Bad Faith Insurance Claims

An insurance company has a special relationship with its insured. They cannot simply act in their own best interest. The law imposes on insurance companies a duty to deal fairly and in good faith with their own insureds, and there are penalties if they fail to do so. These duties apply, though, only to your own insurance company. If someone runs into you, their insurance company owes these duties to their driver, not you. There was a brief time in Texas when they did owe that duty to the other driver, but that duty evaporated when the Texas Supreme Court decided the case of Allstate v. Watson.. Other states, like New Mexico, require insurance companies to treat everyone fair. Unfortunately, the politics in Texas at this moment heavily favor the insurance companies.

The Texas Insurance Code has its own consumer protection section. It is contained in Chapter 541 and portions of 542. There is also a common law duty of good faith and fair dealing but the courts have held that this law is now incorporated in the statute.

The penalties are prescribed in the statute and include attorney's fees, interest and statutory penalties. There are notice requirements and hoops to jump through, and frankly, it is often tough to get there. Also, some types of coverage have their own enforcement sections (PIP, for instance). Finally, although uninsured motorist coverage is a first party claim, it is very difficult to reach "bad faith" damages in these cases. The Texas Supreme Court held in Brainard v. Trinity Universal that until a court determines liability and damages, there is no duty to pay. This area of the law is evolving. If you are interested in the politics of consumer law in this state, I urge you to contribute to Texas Watch. They are the consumer interest group that works most effectively with the legislature.