If you have ever filed a claim under your homeowners or auto insurance policy, you may have felt that your insurance company was not treating you fairly. Maybe your insurer denied a claim you believed was covered, offered far less than the cost of your repairs, or repeatedly delayed investigating or paying your claim.

Can an insurance company be held responsible for wrongfully denying, delaying, or underpaying an insurance claim in Texas? In some circumstances, yes.

When adjusting and settling an insurance claim, insurance companies have obligations to their policyholders. Texas law provides protections when insurers engage in certain unfair or deceptive practices or fail to handle claims properly.

These protections are particularly important because policyholders are often in a vulnerable position after a loss, while insurance companies have significantly greater resources and experience handling claims.

Depending on the circumstances, a Texas policyholder may have a bad faith insurance claim or other legal remedies when an insurance company improperly denies, delays, investigates, or underpays a covered claim.

What Types of Insurance Can Be Subject to Bad Faith Claims?

Bad faith and unfair insurance practices can arise in connection with many different types of insurance policies, including:

• homeowners insurance;
• life insurance;
• auto insurance;
• health insurance;
• disability insurance; and
• liability insurance.

For Texas homeowners in particular, disputes may arise after hurricanes, hailstorms, windstorms, fires, freezes, water damage, and other property losses when an insurance company denies coverage or pays less than the policyholder believes is owed under the policy.

What Can Be Considered Insurance Bad Faith in Texas?

In the context of an insurance claim, potential bad faith or unfair insurance practices may arise in situations such as:

• coverage for a claim being completely or partially denied;
• the insurance company rejecting a claim without providing a clear explanation;
• payment of a claim being unreasonably delayed;
• the insurance company undervaluing or underpaying covered damages;
• the insurer conducting an inadequate or unreasonable investigation of the claim; or
• the insurer misrepresenting what is covered under the insurance policy.

Whether an insurance company’s conduct constitutes bad faith depends on the specific facts, the insurance policy, and applicable Texas law. The fact that an insurance company denied or underpaid your claim does not automatically mean it acted in bad faith.

What Can Texas Policyholders Do if an Insurance Company Acts in Bad Faith?

Texas law provides policyholders with potential remedies when an insurance company improperly handles a claim.

There are two types of bad faith claims that an insured in Texas may be able to allege: common-law bad faith and statutory bad faith.

Common-Law Bad Faith: An insurer may potentially be liable for common-law insurance bad faith in Texas when it denies, underpays, or delays payment of a claim even though its liability was reasonably clear.

Statutory Bad Faith Under the Texas Insurance Code: A policyholder may also have a claim when an insurance company commits certain unfair or deceptive acts or practices prohibited by Chapter 541 of the Texas Insurance Code. Examples may include:

•   misrepresenting coverage provided by an insurance policy;
•   failing to attempt a fair resolution of a claim when appropriate;
•   failing to accept or deny coverage within a reasonable time; and
•   refusing to pay a claim without conducting a reasonable investigation.

If you believe your Texas insurance company wrongfully denied, delayed, or underpaid your claim, an attorney can review the policy, claim documents, communications with the insurer, and other evidence to determine what legal remedies may be available.

What Is Not Considered Insurance Bad Faith?

Not every disagreement between an insurance company and a policyholder constitutes bad faith.

Under Texas law, a genuine or bona fide dispute over insurance coverage or the amount of a loss does not necessarily establish that an insurance company acted in bad faith.

For example, in a homeowners insurance storm damage claim, an insurance company may hire engineers or other experts to evaluate the property damage and rely on those opinions when determining whether particular damage is covered.

A disagreement between the policyholder’s position and the insurer’s position does not automatically establish bad faith.

However, an insurance company cannot necessarily avoid responsibility by simply failing to conduct an adequate investigation and then relying on that inadequate investigation as the basis for denying coverage. Insurers have obligations regarding the investigation and handling of insurance claims.

What Do You Have to Prove in a Texas Bad Faith Insurance Lawsuit?

The requirements for proving an insurance bad faith lawsuit vary depending on the particular legal claim.

In Texas, a plaintiff bringing a common-law bad faith claim generally must establish:

• there was an insurance policy in effect;
• the insurance company denied or delayed payment even though its liability was reasonably clear; and
• the insurer’s conduct caused the policyholder’s damages.

For certain claims under the Texas Insurance Code, a plaintiff may need to establish:

• the plaintiff was insured under the policy or was a beneficiary;
• the insurance company committed an unfair or deceptive act or practice prohibited under the Insurance Code; and
• the prohibited conduct caused damages to the plaintiff.

Insurance bad faith cases are highly dependent on the specific facts and policy language, so the existence of a denied or disputed claim does not by itself establish bad faith.

What Damages Can You Recover in a Texas Bad Faith Insurance Claim?

Depending on the particular claims and circumstances, a policyholder who successfully brings an insurance bad faith lawsuit in Texas may be entitled to recover damages available under applicable law.

Potential recovery may include amounts owed under the insurance policy and certain other economic damages. In appropriate cases, additional damages, attorneys’ fees, or court costs may also be available.

Certain claims under the Texas Insurance Code may allow additional damages when the required legal standards are met, including circumstances involving conduct that was committed knowingly.

The damages available in any particular insurance dispute or bad faith claim depend on the facts of the case and the legal claims being asserted.

What Should You Do if Your Insurance Company Denies or Underpays Your Claim?

If your insurance company denied, delayed, or underpaid your claim, there are several steps you can take to protect yourself.

Keep copies of your insurance policy, declarations page, claim correspondence, estimates, photographs, receipts, expert reports, and communications with your insurance adjuster. If possible, communicate important information with your insurer in writing so there is a record of what was requested, submitted, and communicated.

You should also carefully review any insurance claim denial letter or payment explanation to determine the reason the insurer gives for denying coverage or paying less than the amount claimed.

Most importantly, do not assume that the insurance company’s decision is necessarily the final word on what you are entitled to recover under your policy.

Can You Sue an Insurance Company for Denying or Underpaying a Claim in Texas?

Depending on the circumstances, you may have legal options if your Texas insurance company refuses to pay a covered claim, significantly underpays your damages, unreasonably delays payment, or improperly investigates your claim.

Whether you can successfully bring a lawsuit depends on the language of your insurance policy, the reason for the insurer’s decision, how the claim was investigated and handled, and the requirements of Texas law.

An experienced Texas insurance attorney can review the insurer’s conduct and determine whether the dispute involves a legitimate disagreement or whether there may be grounds to pursue legal action against the insurance company.

Talk to a Texas Insurance Bad Faith Attorney

Taking on an insurance company can be difficult, particularly when the insurer has adjusters, attorneys, experts, and significant resources working on its behalf.

Mostyn Law has extensive experience representing Texas policyholders in disputes with insurance companies. Our attorneys have handled tens of thousands of insurance claims and lawsuits, including claims involving denied coverage, underpaid property damage, delayed payments, inadequate investigations, and alleged bad faith insurance practices.

If your homeowners insurance company or auto insurance company denied, delayed, or underpaid your claim, you do not have to simply accept the insurance company’s decision. Mostyn Law can review your insurance policy and claim, investigate how the insurer handled it, and help determine whether you are entitled to additional compensation.

Contact Mostyn Law today to discuss your denied, delayed, or underpaid Texas insurance claim.