Bad Faith / Reasonable Basis

How does the policyholder in Grand Prairie know if his insurance company is acting in bad faith? This same question might be asked in Arlington, Aledo, Mansfield, Fort Worth, or anywhere else in Texas.
When an insurance company denies a claim it should be obvious that there are times when they have a good reason for doing so. But how do you know if their reason is a good reason or not? What the courts ask or look for is, “proof that the insurance company had a reasonble basis to deny the claim, delay payment, or cancel the policy.” Legally, this is often times called the “bona fide dispute” defense, an insurance company will use to escape some of the liability accusations that are tied to bad faith cases. Another way of putting this is, an insurance company is not liable merely for being wrong on a coverage issue, only for being unreasonable. Even an experienced Insurance Law Attorney will often times have trouble knowing for sure whether the actions and conduct of the insurance company rise to the level of bad faith. Some cases are easy to call, but some are not.
A Texas Supreme Court case, decided in 1994, styled, Transportation Insurance Company v. Moriel, states:
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 … Nor is bad faith established if the evidence shows the insurer was merely incorrect about the factual basis for its denial of the claim, or about the proper construction of the policy.
Here is an example where the Texas Supreme Court, in 1997, in the case styled, U. S. Fire Insurance Company v. Williams, said there was no bad faith. U S Fire Insurance Company was faced with competing claims for life insurance benefits. Nathaniel Williams married Essie Williams in 1957. They separated in 1978 but never divorced. From 1978 until his death in 1992, Nathaniel lived with Lessie, but they never married. When Nathaniel Williams died in a car wreck, the injury report identified his spouse as “Lessie.” U S Fire determined that Essie was deemed to have abandoned Nathaniel, under Worker’s Compensation laws, so they paid Lessie. When Essie filed a claim for benefits with the Worker’s Compensation Commission, she ultimately prevailed. Essie then sued U S Fire for bad faith in denying her claim. The court concluded that there was no evidence of bad faith. U S Fire simply relied on an erroneous interpretation of the rule. U S Fire’s interpretation was at least arguable, because they initially prevailed before the Worker’s Compensation Commission.
Attorneys who have handled very many of these cases and who keep up with the new cases as they are decided, can discuss a persons specific facts and give a reliable opinion as to the probable outcome of a particular fact situation.