Bad Faith Insurance?

Bad Faith insurance lawyers are always questioning themselves on where the line is drawn regarding bad faith claims.  This issue is discussed in this 2022, opinion from the Western District of Texas, San Antonio Division.  It is styled, Dr. John Winston, III v. State Farm Lloyds.

State Farm filed a motion for summary judgment regarding Winston’s bad faith allegations.

Winston sued State Farm regarding a claim for damage to Dr. Winston’s residence caused by a hail storm.

The Texas Supreme Court has recognized a duty on the part of insurers to deal fairly and in good faith with their insured.  An insurer breaches its duty of good faith and fair dealing when the insurer had no reasonable basis for denying or delaying payment of a claim, and the insurer knew or should have known that fact.  In other words, the insured bears the burden to prove that there were no facts before the insurer which, if believed, would justify denial of the claim.

The issue of bad faith does not focus on whether the claim was valid, but on the
reasonableness of the insurer’s conduct in rejecting the claim.  As long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is
not liable for the tort of bad faith.  Although whether an insurer acted in bad faith can be a question for the jury, courts routinely determine as a matter of law that undisputed record evidence establishes an insurer had a reasonable basis for denying or delaying a claim payment or that an insured has failed to present evidence sufficient to support a bad faith claim.

An insurer is obligated to adequately investigate a claim before denying it.  The scope of the appropriate investigation will vary with the claim’s nature and value and the complexity of the factual issues involved.  If an insurer fails to conduct a reasonable investigation, it cannot assert that a bona fide coverage dispute exists. An insurer fails to reasonably investigate a claim if the investigation is conducted as a pretext for denying the claim. An insurer does not act in bad faith where a reasonable investigation reveals the claim is questionable.

The preceding is the law on this matter that the courts are required to apply.

The case then discusses the “facts” of this case and ruled that State Farm, as a matter of law, did not act in bad faith.

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