What Proves Bad Faith?

For insurance lawyers, the above question captures the ultimate question.  Most cases do not involve bad faith.  They are simple breaches of the insurance contract.  The Northern District, Dallas Division discussed the law in a recent opinion.  The opinion is styled, Yasser Alhamzawi v. Geico Casualty Company.

This is a summary judgment opinion.  Plaintiff had insurance with Geico and sustained a hail damage loss to his insured car.  After an estimate, Geico issued two checks totaling $5,819.19 to Plaintiff and Plaintiff cashed the checks.

Plaintiff then got more estimates for amounts over $30,ooo.  Plaintiff sent these estimates to Geico for payment.  Geico had instructed Plaintiff to have the repair shop call if the amount they paid was insufficient so that a new estimate could be obtained.  Plaintiff did not do this, but instead got his brother to do the repairs.  Plaintiff then sued Geico for bad faith, for not fully paying the claim.  Geico asserted that Plaintiff had violated the policy by not cooperating with the policy provision requiring cooperation.

Pursuant to the Texas Supreme Court and the United States 5th  Circuit Court of Appeals, under Texas law, there is a duty on the part of the insurer to deal fairly and in good faith with an insured in the processing of claims.  In asserting a common law bad faith cause of action, the insured must establish that the insurer failed to settle the claim even though it knew or should have known that it was reasonably clear that the claim was covered.  The court looks to the facts available to the insurer at the time of the denial when determining the reasonableness of the insurer’s decision.  Evidence that merely shows a bona fide dispute about the insurer’s liability on the contract does not rise to the level of bad faith.

The court then discussed the applicable facts in this case with the above cited principles.  This case is good reading for understanding how courts look at cases involving allegations of bad faith.  In this case, the ruling for bad faith was judged against Plaintiff.

Each case of denial of policy benefits by an insurance company has to be looked at under it’s own set of facts.  Those facts have to be read against the applicable policy language in order to be able to form a good opinion as to whether the denial of benefits arises to the level of bad faith or is a simple breach of contract.