One very important aspect of suing an insurance company for bad faith in their claims handling process is that first, with extremely rare exception, you have to prove a breach of the insurance contract.
Insurance policies are contracts, and as such are subject to rules applicable to contracts generally.
A plaintiff seeking to recover on an insurance contract must prove that the contract was in force at the time of the loss. Also, a party who claims under a policy is required to produce the insurance contract upon which he sues or to prove its terms. This was made clear in the 1975, Tyler Court of Appeals opinion, Hartford Acc. & Indem. Co. v. Spain. And, as illustrated in the 1992, Dallas Court of Appeals opinion, St. Paul Ins. Co. v. Rakkar, to prove a breach of contract, the insured has to establish:
- the existence of the contract sued upon
- compliance with the terms of the contract; and
- the insurer’s breach of the contract.
In the Rakkar case, the first and second elements were satisfied by uncontroverted testimony that the house was insured at the time of the fire, that the insured had paid his premiums, that the insurer had refused to pay, and that the amount that would have been paid was the policy limits. The insurer denied the claim, contending that the insured intentionally caused the fire. When the jury rejected this defense, that established the third element — the insurer’s breach of the contract.
One thing to be cautious / aware about is that state common law and statutory claims made by an insured when he or she is insured under an employee benefit plan are preempted by ERISA according to 29 U.S.C.A. Section 1144(a) and made clear in the 1989, 5th Circuit opinion, Hermann Hosp. v. MEBA & Benfits Plan. Under ERISA benefits are limited to recovery of the claim, clarification with respect to future claims, attorneys fees and costs and, on rare occasion, limited equitable relief pursuant to 29 U.S.C.A. Section 1132(a).