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What is bad faith insurance law?

On Behalf of | Apr 27, 2022 | Natural Disasters

The insurance industry is governed by certain legal requirements when they handle claims. It is often very easy for a respondent insurance company to investigate a claim in a detailed fashion that is geared to benefit the insurer. For this reason, insurance companies follow a specific set of rules regarding claim investigations, but they cannot bargain in bad faith either with respect to denying or delaying claim settlements. In addition, they must provide a defense for their client when they do deny a claim. They have responsibilities to both clients and claimants, which makes it important for all Texas residents to understand insurance law and their rights.

Breach of contract claims

Some bad faith lawsuits are based on a breach of contract with respect to the investigation or indemnification of a policyholder. Liability cases that have ended in a judicial order to pay damages must be paid according to law by the respondent insurer. Failure to follow an order to pay can justify insurance bad faith lawsuits for breach of contract.

Civil tort

Some bad faith insurance lawsuits are grounded in action as opposed to failure to provide damage coverage as stated in a policy. The primary distinction with a tort claim is that a jury can also award punitive damages in egregious cases. Punitive damages can only be awarded by a jury when there is significant evidence to warrant such payments because “punitive” implies that it is a financial award issued as punishment and notice to other insurance companies who use borderline bad faith practices as company policy.

It is important to remember that bad faith insurance claims must be filed as a lawsuit. Insurance companies are not required to pay bad faith damages unless ordered by a jurisdictional court. Filing a lawsuit does not always require legal representation, but all respondent insurance companies will have an attorney representing their best interest and technical dismissal can easily be achieved in the Texas court system.