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.
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.
A third party claim is where a lawsuit or claim is filed by a third party against the insured party.
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:
A judge or jury in Texas would need to consider if the demand of the claimant was reasonable.
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.
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.
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:
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 Insurance Journal reports that Texas is trending toward limiting the scope of common law bad faith.
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.
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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