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Guide to Insurance Bad Faith Cases in Texas

Insurance bad faith cases, when your insurance company isn’t doing its job

Is your Texas insurance provider acting in bad faith? See 6 examples and what to do next

Do you think you’ve been shafted by your Texas insurance company on your claim? This is referred to as ‘acting in bad faith.’

Bad faith is against the law in Texas and all states. If you think your insurance company has done one over on you, keep reading. We’ll tell you about the law on bad faith in Texas and what you can do to make it right.

Texas law on bad faith insurance

When insurance companies adjust a customer’s insurance claim in Texas, they owe the insured the common law duty of good faith and fair dealing, as codified in Chapters 541-542 in the Texas Insurance Code.

This duty came into being in common law, which means from court decisions, rather than statute.

This happened when the Texas Supreme Court first recognized that there is an obligation of good faith between the insurer and the insured.

The public policy that underlies the duty of good faith is as follows:

Insurance companies are in a position of strength, and can gain unfair advantage over the insured because they have superior knowledge, resources and bargaining power. So, insurance companies have a ‘special relationship’ with policyholders and owe them a duty of good faith and fair dealing in regards to insurance claims.

There are also instances when statutory bad faith claims are appropriate in Texas, too.

Bad faith and third party insurance claims in Texas

A third party claim is where a lawsuit or claim is filed by a third party against the insured party.

Example: a serious car accident

A very common case of a third party claim is a serious car accident – one of the most common personal injury cases.

Let’s assume that two vehicles hit each other and one of the drivers sues the other guy.

The driver being sued reports the suit to his car insurance company, and the insurer hires an attorney to represent the insured party and defend him against the lawsuit. The insurance company will pay the legal bills for the attorney and even pay a settlement claim or verdict award.

In this case, the duty of good faith and fair dealing is what the insurance company owes the insured. This is often referred to as the Stowers doctrine.

It requires that the insurance company exercise great care and diligence, which a prudent person would exercise if he were managing the suit or claim on his own.

The Stowers doctrine or duty is in play when there is a settlement demand that meets each of the following:

  • The claim against the insured party has to be covered under his policy.
  • The demand has to be within the limits of the policy.
  • The terms of the settlement demand must be such that a ‘prudent’ insurer would accept it, when considering the possibility of the insured being exposed to a large judgment.

A judge or jury in Texas would need to consider if the demand of the claimant was reasonable.

Enjuris Tip: The Stowers doctrine or Stowers claim is named this way because of a 1929 case ruling that still holds up today: Stowers Furniture Co. v. American Indemnity Co.

What it means is that when an insurance company violates their duty under the Stowers doctrine, the insurance company can become liable for much more money than the insurance policy provides for in the insurance contract. This comes about when the insurance company doesn’t make a reasonable settlement within the policy limits.

The judge or jury would also consider how the investigation of the claim was done, the defense provided, and the conduct of the insurer during settlement negotiations.

If the judge or jury finds that the insurer did not discharge its duties to the insured faithfully, it would be acting in bad faith.

Bad faith and first party claims in Texas

The insured makes a first party claim to his insurance company.

A typical case is where the insured’s roof is damaged by hail (quite common in Texas). The insured then will submit a claim to his homeowner’s insurance company for the roof damage.

Chapter 541 of Texas Insurance Code lists the unfair/deceptive practices of bad faith insurance. Tweet this

As with third party claims, the insurance company owes a duty of good faith. Chapter 541 of the Texas Insurance Code stipulates the unfair and/or deceptive practices that the company should never engage in:

  • Misrepresenting a fact or policy provision
  • Failing to act in good faith to obtain a fair settlement when the liability of the insurer is clear
  • Failing to provide the insured with a good explanation of why a claim was denied
  • Refusal to pay a claim without proper investigation

So what is owed to you if your insurance company is acting in bad faith?

In legal terms, this would be called liabilities for violations of Texas law on bad faith.

Section 541.152 of the Texas Insurance Code states that an insured party who is acted against in bad faith by an insurance company may obtain:

  • The amount of damages that were incurred, plus attorney costs and court fees
  • An order that enjoins the act, or the failure to act that was complained of by the insured
  • Any other relief the count deems proper

The Insurance Journal reports that Texas is trending toward limiting the scope of common law bad faith.

Examples of bad faith dealing in Texas

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.

These below are instances that could be considered bad faith insurance cases. If your accident claim is starting to go like this, it may be in your best interest to call a Texas bad faith insurance lawyer.

  • Denying your car accident claim without giving a reason. If your insurance company does not provide one, you could have a bad faith claim.
  • Not investigating or delaying the investigation. Sometimes insurance companies will drag their feet.
  • Delaying payment. The company must pay you in a ‘reasonable’ time frame. If the claim is not paid soon after it has approved it, you may have a case.
  • Offering less than the case is worth. Insurance companies like to toss out lowball offers to get you to take a lot less money than you should. This is perfectly legal. But if the insurance company will not move from that low ball offer, bad faith could be in play.
  • Refusing to pay a claim that is valid. The company may refuse to pay a valid claim after your accident. If the type of accident is covered by your policy, you could have a claim.
  • Not providing documentation. You have a right to request documentation from the insurance company regarding a claim. If it does not provide you with documentation in a reasonable time frame, it may be acting in bad faith.

Proving a Texas bad faith claim

You and your attorney must show that the facts surrounding the insurance claim prove that the company is acting in bad faith. It can be very complicated to establish that the company acted in bad faith.

That is why it is very important to consult with a Texas personal injury attorney experienced in bad faith insurance cases. This type of case is quite different from a standard car accident lawsuit, and requires special legal skills and experience.

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