Bad Faith Claims

Bad Faith Claims and proving them have their own set of rules.  These rules were discussed in a 2020 opinion from the Eastern District of Texas, Beaumont Division.  The opinion is styled, Mt. Javed Ventures, Ltd. v. Mt. Hawley Insurance Company.

This is a summary judgment opinion.  The legal history and the facts of the case can be read in the opinion.  This writing will focus on the law related to “bad faith claims.”

The Texas Supreme Court has stated in previous case opinions that under Texas law, “an insurer has a duty to deal fairly and in good faith with its insured in the process of payment of claims.”  This duty is breached if: “(1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.”  Whether an insurance company’s liability has become reasonably clear is a question of fact as cited in the 1997, Texas Supreme Court opinion, Universal Life Ins. Co. v. Giles.  However, evidence establishing only a bona fide coverage dispute does not demonstrate bad faith.  Evidence that shows a bona fide coverage dispute does not, standing alone, demonstrate bad faith.

In reviewing a bad-faith claim, the court must distinguish between the evidence supporting the contract issue and the tort issue, because the bad-faith tort issue does not focus on whether the property-damage claim was valid.  Accordingly, summary-judgment evidence must relate to whether liability had become reasonably clear, not merely the existence of liability.  As an initial matter, however, the general rule is that an insured cannot recover policy benefits for an insurer’s statutory violation if the insured does not have a right to those benefits under the policy.  This rule derives from the fact that the Insurance Code, Section 541.151 only allows an insured to recover actual damages “caused by” the insurer’s statutory violation.  Under Texas law, claims of unfair settlement practices in violation of the DTPA and the Texas Insurance Code require the same predicate for recovery as a claim for a violation of the common-law duty of good faith. When an insured joins claims under the Texas Insurance Code with a bad faith claim, all asserting a wrongful denial of policy benefits, if there is no merit to the bad faith claim, there can be no liability on either statutory claim.  The court, therefore, examines Plaintiff’s extra-contractual claims for violation of Chapter 541 of the Texas Insurance Code, the DTPA, and breach of the common law duty of good faith and fair dealing simultaneously.  Plainly put, an insurer will not be faced with a tort suit for challenging a claim of coverage if there was any reasonable basis for denial of that coverage.

In this opinion, the Court looked at the facts of this case and then applied the above law to those facts and issued its opinion.  The case is a good read.

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