When an insurance company fails to uphold the duties it owes to its policyholders, the insurance company has committed a bad faith act.
Insurance companies owe their policyholders (or “insureds”) important duties by virtue of the insurance contract, including the duty of good faith and fair dealing. For example, when a policyholder files a claim with his or her insurance company, the insurer is required to conduct a reasonable and full investigation into the claim. The insurance company cannot arbitrarily deny the claim, delay payment, or decide to pay less than the full value of benefits owed under the insurance policy.
Unfortunately, these and other bad faith practices have become far too common in the insurance industry. While many insurers are more than happy to accept a policyholder’s premiums, they have been less than willing to pay out the same policyholder’s legitimate claims — even when those claims clearly are covered by the policies they issued.
Bad faith acts can occur under any type of insurance policy, including auto, homeowners, health, disability, life insurance, boat, and recreational vehicle policies. Some examples of bad faith acts include:
In some cases, insurance companies also will use a policyholder’s previous claims history as grounds to deny a current claim. This practice is a bad faith act. Insurance companies have the opportunity to assess the risk a particular policyholder may pose at the time the policy is underwritten. Based on this risk, the insurance company decides the cost and level of protection it will offer the policyholder. After the underwriting process is completed, however, the insurance company should not use a particular policyholder’s claims history as a reasonable basis to deny a new claim for benefits.
Under the Texas Insurance Code, insurance companies underwriting any type of insurance policy in the state are required to meet certain standards of conduct. For example, the state regulates how much time insurance companies have to process claims. Currently, insurance companies have 15 days from the date they have received a claim to send the policyholder a written acknowledgment of receipt of the claim; begin an investigation into the claim; and request all necessary statements, forms, and other information from the policyholder to process the claim.
The Texas Unfair Claim Settlement Practices Act (Insurance Code §§542.001-542.302) also provides a list of insurer settlement practices that are illegal in the state. These include:
Many people who have been offered an unfair settlement or had their claim unfairly denied by their insurance companies may feel powerless to do anything about it. They believe that with the insurance company’s power, money and resources, they have no other option but to accept what they have been offered.
Texas insurance policyholders who have been victimized by the bad faith acts of an insurance company have legal options available to them, including filing a lawsuit against the insurer. In some cases, state law allows policyholders to receive punitive damages and attorney fees in addition to any amounts owed to them under their insurance contracts.
For more information on filing a bad faith claim or other questions about insurance law, contact Texas attorney Julie Johnson today.