Which Insurance Company Tactics Constitute “Bad Faith”?

Texas homeowners who live within the vicinity of the Gulf Coast are well-versed in hurricane facts:

• They know that hurricane season started at the beginning of June and will last through the end of November… if we’re lucky.
• They know we’ve already seen Alex, Bonnie, and Colin this year, that Danielle could emerge soon (if it hasn’t already), and that Earl, Fiona, and Gaston will likely develop as the season continues.
• They know to buy homeowner's insurance to cover hurricane-wind damage, and flood insurance to cover hurricane-water damage.
• But unless they’ve filed a damage claim and had a bad experience with their insurance company, they may not know what a bad faith claim is.

What is “Bad Faith”?

As it sounds, bad faith in an insurance context consists of an insurance company deliberately failing to abide by the terms of a policy it sold. When an insurance company rejects a legitimate claim, that is considered bad faith.

You’ve probably heard of punitive damages: They’re an award a court makes when someone (or some company) does something especially wrong to someone else. The purpose of punitive damages is to make an example of the wrongdoer and to deter others from doing the same thing or something similar.

Punitive damages are seldom allowed in breach of contract lawsuits, where one party sues another for failing to do what they promised to. The rare exception is when an insurance company fails to comply with the terms of the insurance policy that it sold.

Bad-faith lawsuits against insurance companies are the only breach-of-contract lawsuits where courts allow juries to award punitive damages. The rationale is that insurance is a critical necessity, and policyholders are at a significant disadvantage when their property is damaged or destroyed—especially when their insurance company refuses to cover the claim.

What insurance policy actions or inactions amount to bad faith?

Broadly speaking, bad faith claims are allowed whenever an insurer:

• responds slowly or not at all to a claim;
• offers less money than the amount listed in the adjustor’s damage assessment;
• repeatedly demands additional documents that are either unnecessary or duplicative; or accuses the insured party of having either caused or contributed to the damage.

The best way a policyholder can prove bad faith is to keep good records.

Write down detailed notes about every conversation you have with the

insurance company, along with the date and time the conversation occurred and the name of the person to whom you spoke.

Keep all letters and emails from the company. Print out all their emails and place them in a file along with the letters and other documents.

Manfred Sternberg & Associates is a full-service law firm in Houston, Texas.

If you are having trouble collecting on an insurance claim, contact us here or call us at 713-547-5460.