What Is “Bad Faith” Insurance In Texas?

Most people have heard the terms, “Good faith”, “Bad faith”, “The duty of good faith and fair dealing”, and “Statutory bad faith”. The question would be: What do these terms mean and why do we care? In Texas, as in many other states, the duty of an insurance company to its customer, at least in the automobile and homeowners’ policies, go beyond just what the policy says.

Statutory bad faith is violation of statutes found in the Texas Insurance Code. These statutory violations are primarily found in Section 541.060 and Section 541.061.

Common-law bad-faith and statutory bad faith standards are essentially the same according to the Texas Supreme Court in their deciding of Progressive County Mutual Insurance Co. v. Boyd.

It is bad faith for an insurance company to engage in unfair settlement practices which also gives rise to a cause of action under the Texas Deceptive Trade Practices Act. The following acts are examples of these unfair claim settlement practices:

1) Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to the coverage at issue;
2) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;
3) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted once liability has become reasonably clear;
4) Failing to adopt and implement reasonable standards for prompt investigation of claims arising under its policies;
5) Compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;
6) Failure by any insurer to maintain a complete record of all the complaints which it has received during the preceding three years or since the date of its last examination by the commissioner, whichever time is shorter.

What about common-law bad faith? This arises when an insurance company has no resonable basis for denial or delay of payment or fails to reasonably investigate its basis for denying a claim. Now one has to understand the meaning of the phrases “liability becomes reasonably clear” and ” reasonable basis for denial”. These definitions are sources of continueing litigation to determine their exact definitions.

The problem for the almost everybody who purchases insurance for their own protection is all the above. Why? Because only an experienced Insurance Law Attorney can have an educated basis for deciding if a particular case has elements of bad faith in it and whether or not the facts in a case justify legal action against an insurance company. The good news is, in spite of what seems complicated, an aggressive Insurance Law Attorney can get justice for his client, reimbursement for legal expenses, court costs, and sometimes extra damages for the nature of the insurance companies conduct exceeding certain boundaries.