What is Insurance Bad Faith?

Insurance bad faith occurs when an insurance company fails to uphold its legal duty to act fairly and honestly with policyholders or claimants. This can involve:

• Unreasonable claim denials
• Deliberate delays in processing a claim
• Offering an unfairly low settlement
• Failing to properly investigate a claim
• Misrepresenting policy terms or laws

Insurance companies are legally obligated to operate in good faith, meaning they must evaluate and process claims fairly, provide timely responses, and honor the terms of their policies. When they fail to do so, policyholders or accident victims can file a bad faith insurance claim.

Types of Insurance Bad Faith

Insurance bad faith can be categorized into first-party and third-party bad faith:

1. First-Party Bad Faith

This occurs when your own insurance company unfairly denies or mishandles your claim. Examples include:

• Refusing to pay for medical bills, lost wages, or other policy benefits without justification.
• Misrepresenting your policy coverage to limit the payout.
• Failing to investigate your claim in a reasonable time.
• Delaying payments unnecessarily, even when liability is clear.

2. Third-Party Bad Faith

This happens when you file a claim with another person’s insurance (such as the at-fault driver’s insurer in a car accident) and they act unfairly. Examples include:

• Denying liability without proper investigation.
• Ignoring or refusing to negotiate a fair settlement.
• Delaying the claim process to frustrate the claimant into accepting a low offer.

Both types of bad faith can cause significant financial and emotional distress for accident victims, forcing them into unnecessary legal battles or financial hardship.

Common Bad Faith Insurance Tactics

Insurance companies are for-profit businesses, and many try to minimize payouts by using questionable tactics, such as:

1. Unjustified Claim Denials

An insurer may deny a valid claim without proper explanation or by misinterpreting the policy terms.

2. Delayed Investigations and Payments

Insurance companies may take months (or even years) to investigate a claim, hoping the claimant will give up or accept a lower offer.

3. Offering Unreasonably Low Settlements

Insurers often make lowball offers, hoping that financial pressure will force victims to accept less than they deserve.

4. Misrepresenting Policy Terms

Some companies falsely interpret policy language to justify a denial or lower payout, assuming the policyholder won’t challenge them.

5. Ignoring or Failing to Respond to Claims

Deliberate lack of communication can frustrate claimants and delay the process indefinitely.

6. Requesting Unnecessary Documentation

Insurers may repeatedly ask for excessive paperwork, even when it’s irrelevant, just to slow down the process.

7. Accusing the Victim of Fraud

Some insurers claim a victim is exaggerating or faking injuries to justify denying or reducing the claim.

Signs You May Be a Victim of Insurance Bad Faith

If you are experiencing any of the following, the insurance company may be acting in bad faith:

• Your claim is denied without a clear reason or explanation.
• The insurer takes an excessive amount of time to investigate or respond.
• The insurance company refuses to negotiate or make a reasonable settlement offer.
• The insurer is pressuring you to accept a lower payout than what your claim is worth.
• You are given conflicting information about your policy coverage.
• The insurer does not provide the necessary documentation to support their denial.

Legal Protections Against Insurance Bad Faith

In Texas, insurance companies must act in good faith and adhere to fair claims handling practices under laws like:

• Texas Insurance Code – Chapter 541: Prohibits unfair or deceptive insurance practices.
• Texas Deceptive Trade Practices Act (DTPA): Protects consumers from fraudulent business practices, including insurance bad faith.
• Texas Prompt Payment of Claims Act: Requires insurers to process claims within specific timeframes.

If an insurer violates these laws, they may face lawsuits, penalties, and damages, including attorney’s fees and punitive damages.

What to Do If You Suspect Insurance Bad Faith

If you believe an insurance company is treating your claim unfairly, take the following steps:

1. Review Your Policy

Check your policy’s terms, conditions, and coverage limits to ensure you understand your rights.

2. Keep Detailed Records

Document all communications with the insurer, including emails, letters, and phone calls. Keep copies of medical bills, accident reports, and other evidence.

3. Request a Written Explanation

If your claim is denied or delayed, ask for a written explanation of the decision.

4. File a Complaint

You can report bad faith behavior to the Texas Department of Insurance (TDI) or the National Association of Insurance Commissioners (NAIC).

5. Consult a Personal Injury Attorney

A personal injury lawyer with experience in bad faith insurance claims can help:

• Negotiate with the insurer to get a fair settlement.
• File a lawsuit if necessary.
• Seek additional damages, including punitive damages if the insurer acted egregiously.

How a Personal Injury Attorney Can Help

An experienced personal injury attorney understands insurance company tactics and can:

• Investigate the claim denial and identify bad faith practices.
• Communicate with the insurance company to demand fair treatment.
• Negotiate a higher settlement that accurately reflects your losses.
• File a lawsuit for bad faith damages if necessary.

Taking legal action can force the insurer to reassess your claim fairly and even compensate you for the stress and financial burden they caused.