Guide to Insurance Bad Faith Claims in Texas

Learn what actions to take if your insurance provider isn't doing its job

Insurance is your safety net—a contract made between you and your insurance company guaranteeing that, should anything happen to you, the agreed funds will be provided.

Insurance companies have the right to investigate the legitimacy of claims. However, insurers in Texas can't reject legitimate claims, misrepresent policy terms, or engage in other specific “bad acts.”

If you think your insurance company is acting unreasonably, you may need to file a bad faith claim in order to receive the compensation you deserve.

In this article, we'll talk about bad faith laws in Texas and explain what you can do to make sure your safety net does its job and catches you when you fall.

Proving a bad faith claim in Texas

In Texas, the insured person has the burden of proving a bad faith claim. There are 2 ways to do this:

• You can show that your insurance company denied your claim even though liability was reasonably clear, or
• You can show that the insurance company did one of the things prohibited by Chapter 541 of the Texas Insurance Code (also called the “Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Act”) or Chapter 542 of the Texas Insurance Code (also called the “Unfair Claim Settlement Practices Act”).

The first option represents a “common law bad faith claim” and it has several disadvantages, including the fact that only a policyholder (not a third-party) can bring the claim (more on this later). For this reason, most attorneys prefer the second option (which is referred to as a “statutory bad faith claim”).

Chapters 541 and 542 prohibit an insurance company from committing “unfair or deceptive acts or practices in the business of insurance.”

This includes a host of actions outlined in the statute, such as:

• Misrepresenting a material fact or policy provision related to coverage
• Failing to attempt in good faith to reach a prompt and fair settlement when liability is reasonably clear
• Failing to promptly provide a reasonable explanation of the basis for the insurer's denial of a claim
• Failing to affirm or deny coverage within a reasonable period of time
• Refusing to pay a claim without conducting a reasonable investigation of the claim

Damages available in a bad faith claim

In general, the following damages are available in a Texas bad faith lawsuit:

• The amount of actual damages
• Court costs and reasonable attorney's fees (the court can force the insurance company to pay any attorney fees that you had to pay as a result of having to litigate the bad faith claim)
• Any other relief the court deems proper

What's more, you can recover 3 times your actual damages if you can prove that the insurer “knowingly” violated Chapter 541 of the Texas Insurance Code. This is referred to as “treble damages.”

What to do if you think your insurer might be acting in bad faith

If you suspect your insurer is acting in bad faith, be sure to document all conversations with your insurance company. Make sure you save all correspondence with your insurance company and, when possible, request that your insurance company communicate with you via letter rather than phone.

As soon as possible, find a personal injury attorney who has experienced litigating bad faith claims. When you meet with the attorney for the first time, be sure to bring along a folder with all the documentation you have been keeping.

If you're not sure how to find the best attorney, read our article on choosing a Texas attorney that's right for you and consider locating one using our free online directory.

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