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What is insurance bad faith?

In the United States, insurers owe a duty of good faith and fair dealing to their insureds. This duty is sometimes referred to as the "implied covenant of good faith and fair dealing." The duty exists in all insurance contracts by operation of law. When an insurance company violates or breaches this duty, by wrongfully denying a claim, for example, the insurer is said to have acted in bad faith, and the insured my file a lawsuit against the insurance company.

Damages in insurance bad faith cases

An insurance bad faith action is a tort, rather than contract claim. This is an important distinction because punitive damages are available in tort and generally unavailable in breach of contract claims. This means in actions based on insurance bad faith, the insured may be able to recover damages in excess of the amount of the policy under which the lawsuit was filed.

Types of insurance bad faith

Bad faith insurance claims come in two basic types: "first party" and "third party" claims.

"First party" claims typically arise when a person (the insured) purchases a policy to protect a piece of property. Common examples include homeowner's and automobile insurance policies, in which the insurance company's duty arises when the property is in some way damaged.

When an insured piece of property is damaged, the insurance company (the insurer) has a duty to investigate the damage to the property, to determine whether the damage is covered under the terms of the policy and to pay the insured for his or her losses. In these types of cases, bad faith claims generally arise when the insurance company improperly investigates the damage, improperly assigns a valuation to the damaged property or improperly denies coverage all together.

A "third party" claim typically arises in the context of liability insurance. In such cases, two duties arise. First is the duty to defend. This duty means that the insurance company has a duty to defend the insured against claims arising under the policy. For example, if an insured is in a car accident and is subsequently sued by a party claiming to have been injured in the accident, the insurance company generally has a duty to provide a defense for the insured. If the insurance provider improperly fails to provide a defense, it has acted in bad faith and may be sued.

The other duty that arises in third party claims is the duty of indemnification. The duty of indemnification means that the insurance company has a duty to pay judgments entered against the insured up to the amount of coverage provided in the policy. If the insurance provider improperly fails to pay for a judgment, it has acted in bad faith and may be sued.

Speak to an insurance law attorney

Many insurance companies rely on the fact that its insureds will not fight back after a claim has been denied or after a lengthy delay. The Dallas-area attorneys at The Fell Law Firm understand bad faith insurance laws in Texas and how they apply to your case. To learn more about these laws and how you may be eligible to receive attorneys' fees and additional damages, contact The Fell Law Firm today. Call toll free at 800-789-1672 or email us to schedule your free initial consultation. We accept all bad faith claims on a no-recovery, no-fee basis.

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The Fell Law Firm
3021 E. Renner Road, Suite 140 Richardson, TX 75082

Toll Free: 800-789-1672 Fax: 972-664-0470
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