Texas Insurance Bad Faith: When a Denial Crosses the Line

An insurance denial can leave you scrambling to pay for a loss you thought your policy had covered. A Texas insurance bad faith lawyer can help you determine if the insurer’s decision was reasonable or if its handling of your claim broke the law. The answer depends on your coverage and what the insurer knew.

When does a denial become bad faith?

Under Texas common law, an insurer can act in bad faith by denying or delaying payment when it knew or should have known that its liability was reasonably clear. A denial alone doesn’t establish that standard. An insurer can make an incorrect coverage decision without acting in bad faith.

These claims generally involve your own insurance company. If you’re seeking payment from someone else’s liability insurer, you generally can’t bring a direct bad faith claim against that company.

What claim-handling practices can cross the line?

Texas Insurance Code section 541.060 prohibits certain unfair settlement practices. These include misrepresentation of terms of the policy and refusal of payment without reasonable investigation.

The insurer must also provide a prompt, reasonable explanation of the basis for its denial, relating to the policy and the facts or law on which it is based. One that simply lists an exclusion, without putting it into context with anything else, might be worth another look.

Evidence that an insurer failed to consider relevant information may bring its investigation into question. For example, photos or inspection reports can contradict the reason for a property claim denial.

Can a payment delay create a separate claim?

Texas law also sets deadlines for handling many first-party insurance claims. Under Chapter 542, an insurer generally must accept or reject a claim within 15 business days after receiving everything needed for final proof of loss. If the insurer tells you it will pay, payment is typically due within five business days of that notice, subject to any applicable conditions and exceptions.

Extensions are possible if the insurer can properly justify the need for additional time. A qualifying catastrophe may also change the deadlines. A prompt-payment violation can support a separate claim without proving common-law bad faith.

What evidence can help establish what happened?

Keep your complete policy and the denial letter. Save requests for information and your responses. Photos and repair estimates can help prove what the insurer missed on a property claim.

Keep a record of the dates you reported the loss and when the company responded. Write down what each representative told you, including the explanations that were changed over time. A Texas insurance bad faith lawyer can check the records against the policy and the legal duties of the insurance company.

Save any receipts for expenses you feel were caused by the denial or delay. Those records can help link the insurer’s conduct to a financial loss.

What compensation may be available?

Recovery may include unpaid benefits under the policy and damages resulting from improper claim handling, depending on the claim. Coverage and causation are still in play. An unfair process does not create the right to every amount requested.

A successful claim under Chapter 541 may provide for reasonable and necessary attorney’s fees. A knowing violation may be subject to an award of up to three times actual damages. Prompt-payment claims have separate rules for interest and fees, including special provisions for certain weather-related property claims.

What should you do after an unfair denial?

Request the insurer to point out the specific policy language on which it bases its decision and explain how that language applies. Provide relevant information that has not been considered and keep proof of submission.

You can also complain to the Texas Department of Insurance. Its complaint process can address compliance concerns, but it doesn’t replace a lawsuit to resolve every disputed coverage question.

Before filing suit, check the applicable deadlines and written notice requirements. Certain property claims have additional pre-suit rules under Chapter 542A, so sending an ordinary complaint letter may not satisfy every requirement.

A Texas insurance bad faith lawyer can help evaluate the denial and explain your options. Contact The Law Office of Sandy McCorquodale, P.C. at (833) 712-4472 to discuss whether your insurer’s handling of the claim crossed the line.