What is a Bad-Faith Insurance Claim in Texas?

If your insurance company refuses to reimburse you for economic damages that were specifically covered in your policy, Texas courts take the matter very seriously. In fact, a bad-faith insurance claim is the only breach of contract claim that allows a winning plaintiff to be awarded punitive damages for bad behavior.

The Texas Legal Definition of Bad Faith

“Bad faith” means that the insurer failed to live up to the obligations of the contract it signed with the policyholder. Texas provides two legal pathways to hold an insurer accountable for bad faith. The first, known as common-law bad faith, requires that the policyholder prove the insurer denied the claim even though its duty to reimburse was reasonably clear. Common-law bad faith requires a finding that the insurer’s conduct was “egregious.” The second legal pathway is known as statutory bad faith and is generally easier to prove. The claim is based on Chapters 541 and 542 of the Texas Insurance Act, which forbid insurance companies from committing any “unfair or deceptive acts or practices.” The conduct does not need to be egregious for a policyholder to win their case.

Unfair and deceptive acts and practices include misleading a policyholder about what a policy will cover, failing to respond to claim requests within a reasonable period, and denying or refusing to pay a claim without first conducting a reasonable investigation. Texas courts have ruled that insurers cannot conduct an investigation in bad faith to look for a pretext to deny the claim. Unfair practices include imposing unreasonable requirements on the policyholder, such as repeatedly requesting the same information as a stalling tactic. It may also include demands to see unnecessary documents such as federal income tax returns as a condition of settling the claim.

With 2022 predicted to be an unusually heavy hurricane season, property owners should review their policies now to ensure adequate protection. You don’t want to wait until Alex, Bonnie, Colin, Danielle, Earl, or Fiona (2022's designated storm names) are headed before you find out that your policy needs updating.

Should I Hire an Attorney?

If your insurance company has refused to pay a claim and you believe the denial was in bad faith, you’ll want to consult a law firm that specializes in insurance claims. Contact Manfred Sternberg & Associates through our website or call 713-547-5460.

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