Insurance companies collect premiums with the promise of protection when you need it most. When they unreasonably deny, delay, or underpay valid claims, they breach the duty of good faith and fair dealing owed to their policyholders. This conduct—known as insurance bad faith—is not just unfair; under Texas law, it is actionable and can subject insurers to damages far beyond the original policy benefits.
At Bearstone Law, we hold insurance companies accountable when they engage in bad faith claim handling practices. Our firm represents Texas policyholders who have been wrongfully denied coverage, subjected to unreasonable delays, or offered settlement amounts that fail to reflect the true value of their claims. We pursue aggressive legal action to recover not only the policy benefits owed but also the additional damages Texas law provides when insurers act in bad faith.
What Constitutes Insurance Bad Faith in Texas
Texas recognizes multiple legal theories that hold insurers accountable for improper claim handling. Understanding these theories helps policyholders recognize when their insurer has crossed the line from legitimate claim evaluation to bad faith conduct.
Common Law Bad Faith
Texas common law imposes a duty of good faith and fair dealing on insurance companies in their relationship with policyholders. An insurer breaches this duty when it denies or delays payment of a claim after the insurer knew or should have known that it was reasonably clear the claim was covered. This standard does not require intentional misconduct—an unreasonable failure to properly investigate or evaluate a claim can establish bad faith liability.
Statutory Bad Faith Under the Texas Insurance Code
The Texas Insurance Code provides additional protections through Chapter 541 (Unfair Methods of Competition and Unfair or Deceptive Acts) and Chapter 542 (the Prompt Payment of Claims Act). These statutes create specific duties and timelines that insurers must follow, and violations trigger statutory penalties and remedies.
DTPA Claims Against Insurers
The Texas Deceptive Trade Practices Act provides another avenue for holding insurers accountable when their conduct constitutes deceptive or unconscionable practices. DTPA claims can provide treble damages in cases involving knowing or intentional misconduct.
Common Bad Faith Insurance Practices
Insurance companies engage in bad faith through various tactics designed to minimize or avoid payouts on valid claims:
- Unreasonable Claim Denials: Denying claims without adequate investigation or without a reasonable basis in policy language or facts.
- Unreasonable Delays: Failing to promptly investigate claims, make coverage decisions, or issue payments within required timeframes.
- Lowball Settlement Offers: Offering settlements dramatically below the actual value of claims, hoping financial pressure will force acceptance.
- Misrepresenting Policy Terms: Telling policyholders that their policies do not cover losses when coverage actually exists.
- Excessive Documentation Demands: Requiring unnecessary or repetitive documentation to delay claim processing.
- Failure to Investigate: Denying claims without conducting adequate factual investigation into the circumstances and damages.
- Threatening or Intimidating Policyholders: Using threats of claim denial or policy cancellation to pressure policyholders into accepting inadequate settlements.
- Refusing to Explain Denials: Failing to provide clear, written explanations for claim denials as required by law.
Texas Prompt Payment of Claims Act
The Texas Prompt Payment of Claims Act (Insurance Code Chapter 542) establishes strict timelines for insurer conduct:
Acknowledgment: Insurers must acknowledge receipt of claims within 15 days.
Investigation: Insurers must begin investigating claims promptly and request all necessary information within a reasonable time.
Coverage Decision: Insurers must accept or deny claims within 15 business days after receiving all requested information (30 days where arson is reasonably suspected; the insurer may take up to 45 additional days only by giving written notice of the reasons it needs more time).
Payment: Accepted claims must be paid within 5 business days of the coverage decision.
When insurers violate these timelines, they may owe statutory interest on the unpaid claim — 18% per year for most claims, or a reduced rate (five percent plus the statutory judgment rate) for weather-related property claims governed by Insurance Code Chapter 542A — plus reasonable attorney’s fees.
Damages Available in Bad Faith Cases
Texas law provides multiple categories of damages to policyholders who prove insurer bad faith. In most cases, these additional damages are available only where policy benefits were wrongfully withheld or the insurer’s conduct caused an injury independent of the denied benefits. Categories include:
- Contract Damages: The policy benefits wrongfully withheld.
- Statutory Interest: Prompt-payment interest under Chapter 542 — 18% per year for most claims; a reduced statutory rate applies to weather-related property claims under Chapter 542A.
- Consequential Damages: Financial losses caused by the wrongful denial, including damage to credit, lost business opportunities, and financial distress.
- Mental Anguish: Emotional damages caused by the insurer’s bad faith conduct.
- Attorney Fees: Reasonable attorney fees incurred in pursuing the claim.
- Treble Damages: Up to three times actual damages under Insurance Code Chapter 541 — and up to three times economic damages under the DTPA — when the insurer acted knowingly.
- Punitive Damages: In cases of egregious, intentional misconduct, juries may award exemplary damages to punish the insurer and deter future bad faith conduct.
How Bearstone Law Prosecutes Bad Faith Claims
Our approach to insurance bad faith litigation is thorough and aggressive:
Claim File Analysis: We obtain the insurer’s complete claim file through litigation discovery, revealing the internal decision-making process, adjuster notes, and communications that expose bad faith conduct.
Expert Testimony: We retain insurance industry experts who can testify about standard claim handling practices and how the insurer’s conduct deviated from reasonable standards.
Damages Documentation: We meticulously document all damages flowing from the bad faith conduct, including consequential financial losses and emotional impact.
Aggressive Litigation: Bad faith cases often require taking depositions of adjusters, claim managers, and corporate representatives to expose the true reasons behind claim denials.
Contact Bearstone Law About Your Insurance Bad Faith Claim
If your insurance company has unreasonably denied your claim, delayed payment without justification, or offered a settlement that does not reflect the true value of your loss, you may have a bad faith claim under Texas law. These claims can result in recovery significantly exceeding your original policy benefits.
Contact Bearstone Law today for a consultation. We will review your claim history, evaluate the insurer’s conduct against Texas legal standards, and determine whether you have grounds for a bad faith action. Time limitations apply to these claims, so prompt action protects your rights.