How do insurers act in ‘bad faith’?

When a consumer is struck by a tragedy, one of their only form of solace is that they know they have insurance. Therefore, when an insurance company does not honor their contractual obligations of good faith and fair dealing it can be exceptionally stressful.  Under Texas law, the Texas Insurance Code provides rules to protect consumers.  Generally, an insurance company is acting in bad faith if two elements are shown when they deny policyholders their claims:

  • Benefits due under the policy were withheld
  • The reason for withholding the benefits was unreasonable

The damages in a bad faith insurance claim denial can include:

  • Treble damages (up to three times the amount that would have been paid on the claim)
  • Fees (Attorney fees, interest, court costs)
  • Compensatory and punitive damages

Knowing exactly what is covered in an insurance policy is crucial.  Depending on what causes the damage to property could significantly affect an insurance claim.  For instance, if there is a hurricane and a structure is damaged it is essential that a consumer has coverage for hurricane, wind, and flood damage as each of those could be cited as the reason for the damage caused. Similarly, fire coverage doesn’t necessarily include damage from arson or other intentional harm done to property.

If an insurance company has denied a claim or withheld benefits that you feel you are entitled to, you should consult with a licensed bad faith insurance attorney to protect your rights.