It’s easy to say “bad faith.” It’s not always easy to prove. Insurance lawyers have to look hard and rarely will be successful. A 1992, San Antonio Court of Appeals opinion helps explain why. The case is styled, State Farm Lloyds v. Polasek.
A fire destroyed the Polasek’s video rental business. State Farm denied insurance claim on ground of arson. The Polasek’s filed suit for breach of contract and bad faith. At trial, the jury found that the Polaseks had not committed arson and that State Farm had acted in bad faith because it did not have a reasonable basis for denying the claim. The jury awarded $40,000.00 property damages, $200,000.00 mental anguish, and $500,000.00 exemplary damages. State Farm appealed. On appeal, the San Antonio Court of Appeals reversed the bad faith judgment.
A bad faith cause of action is not satisfied by proof that State Farm should have paid the claim or that State Farm acted unreasonably in denying the claim. Instead, a bad faith cause of action requires proof of a negative: that no reasonable basis existed for denying or delaying payment of the insurance claim. Under a bad faith cause of action, carriers still maintain the right to deny invalid or questionable claims and will not be subject to liability for an erroneous denial of a claim. A bad faith cause of action requires a much different and more demanding proof than a suit for breach of the insurance policy.