Most Americans purchase insurance policies to protect against the loss of their home, health or possessions. Being insured and paying for a policy means the insurance company must not only protect the insured against instances like theft, damage or loss, but it must do so fairly and in good faith.
While Texas law does not impose a duty of good faith and fair dealing on all contractual relationships and in fact, typically rejects recognizing such a duty in most contexts, Texas courts do recognize this common-law duty of good faith and fair dealing in the insurance context. Texas courts have recognized that a special relationship exists in the insurance context due to the increased bargaining power an insurance company has in the insurance claim settlement process. Because an insurance company has the ultimate control over the evaluation, processing, and denial of its insureds’ claims, it has the potential to unscrupulously take advantage of its position of power and treat its insureds unfairly. In order to combat this potential abuse of power, Texas law has recognized that an insurer must treat its insureds fairly and in good faith, specifically in the context of handling insurance claims.
Breaching the Duty of Good Faith and Fair Dealing – or Acting in Bad Faith
When an insurance company takes advantage of an insured’s hardship and unfairly handles a claim, it is liable for breaching the duty of good faith and fair dealing or, in other words, for acting in bad faith. Recognizing a breach in this duty is important in knowing how to move forward.
An insurance company is liable for acting in bad faith if it denies or delays payment of a claim when it knows or should know coverage is reasonably clear. If the insurance company has no reasonable basis for denying or delaying payment of your claim, and does so regardless, it is in breach of the duty of good faith and fair dealing. An insurance company must conduct an investigation of your claim. If no investigation has taken place, an insurer does not have a reasonable basis to deny your claim.
Additionally, if the insurance company does not properly and thoroughly investigate your claim, the insurance company is liable for acting in bad faith. The insurance company must adequately investigate your claim before denying it. If the insurance company merely investigates your claim for the sole purpose of denying it, it is liable for bad faith. For example, if the estimates or engineering reports prepared as part of the investigation of your claim are not prepared objectively or if they are prepared in a way that is biased to favor the insurance company, your insurer may be acting in bad faith. Ultimately, the results of the insurer’s investigation must justify the decision made and the investigation must be conducted in good faith. Whether your claim was appropriately investigated and documented will depend on the individual circumstances of your particular claim.
What to Do if You Suspect Your Insurance Carrier Has Acted in Bad Faith
If you think that an insurance company has unfairly handled or investigated your insurance claim, contact an attorney and gather all records you may have relating to the claim, including a copy of your policy on which the claim was made along with any estimates prepared by the insurance company on your behalf. An experienced lawyer will be able to help you understand the duties owed to you under both your policy and the law so that you may start on the path toward a fair remedy.