INSURANCE & CONTRACT CLAIMS

Bad Faith Insurance Attorney in Houston, TX

The whole point of paying for insurance is to protect yourself, your car, your home, or your property from damage. Insurance is basically a safety net that your insurance company promises to provide in the event that something bad happens. Unfortunately, insurance companies will occasionally undervalue, underpay, delay, or deny payment of a claim without reason. If this has happened to you or someone you love, you’re eligible for compensation. Contact a Houston bad faith insurance attorney today at 713-622-7271 for a free consultation.

What is Common Law Bad Faith?

In short, U.S. law mandates insurance companies to act in good faith, meaning that companies can’t act in an egregious, unreasonable manner towards policyholders. If insurance companies don’t act in good faith, policyholders can obviously sue for bad faith. Presently, policyholders can file bad faith claims for any type of insurance including auto, property, health, life, and more.

Common Law vs. Statutory Law

Your bad faith insurance attorney may bring one of two types of bad faith claims against your insurance company depending on the circumstances: a common law claim or a statutory claim. Common law refers to the law created by case law. In contrast, statutory claims arise from statutes or regulations within specific states.

First Party

There are two types of bad faith insurance claims: first party and third party. A first party claim happens when you file a claim with your insurance company after an accident or an injury. For example, you would file a first party claim if you crashed your car. If your insurance company then breached its duty of good faith by failing to conduct an investigation of your car accident, you would be eligible for a bad faith lawsuit. However, insurance companies can practice bad faith in many other ways, not just by failing to investigate an accident.

Third Party

Meanwhile, a third party claim involves liability insurance, which is a policy that someone may buy to protect themselves from claims made by other people. For example, a third party bad faith claim may happen if your insurance company unreasonably fails to defend you, compensate you for damage, or settle a claim made against you.

Elements of Common Law Bad Faith

Common law bad faith claim elements vary from state to state. Some states deem bad faith as “unreasonable conduct” or “conduct without proper cause.” Meanwhile, other states have a more conservative definition of bad faith claims. Additionally, some states deem bad faith claims as a breach of contract while other states deem it as a tort. Under a common law torts theory, insurers generally owe good faith to its policyholders.
 
It’s important to note that common law bad faith claims come with several disadvantages, including the fact that a third party can’t file this type of claim. Because of this disadvantage, a Houston bad faith insurance attorney may prefer statutory bad faith claims instead.

Most Common Examples of Common Law Bad Faith

The most common examples of common law bad faith in the U.S. include:
  • Unnecessary and unreasonable claim delays
  • Refusing to appropriately investigate a covered claim
  • Lying about or purposely misinterpreting the insurance policy
  • Stalling and hoping that policyholders will drop the claim
  • Offering less than what the claim is worth
  • Failing to disclose coverage
  • Withholding important documents or information
  • Failing to tell the policyholder about an important deadline
  • Denying a valid claim without reason

Elements of a Statutory Law Bad Faith Claim

As stated previously, statutory bad faith cases use state legislature laws as precedents. Most states, including Texas, have statutes that protect policyholders from unfairness and deception by insurance companies.

Most Common Examples of Statutory Law Bad Faith

The most common examples of statutory law bad faith include:
  • Insurance providers giving their policyholders an appropriate explanation for denying their claim or providing a compromise settlement
  • Poorly executed investigations that result in claim refusal
  • An insurance provider’s negligence when it comes to issuing a quick and fair settlement for claims when liability is already clear
  • An insurance provider’s failure to implement proper investigation standards

How to Prove Common and Statutory Law Bad Faith

To prove that an insurance company acted in bad faith, plaintiffs generally need to prove these points in order to be eligible for compensation:
  • Valid Claim: you must prove that you had a valid insurance claim and that your insurance provider denied the claim.
  • Unreasonable Withholding: you also must prove that your insurance company unreasonably withheld benefits. Negligence is generally not strong enough evidence to prove bad faith.
  • Personal Suffering: you must prove that the insurance company caused you to suffer physical harm, financial damages, or emotional distress due to its unreasonable conduct.

Damages for Common and Statutory Law Bad Faith

If you win a common law bad faith lawsuit in Texas, you can receive damages such as:
  • Up to three times the amount that the insurance company would’ve paid if it processed your claim appropriately
  • Attorney fees, interests, and court costs
  • Mental suffering
  • Punitive damages as a way to punish the insurance company for its poor behavior

History Behind Common Law Bad Faith

In Texas, the common law claim for bad faith is relatively new. In English v. Fischer, a 1983 decision by the Texas Supreme Court recognized a covenant of good faith between insurance companies and policyholders. This covenant stemmed from the belief that there’s a special relationship between the two because of the difference in the bargaining power.

Why are Statutory Law Claims More Preferable?

While the claim for common law bad faith still exists today, it does have many limitations in place to encourage parties to rely on statutory provisions instead. For example, only the policyholder can bring a claim against their insurance company, not a third party. Additionally, in State Farm v. Simmons, the Texas Supreme Court held that the policyholder must prove that the insurance company denied or delayed the payment when it knew, or should have known, its liability on the claim was reasonably clear. Thus, while a common law claim for bad faith may still be viable, a bad faith insurance attorney usually prefers the statutory option.

USAA v. Menchaca

In a more recent bad faith case, the Texas Supreme Court issued new bad faith standards. The 2017 case was motivated by an unresolved legal question in the Texas bad faith world: whether a breach of contract was required for a policyholder to seek common or statutory bad faith damages. In short, Menchaca sued USAA for breach of their insurance policy and for unfair settlement practices following Hurricane Ike damage. As a result, the jury decided that USAA didn’t fail to comply with policy terms. Additionally, the supreme court issued these new bad faith standards:
  • A policyholder can’t recover policy benefits as damages for a statutory law violation if the policy doesn’t provide a right to those benefits.
  • Policyholders can recover benefits as actual damages under the Insurance Code even if the policyholder has no contractual right to those benefits. This is only if the statutory violation causes loss of benefits or the insurance company’s conduct caused the policyholder to lose that right.
  • If an insurance company’s statutory violation causes injury separate from the policyholder’s right to recover benefits, the policyholder can recover damages for that injury.
  • Policyholders can’t recover damages based on an insurance company’s statutory violation if the policyholder didn’t have the right to receive benefits and wasn’t injured.

Texas Bad Faith Insurance Laws

The state of Texas has numerous statues in place to protect its policyholders from bad faith.

Texas Law Requires Insurance Companies to Respond

Section 542.055 under Texas Law says that once a policyholder files a claim, an insurance company must do the following within 15 days:
  • Acknowledge the claim
  • Begin an investigation of the claim
  • Request additional information from the policyholder that is necessary for the investigation
  • Notify the policyholder about whether the insurance company accepts or rejects the claim

Payments from Insurance Companies

Section 542.057 under Texas Law says that insurance companies can’t purposely delay payments. In fact, they must pay an accepted claim no later than five business days after the date a notice is made.

Contact a Bad Faith Insurance Attorney Today

With nearly 30 years of experience on behalf of victims who battle insurance companies, a bad faith insurance attorney at Reich & Binstock won’t hesitate to file an insurance bad faith lawsuit in pursuit of the claim that you deserve. Our experience and expertise will start working for you as soon as possible at no charge. For a free consultation, call us at 713-622-7271 or complete our confidential online form.
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