it means. Bad faith insurance describes a claim that an insured person has against an insurance company for its unlawful and i nap propriate claims handling actions. Because an insurance company owes a duty of good faith and fair dealing to the people and businesses it insures , people who believe that an insurance company has not acted fairly and in good faith may have a claim against the insurance company for common law bad faith and statutory violations. In Texas, the Texas Insurance Code also provides the rules for how insurers must treat policyholders.
Legal Principles Behind Bad Faith Insurance
In Texas, the principle behind bad faith statutes is derived from the notion that an individual insured is at a significant disadvantage in the claims process and in a lawsuit against the insurance company. Generally speaking, to file a bad faith claim against an insurance company, a plaintiff must show that the company’s conduct was unreasonable and that the company knew it. In the words of one Texas Supreme Court decision on the matter, the conduct must be “egregious.” Statutory violations, on the other hand, work much like strict liability and the insurer can be held liable for damages caused by unreasonable delays in responding to and paying claims and for misrepresentations regarding the policy, the claim, or coverage.
Bad faith claims can be filed for almost any type of insurance – auto, property, health and life are the most common.
Examples of Insurance Company Bad Faith
- Unreasonable delays without explanation
- Failing to acknowledge receipt of a claim
- Failing to conduct a prompt and thorough investigation of a claim
- Failing to offer a claim settlement in a timely manner when liability is relatively clear
- Trying to settle a claim for less than a reasonable person would believe is fair
- Failing to notify an insured of policy alterations that would affect a claim
- Making payments without explaining what such payments mean
- Failing to explain an arbitration appeals policy
- Requiring physicians or insureds to submit multiple forms containing the same information and using failure to submit as a reason for denial
- Requesting unnecessary documentation
- Failing to explain why a claim was denied or a compromise offer was made
- Intentionally misrepresenting or misconstruing claims information
- Withholding information about a claim
- Making wrongful accusations of arson or other misbehavior on the part of the insured
- Advising a claimant to not hire an attorney
- Treating insureds as adversaries
- Increasing premiums as a result of a claim in which the insured was not at fault
- Using threatening and abusive tactics to discourage claims
- Misrepresenting the value of a claim
These and many other examples of bad faith could warrant a lawsuit against an insurance company. These examples also show how difficult it can be to prove that a company acted in bad faith. Terms such as reasonable, timely, wrongful, intentionally, unnecessary, threatening and prompt are words that are open to interpretation.
What Kind of Damages Could I Receive From a Successful Bad Faith Claim?
If you win your bad faith claim in Texas, you can expect to receive damages that may include:
- Up to three times the amount the company would have paid if it had processed your claim properly, if you can prove an intentional or knowing violation
- Attorney fees, interest, and court costs
- Mental anguish (except if the plaintiff is a business) in certain situations
- Punitive damages to punish the insurance company for its bad behavior (very difficult to obtain, but theoretically possible)
The legal landscape for bad faith claims is shifting. Texas appears to be moving away from common law bad faith claims, which are often vague, to statutory claims, which are easier to prove, but may not lead to as much money for the plaintiff. However, the Texas Insurance Code still provides substantial remedies to policy holders against their insurers and is still considered a consumer-friendly statute in a pro-business state. If you believe your insurance company has not treated you fairly or has wrongfully denied or underpaid a valid claim, it is worth talking to a Texas attorney who understands bad faith claims in the state.