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.
In Texas, all insurance contracts have an implied covenant of good faith. This means that, even though it's not expressly stated in your policy, your insurance company is required to treat you (the “insured”) honestly and fairly.
If your insurance company breaches this implied covenant, you can sue the company for the tort of bad faith.
In Texas, the insured person has the burden of proving a bad faith claim. There are 2 ways to do this:
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”).So what actions are prohibited by Chapters 541 and 542 of the Texas Insurance Code?
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:
A bad faith lawsuit can be based on a first-party claim or a third-party claim. Let's take a quick look at both of these claims.
A first-party claim occurs when you file a claim with your own insurance company after an accident or an injury.
For example, if your roof is damaged by hail, you would file a first-party claim with your homeowner's insurance company. If your insurance company breaches its duty of good faith by, for example, rejecting your claim without conducting an investigation, you could file a first-party bad faith lawsuit.
A third-party claim involves liability insurance (a policy that you purchase in order to protect yourself from claims made by other people). A third-party bad faith claim might occur when your insurance company unreasonably fails to defend, indemnify, or settle a claim made against you.
For example, let's assume you hit another vehicle and the driver of the other vehicle files a lawsuit against you. You report the accident to your insurance company who now has a duty, under your liability policy, to defend you in the lawsuit and pay the damages (up to your policy limits). If your insurance company refuses to defend you or refuses to settle with the other driver, you would file a first-party bad faith claim. Similarly, the third-party (i.e., the victim) could file a bad faith claim against your insurance company for refusing to pay the damages.
In general, the following damages are available in a Texas bad faith lawsuit:
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.”
That's a lot of legalese above, we know! But let's bring in some real-world examples of how insurance companies may wrong the insured in Texas.
If any of these situations sound familiar, you may want to contact a Texas bad faith insurance lawyer.
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.
A personal injury lawyer helps individuals who have sustained injuries in accidents to recover financial compensation. These funds are often needed to pay for medical treatment, make up for lost wages and provide compensation for injuries suffered. Sometimes a case that seems simple at first may become more complicated. In these cases, consider hiring an experienced personal injury lawyer. Read more