Common Insurance Disputes for Texas Businesses
Insurance is a cornerstone of risk management for businesses in Texas, safeguarding against financial losses from property damage, liability claims, and operational disruptions. However, disputes between Texas businesses and their insurers are frequent, often stemming from disagreements over coverage, claim denials, or payment amounts.
These disputes can be particularly challenging in Texas due to its diverse economy, deregulated insurance market, and exposure to natural disasters like hurricanes, tornadoes, and floods.
Laird Morgan, Lawyer, in Richardson, Texas, can help explain the most common insurance disputes faced by Texas businesses, the laws governing these disputes, their causes, and practical strategies for resolution. By understanding these issues, business owners can better understand insurance challenges and protect their financial stability.
Insurance for Texas Businesses
Texas boasts a robust economy, with businesses ranging from small retail shops and restaurants to large oil and gas companies, manufacturing firms, and tech startups. Common commercial insurance policies in Texas include:
General liability insurance: Covers third-party claims for bodily injury, property damage, or advertising injury.
Commercial property insurance: Protects business assets like buildings, equipment, and inventory from perils such as fire, theft, or storms.
Business interruption insurance: Compensates for lost income and operating expenses when a covered event halts operations.
Workers’ compensation insurance: Though optional in Texas (unlike most states), it covers employee injuries or illnesses arising from workplace activities and is widely adopted to limit liability.
Commercial auto insurance: Insures vehicles used for business purposes, covering liability and physical damage.
Professional liability insurance: Protects against claims of negligence or errors in professional services, essential for accountants, lawyers, or consultants.
Texas’s deregulated insurance market allows insurers flexibility in setting rates and policy terms, which can lead to intricate coverage disputes. Additionally, the state’s susceptibility to natural disasters increases claim frequency, particularly in coastal regions like Houston or Corpus Christi and tornado-prone areas like North Texas.
Laws Governing Insurance Disputes in Texas
Insurance disputes in Texas are regulated by a combination of state statutes, common law, and, in some cases, federal regulations. Key legal points include:
Texas insurance code: Found in Tex. Ins. Code Ann. § 541 (unfair practices) and § 542 (prompt payment of claims), this statute governs insurer conduct, prohibits deceptive practices, and provides remedies for policyholders.
Prompt Payment of Claims Act (PPCA): Under Tex. Ins. Code § 542.051–060, insurers must acknowledge claims within 15 days, investigate promptly, and pay valid claims within 60 days of receiving necessary documentation. Violations trigger penalties, including 18% interest and attorney’s fees.
Deceptive Trade Practices Act (DTPA): Tex. Bus. & Com. Code § 17.41–63 allows businesses to sue insurers for deceptive or unconscionable acts, with potential treble damages for knowing violations.
Common law bad faith: Texas courts recognize an insurer’s duty of good faith and fair dealing. Bad faith actions, such as unreasonably denying a valid claim, can lead to extra-contractual damages (Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, Tex. 1997).
Federal law: For policies like those under the National Flood Insurance Program (NFIP), federal regulations limit state law remedies, requiring disputes to be resolved in federal court.
Texas’s pro-policyholder laws, like the PPCA and DTPA, provide robust protections, but traversing disputes requires familiarity with these statutes and their application.
Common Insurance Disputes for Texas Businesses
Below are the most prevalent insurance disputes faced by Texas businesses, along with their causes and implications.
Claim Denials Based on Policy Exclusions
Claim denials due to policy exclusions are among the most common disputes. Typical exclusions include:
Flood damage: Standard property policies exclude flood damage, requiring separate NFIP or private flood insurance. In Texas, coastal businesses in areas like Galveston often face denials for water damage misclassified as flooding.
Wear and tear: Insurers may deny claims for damage attributed to gradual deterioration rather than a covered event, such as a storm.
Intentional acts: Liability claims may be denied if the insurer alleges the business intentionally caused harm.
Non-covered events: Business interruption claims may be denied if the disruption stems from an uncovered cause, such as a pandemic or government-ordered closure (e.g., COVID-19-related disputes).
Causes: Disputes often arise from ambiguous policy language, miscommunication about coverage, or insurers’ narrow interpretation of exclusions. For example, a Houston retailer damaged by Hurricane Harvey may face a denial if the insurer attributes losses to flooding rather than wind, a covered peril.
Implications: Denied claims can devastate businesses, forcing owners to fund repairs or legal battles out of pocket. Small businesses, with limited reserves, are particularly vulnerable, risking closure or bankruptcy.
Underpayment or Lowball Settlements
Insurers may approve claims but offer settlements significantly below actual losses. Common scenarios include:
Undervalued property damage: An insurer may underestimate repair costs for a Dallas manufacturing plant’s storm-damaged equipment, using outdated pricing or incomplete assessments.
Business interruption losses: Insurers may dispute the duration or extent of income loss, offering partial payments that fail to cover fixed expenses like rent or payroll.
Depreciation disputes: Insurers may apply excessive depreciation to older assets, reducing payouts for businesses in Austin or San Antonio replacing damaged inventory.
Causes: Underpayment disputes stem from differing damage assessments, reliance on adjusters with conflicts of interest, or intentional efforts to minimize payouts. After major storms, insurers may use standardized formulas that undervalue Texas-specific repair costs.
Implications: Low settlements delay recovery, strain finances, and may force businesses to accept inadequate offers to avoid prolonged disputes. Legal action is often required to secure fair compensation.
Delayed Claim Processing
Delays in processing claims violate the PPCA and frustrate businesses needing prompt funds for recovery. Common issues include:
Slow investigations: Insurers may take months to inspect damages, especially after widespread events like hurricanes or tornadoes in Texas.
Excessive documentation requests: Insurers may demand repetitive or unnecessary records, delaying payment.
Causation disputes: Insurers may prolong investigations to determine whether a covered event caused the loss, such as distinguishing wind from flood damage in Corpus Christi.
Causes: Delays result from overwhelmed claims departments, intentional stalling to pressure businesses into lower settlements, or complicated causation issues in natural disaster claims.
Implications: Delayed payments halt repairs, disrupt cash flow, and force businesses to rely on loans or savings. PPCA violations provide grounds for penalties, but pursuing these requires legal action, adding costs.
Bad Faith Insurance Practices
Bad faith disputes occur when insurers act unreasonably or dishonestly in handling claims. Examples include:
Unreasonable denials: Denying a valid claim without a legitimate basis, such as rejecting a Fort Worth office’s storm damage claim despite evidence of covered wind damage.
Failure to investigate: Neglecting to thoroughly assess a claim, such as ignoring engineering reports supporting a business’s property damage claim.
Misrepresentation: Providing false or misleading information about policy coverage to avoid payment.
Causes: Bad faith may stem from profit-driven motives, inadequate adjuster training, or systemic practices prioritizing cost-cutting. In Texas, high claim volumes after natural disasters exacerbate these issues.
Implications: Bad faith practices erode trust and can lead to significant damages, including punitive awards under the DTPA or common law. Proving bad faith requires substantial evidence, increasing legal costs, and intricacy.
Workers’ Compensation Disputes
Workers’ compensation disputes are prevalent, particularly for Texas businesses in high-risk industries like construction, oil and gas, or manufacturing. Issues include:
Denied claims: Insurers may deny employee injury claims, alleging the injury was pre-existing or occurred outside work.
Disputed benefits: Insurers may reduce or terminate benefits, such as medical treatment or wage replacement, claiming the employee has recovered.
Retaliation claims: Businesses may face disputes if employees allege retaliation for filing claims, complicating insurance and employment law issues.
Causes: Disputes arise from differing medical opinions, incomplete documentation, or insurer efforts to limit liability. In Texas, where workers’ compensation is optional, businesses opting out face heightened litigation risks.
Implications: Denied or reduced benefits can lead to employee lawsuits, increased premiums, and reputational harm. Businesses must balance compliance with cost management, especially in industries with frequent injuries.
Coverage Disputes for Natural Disasters
Texas’s vulnerability to hurricanes, tornadoes, floods, and hailstorms makes natural disaster coverage disputes common. Key issues include:
Wind vs. flood damage: Insurers may attribute damage to flooding (excluded) rather than wind (covered), as seen in claims after hurricanes like Ike or Harvey.
Anti-concurrent causation clauses: Some policies exclude losses if both covered and uncovered events contribute, complicating claims for mixed damage.
Proof of loss requirements: Insurers may deny claims if businesses fail to provide timely or detailed proof of loss, a challenge after chaotic storm events.
Causes: Disputes stem from policy intricacy, causation disputes, and the high cost of natural disaster claims, prompting insurers to scrutinize submissions closely.
Implications: Uncovered losses can devastate businesses, particularly those without flood insurance. Litigation may be necessary to resolve causation disputes, increasing costs and delays.
Contact an Attorney Today
Insurance disputes pose significant challenges for Texas businesses, threatening financial stability and operational continuity. Common issues—claim denials, underpayment, delays, bad faith, workers’ compensation disputes, and natural disaster coverage conflicts—stem from intricate policies, economic pressures, and Texas’s unique risk profile. Laird Morgan, Lawyer in Richardson, Texas, is ready to help you. I serve residents throughout Collin County, Texas. Call me today.