If you are engaged in a dispute with an insurance company, you know how frustrating the situation can be. Insurance companies are experienced and highly skilled in finding ways to deny claims or to pay out less than their policyholders receive. These are called bad faith insurance claims under Texas law.
When you are in that situation, you may be tempted to take an unsatisfactory offer from your insurer simply because you don’t want to keep arguing. And more seriously, you may be financially desperate enough to settle for less than your claim is worth.
That’s a terrible position for you to be in. You may have been paying your premiums on time for years, only to find that when you really need your insurance company to help you out, it treats you like an annoyance.
In some cases, you may have a possible remedy through a legal action known as a bad faith insurance claim.
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Texas imposes a duty of good faith and fair dealing on all insurance providers. When an insurance company acts unreasonably in denying a claim, delaying payments or other behavior, it breaches that duty. The policyholder who suffers damages as a result may hold the insurance company liable for what they lost as a result.
You may be able to pursue what is known as a common-law bad faith insurance claim, in which you try to convince the court that the company breached its contract with you, or acted fraudulently.
Another type of claim is known as a statutory bad faith insurance claim. This type of claim alleges that the insurance company violated specific rules in the Texas Insurance Code. This code contains Texas bad faith insurance laws.
This statute includes a long list of the most common types of wrongful behavior sometimes practiced by insurers, such as:
As noted above, insurance companies are highly skilled at finding ways to deny claims. Their attorneys often succeed in negotiations. Their entire business model depends on limiting the amount of money they pay out to their customers, and so they have a strong incentive to deny your claim or give you less than your claim is worth.
At any point in your negotiations, it can be a good idea to get an experienced advocate on your side. Attorneys advise people of their options, including the option of filing a bad faith claim.
Chapter 541 prohibits unfair and deceptive insurance practices. Insurers cannot misrepresent policy provisions, provide misleading facts about coverage, or make false statements designed to dissuade a policyholder from filing a valid claim.
The statute also prohibits unfair settlement practices. Insurers may be liable for conducting an unfair settlement practice by refusing to conduct a reasonable investigation prior to denying a claim or attempting to settle based on incomplete information.
These types of cases are common in insurance claims disputes involving:
Homeowners and business owners throughout Central Texas may experience these issues following severe weather events. Property owners in Austin near Lake Austin, Lake Travis, and other bodies of water along the Colorado River may need insurance to repair storm damage. If the loss occurs outside of Austin near Interstate 35, Loop 16, or elsewhere, the Texas Insurance Code still applies.
Nearly 47% of Texas homeowner insurance claims were closed without payment in 2024, up from roughly 35% in 2016, according to a study of the state’s homeowner insurance statistics. Because of this, it is recommended that policyholders thoroughly examine underpayments and claim denials.
Insurance claims deadlines are found in Chapter 542. The statute sets forth various deadlines the insurance company must follow after a claim has been reported. For instance, the insurance company is required to acknowledge the claim, begin an investigation, and request additional information within 15 days of receiving notice of the claim.
After the insurer receives information reasonably necessary to investigate a claim, the insurance company must determine whether it is going to provide coverage under the policy within a time limit set forth in Chapter 542. If the claim is approved, the insurance company is typically required to issue payment quickly.
Claim deadlines are important because you may need the insurance proceeds to repair your home, rebuild your business, or otherwise pay for financial losses caused by a covered claim.
Chapter 542 contains a penalty that applies when insurance companies do not pay claims on time. If the insurer breaches the prompt-payment requirements, the insurance company may be required to pay your damages in addition to the policy benefits that were owed.
In many cases, the insurance company can be required to pay damages at a rate of 18% per year based on the amount that was wrongfully withheld. The Texas Insurance Code may also allow recovery of reasonable attorneys’ fees. This penalty incentivizes insurance companies to resolve claims in a reasonable timeframe.
Insurance coverage disputes based on Chapter 541 and Chapter 542 are commonly filed in Austin and San Antonio when parties are unable to settle. In Travis County, these cases may be filed at the Travis County Civil and Family Courts Facility, 1700 Guadalupe Street, Austin, TX 78701.
Insurance companies that violate Texas’s unfair insurance laws may have to pay damages to policyholders. Potential damages depend on the facts of the case and how the insurance company mishandled your claim.
Recovery generally starts with benefits owed under the insurance policy. Texas recognizes, however, that insurance companies can cause further harm when they wrongfully deny or delay claims.
Policyholders can typically recover actual damages from the wrongful acts of an insurer. Actual damages include financial losses caused by the insurance company’s conduct.
For example, if a business owner is forced to wait on commercial insurance benefits that should have been paid, the business owner may lose income or suffer increased operational costs. A homeowner might incur additional repair costs because delays caused the damage to worsen.
Victims of insurance bad faith who successfully prove an insurance company violated their statutory obligations may also recover attorney’s fees under Texas law. This allows policyholders to recover the cost of bringing a claim against the insurance company that violated the Texas Insurance Code.
According to the Deceptive Trade Practices Act, an insurance provider that knowingly participated in bad faith might have to pay up to three times the original amount of economic damages.
Policyholders should start by collecting documents related to the insurance claim dispute. This includes collecting the insurance policy, denial letters, inspection reports, claim communications, and payment records.
The next step is typically analyzing the claim history to determine whether the insurance company violated Chapter 541, Chapter 542, or the DTPA. Many insurance cases require an in-depth review of the deadlines associated with the claim and the insurance company’s communication.
If the claim cannot be settled, then the insurance bad faith case may proceed through the litigation process in Texas state court. During the case, evidence is collected regarding the insurer’s investigation, decision-making process, and adherence to deadlines.
Filing a bad faith insurance claim typically involves reviewing policy provisions, statutes, claim files, and communications with the insurer. If you have grounds to believe your insurer has not dealt with your claim in good faith, an insurance claim attorney can help analyze these issues. Hire an insurance claim lawyer to determine whether your insurer may have violated Texas law and what remedies may be available to you.
Your attorney can calculate the amount of any statutory penalties, review damages you may be able to recover, and take steps to preserve key evidence. Additionally, your attorney can make sure you don’t overlook technicalities that could impact your claim.
Review of the insurance carrier’s actions is often necessary to determine whether an insurer has acted in bad faith. The legal analysis involved in many insurance claim cases helps uncover whether the carrier dealt fairly with its insured.
Texas law provides rights to insurance policyholders whose claims have been wrongfully denied, delayed, or underpaid. For over 30 years, Jon Michael Smith has represented insurance policyholders.
From our Austin office, we represent clients across Central Texas in assessing bad faith claims, insurance coverage disputes, and prompt payment issues. If you have had a problem with your homeowners, commercial insurance, life insurance, or disability insurance claim, we can review your case and discuss your legal rights. Contact our office to schedule your consultation.
Large law firms are not a good fit for everyone. For many businesses, it is much more efficient and effective to hire an experienced attorney such as myself. I have more than 30 years of experience and am board certified in consumer and commercial law by the Texas Board of Legal Specialization. I have an extensive history of accomplishment in legally and factually complex civil legal matters. But, because I run my own law firm, I am able to handle these cases in a cost-effective manner without the high overhead that large firms carry.
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