Bad-Faith Insurance Attorney
When an insurer unreasonably delays, underpays, or denies a valid claim, the dispute is no longer about the terms of the policy. It becomes one weighted down by a pretext of denial: some carriers will do or say whatever it takes to avoid liability for your loss, notwithstanding the fact that you paid hefty premiums to shift that risk of loss from you to them. Bearstone Law, PLLC, makes it a core focus to represent policyholders when dealing with an insurer’s bad-faith conduct, whether it is dubious claim handling, delays in payment, or non-sensical coverage positions. We represent policyholders, never insurance companies. That allows the firm to stand up to even the largest insurance corporations to keep them in check for their wrongful bad-faith conduct.
“Bad Faith” Under Texas Law
The meaning of “bad faith” often varies depending on whom you ask. But in the Texas insurance context, the state legislature has codified over a century of common law development of the definition of bad faith via two neighboring statutes: Texas Insurance Code Section 541.060 and Section 541.061.
Wrongful claim handling and settlement practices
Texas Insurance Code Section 541.060 sets forth nine non-exhaustive categories that are deemed “bad faith” on the part of the insurance carrier. As summarized and paraphrased below, the provision deems the following conduct (and similar conduct) bad faith on the part of an insurer:
- Misrepresenting material facts or policy provisions
- Failing to promptly, fairly, and equitably settle claims once it becomes “reasonably clear” that at least a portion of the claim is covered
- Failing to provide a reasonable explanation of the basis under the policy for its denials or reductions of a claim amount
- Failing to affirm, deny, or reserve rights within a reasonable time
- Refusing, failing, or unreasonably delaying settlement because other coverage may exist or someone else may be responsible to pay for the loss
- Trying to enforce a full release after only partial payment, unless the payment is a compromise on a “doubtful or disputed claim”
- Refusing to pay without conducting reasonable investigation
- Delaying or refusing to settle an auto-policy claim because another kind of insurance coverage exists that would cover the loss
- Requiring tax returns as a condition of settlement, except under limited circumstances
Misrepresentations regarding coverage
Texas Insurance Code Section 541.061, rather than focusing on the claims handling and settlement process, focuses on misrepresentations. That provision is summarized and paraphrased below, which deems the following to be bad faith:
- Making an untrue statement of material fact
- Failing to disclose material facts needed to avoid misleading statements
- Making statements that mislead a reasonable person about a material fact
- Making a material misstatement of law
- Failing to make disclosures required by law (e.g., failing to provide certain information to the policyholder, when requested)
Hallmarks of Bad-Faith
The test is one of reasonableness
Here’s the thing about a reasonableness standard: lawyers love it because there is always room for argument. Ultimately, whether an insurer acted reasonably is a fact question resolved by the “fact finder” in court, which is typically a jury but could also be the judge (i.e., a “bench trial” as opposed to a “jury trial”).
Not every delay or denial of coverage is bad faith. And an explanation is not unreasonable just because it is disagreeable. It just depends. Insurers are allowed a reasonable time to investigate claims and to reasonably contest coverage where a legitimate legal or factual question exists and remains unresolved. The issue is whether the carrier acted fairly, honestly, and like a prudent insurer would act under similar circumstances (i.e., what is called a prudent-person standard).
Unreasonableness = bad faith
In the insurance context, by definition, unreasonable conduct is deemed bad faith. For example, it is unreasonable for an insurance carrier to delay or deny payment of a clearly covered claim without providing any justification. It is also unreasonable to make material misstatements to a policyholder regarding its own legal obligations, to ignore key evidence, arbitrarily and inexplicably shift its explanations of coverage in a way that is always to the detriment of the policyholder, or to use pressure tactics to force a pre-determined outcome.
That is not how a reasonable, sensible insurer would behave. That is when a coverage dispute may move beyond a legitimate contractual disagreement and into the realm of bad-faith conduct. In claims involving significant loss, an insurer’s failure to act reasonably and sensibly can substantially worsen the policyholder’s position and exacerbate the financial harm already caused by the underlying occurrence.
You’ll know it when you see it
Warning signs of bad-faith usually start in your “gut.” The moment you get that little, sneaking feeling that something is just not right or that you are getting jerked around—that is when you involve an experienced bad-faith insurance attorney. Here are a few warning signs:
- Long periods of delay for no apparent reason (or none provided when you inquire)
- Unexplained delay in responding to your correspondence or investigating the claim
- Shifting or inconsistent explanations in coverage letters
- Ignoring critical facts or evidence supporting coverage
- Misstatements or overstatements about facts or evidence as a basis for denial
- Low-ball offers to settle the claim, with hints of an unreasonable or embarrassing investigation if not settled
- Low-ball offers that have no support by the claim record
- Stalling through piecemeal requests for documents and information
- Asking for the same materials numerous times after you have provided those materials numerous times
- One-sided, non-sensical interpretations of the policy language
- Arbitrary application of inapplicable exclusions or limitations as a basis to deny coverage
- Little or no real investigation into a claim
- Denial letters that do not clearly tie the decision to policy language
To be fair, most of this conduct falls along a spectrum. In other words, a reasonable insurance carrier may be permitted to change its rationale over time, but it heavily depends on the facts and circumstances. For example, the insurer may conduct its investigation and learn of new facts that implicate a certain exclusion. Just because they raise that exclusion at some point midway through the claims process does not necessarily equate to bad faith. However, it would be a different story, for instance, if the insurer were to adopt a new, unduly broad reading of an exclusion after taking the position that the exclusion did not apply, and all without any basis in the facts. That might be worth some pushback.
Red flags to look out for in liability matters
In matters where your liability is on the line (e.g., when you are being sued), an insurance carrier’s wrongful refusal to defend you, failure to respond to prudent settlement offers from the other side, or unreasonable handling of your legal exposure in the case, can create additional pressure on you as the insured. During the course of negotiation, litigation, and so on, an insurer’s failure to accept a reasonable demand because of unexplained undervaluing of the claim, unsupported depreciation, or the strategic narrowing of damage categories, can really put a policyholder-defendant in a predicament and likewise rise to the level of bad-faith conduct, depending on the circumstances and ultimately what a would-be prudent insurer would do.
How a Bad-Faith Attorney Analyzes Bad-Faith
A strong bad-faith legal analysis always begins with the policy language, then the claim file history and the sequence of communications throughout the claims process. Bearstone Law, PLLC approaches these matters by examining these issues, along with what coverage was purchased, whether that coverage was triggered by the loss, what information was provided, how the insurer responded, and whether the carrier’s position remained consistent with the policy language and the facts, among other factorial analyses.
Comprehensive review typically requires reconstructing the claim timeline, analyzing reservation-of-rights letters and coverage positions, reviewing requests for information, and identifying where the insurer’s reasoning does or does not align with the actual record or policy language. The goal is to determine not only whether coverage exists, but whether the claim was handled in a manner consistent with the insurer’s obligations.
Early Involvement by a Bad-Faith Lawyer Can Make a World of Difference
Honestly, we would love nothing more than for insurers to just pay our clients for the coverage due under the policy. But obviously, that does not always happen. So sometimes, the Firm needs to step in.
In those instances, the earlier we get involved, the better the outcome tends to be. That is because insurance disputes are shaped by what happens early in the claim’s lifecycle. Communications made during the claim process, documents submitted to the carrier, and responses to initial coverage positions can all greatly impact the policyholder’s leverage later on. Early legal review and assistance can help preserve rights, clarify the dispute, and avoid unnecessary concessions before the carrier’s position hardens. Once a carrier takes a position, it becomes difficult for them to move away from it later on. In other words, they are more likely to dig in their heels rather than reverse course (presumably because they understand the likelihood of a bad-faith determination when they take a shifting-sands approach to coverage).
Do not wait to involve insurance counsel. There is no such thing as “too early” for us to get involved, and we routinely assist clients “behind the scenes” during all stages of the claim. But no matter what stage in which you find yourself, the Firm is here to help.
Related Resource: Understanding Bad Faith Insurance Practices in Texas: What Policyholders Should Know