The Role of Bad Faith in Texas Insurance Claims
Insurance is meant to be a safety net—a way to protect yourself from the financial fallout of unexpected events. But what happens when that safety net turns into a tangled mess of red tape and denial? It’s frustrating, stressful, and often feels like you’re being left to fend for yourself right when you need help the most.
In Texas, insurance companies are legally obligated to act in good faith and deal fairly with policyholders. When they don't, it’s called "bad faith," and it can have serious consequences—not just financially, but emotionally too.
I’m Laird Morgan, a lawyer with over 30 years of experience handling insurance disputes in Richardson, Texas. I’ve seen how overwhelming it can be when you're trying to get what you’re rightfully owed and feel like no one’s listening. I’ve helped clients push back against unfair denials, confusing policy language, and delays that never seem to end.
My goal is simple: to make the legal stuff less intimidating and to stand by your side through the entire process. Here, we’ll take a look at what bad faith insurance means in Texas, how to spot it, and what you can do if you find yourself on the receiving end of an unfair claim denial or delay.
What Is Bad Faith Insurance?
Bad faith insurance happens when an insurance company fails to honor its obligations to a policyholder in a fair and timely manner. This includes denying valid claims, delaying payments without reason, or misrepresenting policy terms. Essentially, it's when your insurer isn't playing by the rules.
Texas law, specifically Chapter 541 of the Texas Insurance Code, prohibits insurers from engaging in unfair or deceptive practices. This includes:
Denying a claim without a reasonable basis
Failing to promptly acknowledge or investigate a claim
Misrepresenting policy provisions
Offering a settlement that is substantially less than the claim's value
Failing to provide a reasonable explanation for a denial
If an insurance company engages in these practices, they may be held liable for bad faith.
This kind of behavior not only adds stress during an already difficult time but can also cause financial harm when you're depending on that claim to repair your home, cover medical bills, or replace lost income.
Texas courts take these violations seriously, and policyholders have the right to pursue legal action to recover damages. In some cases, you may even be eligible for extra compensation beyond the original claim amount, including penalties, interest, and lawyer fees.
Why Insurance Companies Sometimes Act in Bad Faith
Understanding why insurance companies might engage in bad faith practices can help you recognize when something's off. It's not always about the money—sometimes it's about minimizing their payouts or avoiding responsibility. Here are a few reasons why insurers might act in bad faith:
Profit maximization: Insurance companies are businesses, and like any business, they aim to maximize profits. Denying or delaying claims can be a strategy to reduce payouts and increase their bottom line.
Overwhelmed claims departments: Especially after major events like natural disasters, claims departments can become overwhelmed. While delays might be due to high volume, they can also be a tactic to discourage claimants from pursuing their claims.
Lack of training or oversight: Sometimes, bad faith actions stem from poorly trained adjusters or a lack of oversight within the company. This can lead to mistakes or intentional misconduct.
Internal pressure: Employees might face pressure to minimize payouts, leading them to make decisions that aren't in line with fair practices.
Recognizing these motivations can help you understand the dynamics at play and why it's crucial to stand up for your rights when you suspect bad faith.
How to Spot Bad Faith Insurance Practices
Recognizing bad faith isn't always straightforward. Insurance companies are skilled at using legal jargon and intricate procedures to their advantage. However, there are some common signs to look out for:
Unexplained denials: If your claim is denied without a clear, reasonable explanation, it could be a sign of bad faith.
Delays without justification: Insurers are required to acknowledge and investigate claims promptly. Unnecessary delays may indicate bad faith.
Lowball offers: Receiving a settlement offer significantly lower than your actual damages can be a tactic to minimize the insurer's payout.
Misrepresentation of policy terms: If your insurer misrepresents the terms of your policy to avoid paying a claim, this is a clear violation.
Failure to communicate: Avoiding your calls or emails, or providing vague responses, can be a strategy to discourage you from pursuing your claim.
If you're experiencing any of these issues, it's essential to consult with a legal professional who understands bad faith insurance claims.
What Damages Can You Recover?
If you can prove that your insurer acted in bad faith, you may be entitled to various forms of compensation, including:
Actual damages: The amount you should have received under your policy.
Consequential damages: Additional losses incurred due to the insurer's bad faith actions.
Punitive damages: In cases of egregious conduct, courts may award punitive damages to punish the insurer and deter future misconduct.
Attorney's fees and court costs: If you prevail in a bad faith lawsuit, the court may order the insurer to pay your legal expenses.
Texas law allows for the recovery of lawyer's fees and court costs in bad faith insurance cases, which helps make sure that policyholders can seek justice without bearing the full financial burden of litigation.
Statute of Limitations
In Texas, the statute of limitations for filing a bad faith insurance claim is two years from the date the unfair practice occurred. This means you have a limited time to take legal action. Waiting too long can bar you from recovering damages. It's crucial to consult with a lawyer as soon as you suspect bad faith to make sure your rights are protected.
Steps to Take If You Suspect Bad Faith
If you believe your insurer is acting in bad faith, consider the following steps:
Document everything: Keep detailed records of all communications with your insurance company, including emails, letters, and phone calls.
Review your policy: Understand your coverage and the terms of your policy.
File a complaint: You can file a complaint with the Texas Department of Insurance if you believe your insurer is acting in bad faith.
Consult a lawyer: Seek legal advice from a lawyer experienced in bad faith insurance claims to discuss your options.
Consider legal action: If necessary, your lawyer can help you pursue a lawsuit against your insurer for bad faith.
How to Protect Yourself from Bad Faith Insurance Practices
Being proactive can make a significant difference in making sure your insurance company treats you fairly. Here are some steps you can take to protect yourself:
Keep detailed records: Document all interactions with your insurance company, including emails, phone calls, and letters. This can serve as crucial evidence if you need to pursue a claim.
Understand your policy: Familiarize yourself with the terms and conditions of your insurance policy. Knowing what you're entitled to can help you identify when the insurer isn't fulfilling their obligations.
File complaints promptly: If you believe your insurer is acting in bad faith, file a complaint with the Texas Department of Insurance. They can investigate and take action if necessary.
Seek legal advice: Consult with a lawyer experienced in bad faith insurance claims. They can provide guidance on your options and help you understand the legal process.
Consider legal action: If the situation doesn't improve, your lawyer can assist in pursuing a lawsuit against the insurer for bad faith practices.
Taking these steps can help make sure that your rights are protected and that you're not taken advantage of by your insurance company.
Speak With an Experienced Attorney Today
Dealing with an insurance claim is stressful enough without having to worry about your insurer acting in bad faith. However, knowing your rights and recognizing the signs of bad faith can empower you to take action. If you suspect your insurance company isn’t treating you fairly, seek legal assistance from an experienced lawyer, like me, Laird Morgan. I serve clients in Collin County, Texas. If you’re ready to hold an insurer accountable, contact me today.