What Is Insurance Bad Faith in Houston?
In Texas, insurance bad faith is defined as an insurance company violating its legal obligations to its policyholders or clients. “Bad faith” behavior can encompass a variety of violations as long as they are unfair, unreasonable, or deceptive.
Insurance bad faith may apply to personal insurance disputes, commercial insurance disputes, small business insurance disputes, energy, and marine insurance disputes, and life insurance disputes—among others. Some common examples of insurance bad faith include:
- Misrepresenting the terms of an insurance policy
- Changing the terms of a policy after a claim has been made
- Delaying the claims adjustment or claim payment
- Delaying the claim by requesting unnecessary documentation
- Intentionally undervaluing a claim
- Incompetently investigating a claim
- Ignoring parts of a claim during an investigation or adjustment
- Relying on biased third parties during the claims process
- Denying a claim without providing a valid reason
- Pressuring a policyholder not to seek legal guidance
- Accusing the policyholder of fraudulent activity without reason
Why Can an Insurance Company Deny a Claim?
If your claim has been denied, that doesn’t mean your insurance company has acted in bad faith—even if the decision feels unfair. Insurance companies can rightfully deny a claim in certain instances, as they aren’t obligated to pay every claim their policyholders make.
Some of the most common reasons for rightfully denied insurance claims include:
- Errors in the claim
- Missed reporting or filing deadlines
- Policy exclusions, wherein your incident or damages aren’t covered by your policy
- Misrepresentation by the policyholder
- Lack of coverage
- Failure to provide sufficient documentation to support the claim
- Violations of state law
Has Your Insurance Claim Been Rejected?
If you’ve filed an insurance claim that’s been denied, you have the right to appeal. Often, claims are denied due to an error or a lack of information within the claim itself, so you have the right to resubmit with proper documentation. In other cases, your specific accident or injuries may not be covered under your policy, unfortunately. However, your claim could also be valid but be rejected due to bad faith—if you suspect this scenario, seek legal advice to determine whether or not your insurer may be acting in bad faith.
What Are the Duties and Responsibilities of Insurance Companies in Houston, Texas?
In the majority of cases, you should be able to rely on your insurer to help and support you when you need to make a claim. After all, insurance companies in Houston, TX, are legally required to act in good faith—this includes processing claims promptly, communicating clearly with policyholders, and providing fair compensation as outlined in the policy agreement.
Unfortunately, some for-profit insurance representatives act in bad faith and deny claims that have valid reasoning and documentation under the relevant policy. When insurers act in bad faith, it makes it difficult to process a claim or assign it its proper value.
Two specific chapters of the Texas Insurance Code outline the legal duties and responsibilities of insurance companies in Houston and throughout the state of Texas. Chapter 541, which protects consumer interests from unfair methods of competition and unfair or deceptive acts or practices, legally requires insurers to do the following when processing a claim:
- Process the claim in a timely manner without unreasonable delays
- Give accurate information about insurance coverage, policies, and terms
- Provide specific, valid, and just reasons for any claim denial
- Attempt to settle valid claims fairly with the policyholder
- Release settlement funds without unneeded requests for additional information or documentation
Chapter 542 (the Unfair Claim Settlement Practices Act) similarly protects consumers at a legal level by prohibiting delayed claim payments and mandating a certain timeline of payment and communications. Specifically, Chapter 542 outlines the deadlines that Texas insurers must comply with when investigating and settling claims:
- Insurance companies have 15 days to acknowledge a claim after receiving written notice. They must also begin their investigation and request any additional information within this time frame.
- Insurance companies have 15 days to make a claim determination after receipt of requested information. Sometimes, this deadline may be extended by up to 45 days.
- Insurance companies have five business days to pay accepted claims or provide valid reasons to the recipient of a denied claim.
- In most cases, insurance claim determinations must be made within 60 days.
Any insurer who’s found to violate these deadlines may be held liable for paying the legal fees and damages of the policyholder, with an additional 18% annual penalty. Additionally, they may be determined to be acting in bad faith, which would allow policyholders to hold them liable through a bad-faith insurance lawsuit.
What Damages Can You Recover for an Insurance Bad Faith Claim in Houston?
In a Texas bad faith insurance lawsuit, the following damages are potentially available for recovery:
- The damages or actual value of your initial denied claim
- Attorney’s fees and court costs
- Unpaid benefits
- Emotional distress
- Any additional relief that the court considers relevant, such as punitive damages to penalize the misconduct of your insurance company.
You may also file for treble damages if your insurer knowingly violated Chapter 541 of the Texas Insurance Code. These damages represent three times the amount of your actual damages. Similarly, under Chapter 542 of the Texas Insurance Code, you may be entitled to claim interest on your outstanding payment amount.
A resourceful and knowledgeable Houston personal injury attorney can help you determine which damages you may be owed. At Simmons & Fletcher, we understand that insurance claims and litigation can be complex, frustrating, and even incomprehensible to someone who doesn’t have substantial experience in these situations (which we hope you don’t have!). A bad-faith insurance lawyer provides you with the qualified legal advice and representation you need
What is the Legal Action of Bad Faith?
Legal action for bad faith arises when an insurance company fails to honor its obligation to act in good faith, often leading to claims of breach of contract or unreasonable conduct. In order to meet the legal guidelines for a bad faith claim, assemble any documentation you have to prove that you’ve paid your monthly insurance premiums on time, have a policy that covers the losses you’re filing for, and have filed a claim that completely meets your insurer’s mandatory requirements.
While bad faith lawsuits can take a variety of legal routes—the best of which will be determined by you and your attorney—the most common ones focus on contract breach and unreasonable denial.
Focus on contract breach
Most bad faith claims are based on the idea that a contract includes an implied duty to act in good faith. When a party violates that duty, it may be considered a legal breach of contract. In some cases, your attorney may focus on breach of contract as a legal approach to your lawsuit.
Common in insurance cases
The most frequent scenario for bad faith claims is when an insurance company is accused of unreasonably denying or delaying a legitimate claim filed by a policyholder. In these cases, your legal team will seek to prove that your insurer purposefully acted in bad faith and did you harm in the process.
How to Prove an Insurance Company’s Bad Faith Actions
Proving bad faith on the part of an insurance company can be challenging, but it isn’t impossible—especially with the help of an experienced personal injury attorney. In order to prove, file, and win a bad faith lawsuit in Texas, you must demonstrate that the insurer:
- Denied a claim that was valid under the current contract
- Acted unreasonably or without proper cause in denying the claim
- Caused damages to the plaintiff through their bad-faith actions
- Violated part or all of Chapters 541 and/or 542 of the Texas Insurance Code
Depending on how you prove your claim, there are two types of bad faith claims: a common law bad faith claim and a statutory bad faith claim. Common law bad faith claims can only be made by the policyholder, not by a third party. Statutory bad faith claims, which are generally considered the more effective legal option, can be made by third parties.
The most important thing to understand in proving bad faith insurance claims is that you (and your attorney) must prove that the insurer didn’t simply make a mistake. Rather, you must prove that they intentionally engaged in wrongdoing or negligence and violated your legal rights as a policyholder.
To learn more about your rights and how a bad-faith insurance lawyer can help, contact our office today for a FREE consultation.
FAQ's
What is the difference between negligence and bad faith?
Negligence on the part of an insurance company involves an insurer undervaluing or improperly denying a claim due to ignorance, incompetence, or simple human error. In these cases, you can still file a legal claim for negligence against the insurer, and they may be liable to pay when you take legal action against them. Bad faith, on the other hand, is an intentional denial, delay, or underpayment of a valid claim by an insurance company.
How much is a bad faith lawsuit worth?
Every bad faith lawsuit is different, so the worth of each one varies based on the specifics of the case. However, full compensation typically includes the amount of your initial insurance claim (that should have been paid by the company), as well as any additional damages like emotional distress, attorney’s fees, and accumulated interest. In some cases, the court may also decide to award punitive damages to the plaintiff—these damages are usually awarded if the insurer’s actions were found to be particularly malicious or egregious.
What is an example of a bad faith claim?
A common example of a bad faith insurance claim is when an insurer denies a valid claim without a reasonable basis, such as refusing to cover storm damage to a home or delaying a payout for a car accident. Insurers may also act in bad faith by misrepresenting policy terms or failing to communicate effectively with the policyholder.
What are three ways in which an insurer can be liable for bad faith?
Three ways an insurer can be liable for bad faith include:
- Unreasonably denying a claim without a proper investigation or valid reason
- Failing to promptly settle a claim when liability is reasonably clear
- Deliberately misrepresenting policy provisions or coverage limits to the policyholder
Is it hard to win a bad-faith claim?
Winning a bad faith insurance claim can be challenging, as policyholders must demonstrate that the insurer’s actions were unreasonable, fraudulent, or malicious. However, with strong evidence and the guidance of an experienced personal injury attorney, it is possible to prove a bad faith claim in court successfully.
