An insured in Dallas, Fort Worth, Grand Prairie, Arlington, Mansfield, Garland, Richardson, Weatherford, or anywhere else in Texas may not know if they are being treated in bad faith by their insurance company when it is happening. Here is something to think about – if it doesn’t seem right it probably isn’t. To be sure, the best thing to do is to consult with an experienced Insurance Law Attorney.
One of the first cases from the Texas Supreme Court making clear that an insured has a cause of action against his insurance company for bad faith insurance was decided in 1987. The style of the case is, Glen Arnold v. National County Mutual Fire Insurance Company.
Here are some of the facts in this case:
In June 1974, Arnold was severely injured when the motorcycle he was operating was struck by a car driven by an uninsured motorist. Arnold was insured by National County Mutual Fire Insurance Company (NCM) under a policy that included “uninsured motorist” protection with a limit of $10,000. Arnold made timely demand for payments up to the limit and an independent insurance adjusting firm recommended, within six months following the date of the accident, that NCM pay the entire policy to Arnold. NCM refused to pay although it is not clear when it specifically denied the claim.
Arnold sued both the uninsured driver and the NCM in late June 1974. In December 1977, Arnold obtained a judgment against both defendants for approximately $17,975. NCM then paid Arnold the $10,000 policy limit. Arnold filed suit on December 27, 1978, alleging various causes of action and a common law cause of action for NCM’s breach of its duty of good faith and fair dealing in its handling of his claim.
NCM based its decision to deny the claim on the advice of its agent, who was the attorney handling the file. Even though the uninsured motorist admitted that the collision was his fault, NCM refused to negotiate a settlement. In his deposition the attorney handling the file admitted he was inexperienced in insurance matters and based his recommendation on his perception that a jury would be prejudiced against motorcyclists, that Arnold was driving too fast under the existing conditions and that Arnold was intoxicated. Arnold showed that the defenses of speed and intoxication proferred by the attorney were very weak at best and ultimately intoxication was not pleaded. NCM failed to investigate the facts supporting the attorney’s contentions. An issue was raised as to NCM’s reasonableness in failing to settle the claim and forcing Arnold to trial.
The Texas Supreme Court here stated: “Arnold raises the issue of whether there is a duty on the part of insurers to deal fairly and in good faith with their insureds. We hold that such a duty of good faith and fair dealing exists.”
While this court has declined to impose an implied covenant of good faith and fair dealing in every contract, they have recognized that a duty of good faith and fair dealing may arise as a result of a special relatinship between the parties governed or created by a contract.
“In the insurance context a special relationship arises out of the parties’ unequal bargaining power and the nature of insurance contracts which would allow unscrupulous insurers to take advantage of their insureds’ misfortunes in bargaining for settlement or resolution of claims. In addition, without such cause of action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. An insurance company has exclusive control over the evaluation, processing and denial of claims. For these reasons a duty is imposed that an indemnity company is held to that degree of care and diligence which a man of ordinary care and prudence would exercise in the management of his own business.”
This courts ruling was that, “A cause of action for breach of the duty of good faith and fair dealing is stated when it is alleged that there is no reasonable basis for denial of a claim or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay. Arnold pleaded and produced sufficient … proof to raise an issue of material fact that NCM has no reasonable basis for its refusal to pay his uninsured motorist claim and with actual knowledge of that, forced him to a trial on the accident before it would pay the claim.
Since this case has been decided the courts have written opinions essentially removing bad faith from the context of uninsured mototists claim – but bad faith still remains for all the other situations in insurance.
There are now many areas of the Texas Insurance Code that cover areas of bad faith. Two notable areas are Section 541.060 and Section 541.061.
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