Bad Faith Insurance in Texas: Recognizing and Fighting Unfair Claim Practices
When you purchase an insurance policy, you enter into a contract built on a fundamental promise: in exchange for your premium payments, the insurer agrees to indemnify you against covered losses. Texas law imposes on insurers a duty of good faith and fair dealing in fulfilling this promise. When an insurer violates this duty — by unreasonably denying, delaying, or underpaying a legitimate claim — the insurer may be liable for bad faith, exposing it to damages far exceeding the original claim value.
Bad faith insurance practices take many forms. Some of the most common tactics we see in Houston property insurance disputes include: conducting an unreasonably superficial investigation of the claim; relying on biased or unqualified adjusters or engineers to justify a low estimate; misrepresenting policy provisions to justify a denial; failing to acknowledge or respond to a claim within the timeframes required by the Texas Insurance Code; offering a settlement amount that bears no reasonable relationship to the actual damage; and requiring the policyholder to submit to unreasonable or duplicative documentation requests as a delay tactic.
Under Chapter 541 of the Texas Insurance Code, it is an unfair or deceptive act for an insurer to misrepresent a material fact or policy provision, fail to attempt in good faith to effectuate a prompt, fair, and equitable settlement when liability has become reasonably clear, or refuse to pay a claim without conducting a reasonable investigation. These statutory prohibitions provide policyholders with a private cause of action and the potential for enhanced damages.
The damages available in a Texas bad faith insurance case can be substantial. A policyholder who prevails on a bad faith claim may recover: the amount of the original claim (contract damages); consequential damages caused by the insurer’s conduct (such as additional living expenses, lost rental income, or deterioration of the property during the delay); mental anguish damages in appropriate cases; up to three times actual damages under the Texas Deceptive Trade Practices Act (treble damages); statutory 18% interest on overdue claim payments under Chapter 542; and reasonable and necessary attorney’s fees.
To establish a bad faith claim, the policyholder must generally show that the insurer had no reasonable basis for denying or delaying the claim, or that the insurer failed to conduct a reasonable investigation before making its coverage determination. The standard is objective — it does not matter whether the individual adjuster subjectively believed the denial was justified if no reasonable insurer would have reached the same conclusion based on the available evidence.
If you believe your insurance company is acting in bad faith — whether by ignoring your claim, offering an unreasonably low settlement, or engaging in delay tactics — document everything. Keep records of all communications, note dates and times of phone calls, and preserve all written correspondence. This contemporaneous documentation is essential to proving a pattern of bad faith conduct.
Contact Nixon Law PLLC if you believe your insurance company is handling your claim in bad faith. We represent Houston policyholders in bad faith insurance disputes and fight to recover the full range of damages available under Texas law.
About the Author: Jonathon G. Nixon is the managing attorney of Nixon Law PLLC, a Houston-based litigation firm focused on property insurance disputes, construction defects, personal injury, and commercial litigation. Contact Nixon Law PLLC at (713) 482-1523 or jnixon@nixon-law.com.