What if you live in Grand Prairie, Arlington, Mansfield, Weatherford, Fort Worth, or anywhere else in Texas and you do not have the insurance coverage you think you have? Can the insurance company still be liable for bad faith?
Different courts have said that because the absence of coverage provides a reasonable basis to deny the claim, the general rule is that the absence of coverage also negates liability for breach of the duty of good faith and fair dealing. This was stated by the Texas Supreme Court in 1995, in the case, Republic Insurance Company v. Stoker, and again in 1996, by the Texas Appeals Court in Houston [1st Dist.], in the case, North American Shipbuilding, Inc. v. Southern Marine & Aviation Underwriting, Inc.
But there are other important rulings where the courts have stated that the absence of coverage, does not necessarily excuse the insurance companies failure to investigate. This raises the possibility that an insurance company may be liable for breach of its duty of good faith and fair dealing, even though the claim is not covered. In the case, First Texas Savings Association v. Reliance Insurance Company, a 1992 case, decided by the Federal 5th Circuit Court of Appeals, the court remanded the case to the trial court to determine whether the duty had been breached, even though the court found no coverage. Later cases have continued to recognize the possibility of bad faith liability without coverage. One was another 5th Circuit case, Burditt v. West American Insurance Company, decided in 1996. Another was Jimenez v. State Farm Lloyds, a 1997 case decided by the Federal Court in the Western District of Texas.
Some courts have limited this possibility to cases where the insurance company commits “some extreme act that causes injury independent of the policy claim and arises to the level of bad faith.” This was stated by the Dallas Court of Appeals in 1996, in the case, Howard v. INA County Mutual Insurance Company. This was also stated by the San Antonio Court of Appeals in 1996, in the case Tivoli Corp. v. Jewelers Mutual Insurance Company. Also interesting is the case, Toonen v. United Service Automobile Association, another San Antonio Court of Appeals, case decided in 1996. In Toonen the court found there was no breach of the duty of good faith and fair dealing absent breach of contract, without evidence of an extreme act act causing injury independent of the policy claim, or failure to timely investigate the insured’s claims.
These types of cases are further examples why an experienced Insurance Law Attorney needs to be consulted. There is no way of being sure of whether or not the insurance company has breached its duty of good faith and fair dealing without a complete investigation and review by an attorney who handles these matters.
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