Insurance exists to provide peace of mind. When tragedy strikes, policyholders expect carriers to honor their promises quickly and fairly. Unfortunately, some insurers delay, underpay, or outright deny valid claims, hoping that frustrated families will accept less than they deserve. Texas law recognizes that this conduct harms not only individual policyholders but also the broader community. For nearly three decades I have confronted carriers that choose profits over people. This article explains what constitutes bad faith, how to document it, and the remedies available when insurers cross the line.
Understanding the Duty of Good Faith and Fair Dealing
When Texans purchase insurance, they enter into a contract that includes an implied covenant of good faith and fair dealing. This duty obligates insurers to investigate claims promptly, evaluate them fairly, and pay benefits when liability is reasonably clear. While disputes about coverage can arise, carriers must base their decisions on a reasonable investigation and a good-faith interpretation of policy language. Texas common law and the Insurance Code reinforce these obligations, providing policyholders with avenues to challenge unfair practices.
Bad faith can occur in first-party claims, such as uninsured motorist benefits or homeowners insurance, and in third-party contexts where a liability insurer controls settlement decisions on behalf of the insured. In the personal injury arena, we often see bad faith when carriers drag their feet on UM/UIM claims or refuse to settle within policy limits despite clear evidence of catastrophic injuries. Understanding these duties empowers policyholders to recognize red flags early.
Common Examples of Bad Faith Conduct
Insurers engage in bad faith when they unreasonably delay or deny benefits without a legitimate basis. Examples include failing to conduct a thorough investigation, ignoring evidence provided by the policyholder, misrepresenting policy terms, or demanding unnecessary documentation repeatedly. Some carriers undervalue damages by cherry-picking medical records or relying on biased software. Others refuse to offer policy limits even when liability is clear, exposing their insureds to excess judgments. In extreme cases, insurers accuse policyholders of fraud without evidence or harass them with invasive surveillance.
The Texas Insurance Code also identifies unfair settlement practices, such as failing to acknowledge claims promptly, refusing to pay without reasonable investigation, or compelling policyholders to sue by offering substantially less than what is ultimately recovered. Recognizing these patterns allows us to build a record that supports bad faith allegations.
Documenting the Claim Diligently
Thorough documentation is the backbone of a bad faith case. We encourage clients to keep a detailed claim journal noting every phone call, email, and letter from the insurer. Saving copies of correspondence, adjuster reports, and settlement offers creates a timeline of conduct. When an adjuster misstates facts or policy language, we respond in writing to correct the record. Maintaining organized records not only strengthens the underlying injury claim but also demonstrates diligence if litigation becomes necessary.
Medical documentation, expert reports, and witness statements should be shared with the insurer promptly. If the carrier ignores or dismisses compelling evidence, that fact supports an argument that they acted unreasonably. Transparency shows that the policyholder fulfilled their obligations, shifting the focus to the insurer’s conduct.
Invoking Statutory Remedies
Texas provides statutory remedies for unfair insurance practices. The Texas Insurance Code (Chapters 541 and 542) allows policyholders to seek treble damages, attorney’s fees, and interest when insurers engage in prohibited acts. Chapter 541 addresses unfair or deceptive acts, while Chapter 542—the Prompt Payment of Claims Act—imposes deadlines for acknowledging, investigating, and paying claims. If an insurer violates these timelines without reasonable cause, the policyholder may recover additional damages.
To pursue statutory remedies, we send demand letters outlining the violations and giving the insurer an opportunity to cure. These letters must meet specific requirements, including identifying the unfair acts and stating the damages sought. Properly crafted demands set the stage for litigation if the carrier refuses to remedy the conduct.
Pursuing Common Law Bad Faith Claims
In addition to statutory remedies, Texas recognizes common law bad faith claims. To prevail, a policyholder must show that the insurer denied or delayed payment when liability was reasonably clear and that the carrier knew or should have known that its denial lacked a reasonable basis. Evidence might include admissions by adjusters, expert testimony, or documents showing that internal guidelines prioritized cost savings over fair evaluation.
Common law bad faith claims often accompany breach of contract causes of action. Recoverable damages include the policy benefits owed, consequential damages for financial losses caused by the delay, mental anguish in certain circumstances, and punitive damages when conduct is intentional or malicious. Punitive awards send a strong message that bad faith will not be tolerated.
Excess Judgments and Stowers Demands
When a liability insurer refuses to settle within policy limits despite a reasonable opportunity to do so, it may be responsible for the entire judgment, even if it exceeds policy limits. This doctrine originates from the landmark Stowers Furniture Co. v. American Indemnity case. To trigger a Stowers demand, the injured party must offer to settle within policy limits, provide sufficient information to evaluate the claim, and allow a reasonable time to respond. If the insurer rejects the offer and a later verdict exceeds the limits, the insured can pursue the carrier for the excess amount. We use Stowers demands strategically to encourage fair settlements and hold carriers accountable when they gamble with their insured’s financial security.
Excess judgment claims often align with catastrophic injury cases where damages clearly exceed policy limits. Demonstrating that the carrier knew the risk yet refused to settle highlights bad faith. These cases can result in substantial recoveries that provide families with the resources they need after life-changing events.
Working with the Texas Department of Insurance
Policyholders can file complaints with the Texas Department of Insurance (TDI) if they believe an insurer is violating regulations. While TDI cannot award damages, it can investigate, require responses from carriers, and enforce penalties. Complaints also create a paper trail documenting patterns of misconduct. We often coordinate TDI complaints with litigation strategies, providing regulators with evidence while pursuing civil remedies.
TDI responses sometimes reveal additional information about the insurer’s position or internal processes. Sharing these findings with the court bolsters the case for bad faith damages.
The Litigation Process
Bad faith litigation unfolds alongside or after the underlying injury case. Discovery allows us to obtain claim manuals, training materials, and adjuster notes. Depositions of adjusters, supervisors, and corporate representatives expose inconsistent explanations or admission of shortcuts. We may retain insurance industry experts to explain proper claims handling standards and how the carrier deviated from them. Mediation provides opportunities to resolve disputes, but we prepare for trial from the outset.
At trial, we present a narrative that shows the insurer’s choices in human terms. Jurors learn how delays exacerbated medical debt, how lowball offers compounded stress, and how policyholders felt betrayed by a company they trusted. Demonstrating the contrast between the insurer’s marketing promises and its actual conduct resonates deeply.
Coordinating Bad Faith Claims with Injury Litigation
Pursuing bad faith relief while litigating the underlying injury case requires strategic coordination. We evaluate whether to consolidate the actions, sequence them, or bifurcate certain issues to avoid jury confusion. Evidence of the insurer’s misconduct can bolster the injury claim, yet we remain mindful of protecting privileged materials and preventing prejudice. Regular case-management conferences and clear discovery agreements keep both lawsuits moving forward without duplication.
Communication with clients is equally important. We explain how the timelines intersect, what documents can be shared, and how settlement offers in one case may affect the other. By approaching both matters as parts of a unified strategy, we maximize leverage and ensure that accountability reaches every party who contributed to the hardship.
Protecting Yourself During the Claim
Policyholders can take proactive steps to discourage bad faith. Reading the policy, understanding coverage limits, and reporting claims promptly set the stage for fair handling. Communicating in writing, keeping organized records, and responding to reasonable requests shows good faith. If an adjuster seems evasive or combative, consider seeking legal counsel immediately. Having an attorney manage communications signals to the insurer that the policyholder is serious about enforcing rights.
Education is empowering. Knowing that Texas law prohibits unfair practices gives policyholders confidence to stand firm. Remember that silence can be construed as acceptance; if an insurer makes an unreasonable offer, documenting the objections preserves the issue for future litigation.
Conclusion
Bad faith insurance practices undermine the very purpose of coverage. When carriers delay, underpay, or deny valid claims, injured Texans suffer twice—first from the accident and then from financial uncertainty. By understanding the duty of good faith, recognizing unfair tactics, and pursuing statutory and common law remedies, policyholders can hold insurers accountable. Aggressive advocacy levels the playing field, encourages fair settlements, and sends a clear message that promises made must be promises kept. Families navigating catastrophic injuries deserve nothing less.