Articles Posted in Bad Faith Insurance

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.

An earlier question on this blog was, How does someone in Grand Prairie, Dallas, Fort Worth, Arlington, Keller, Azle, Coppell, Sasche, Bedford, or anywhere else in Texas know if they are experiencing conduct of bad faith by their insurance company? Let’s look at the current standard for judging this issue.

In 1997, the Texas Supreme Court, issued an opinion in the case, The Universal Life Insurance Company, AIA Services Corporation, and AIA Insurance, Inc. v. Ida M. Giles. In this case the court adopted as the liability standard the statutory language in Article 21.21, Section 4(10) of the Texas Insurance Code. (The current version is Texas Insurance Code, Section 541.060(a)(2)(A)). Under that standard, an insurance company breaches its duty of good faith and fair dealing by “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.”

This statutory standard adopted in the Giles case takes the place of the common-law standard for unreasonable denying a claim or unreasonably delaying payment. The court’s analysis in the Giles case also supports adopting the statutory standard for failing to conduct a reasonable investigation. That standard is found in the Texas Insurance Code, Section 541.060(a)(7), which prohibits “refusing to pay a claim without conducting a reasonable investigation with respect to the claim.”

How does someone in Grand Prairie, Dallas, Fort Worth, Arlington, Mansfield, Keller, Azle, Coppell, Sasche, Bedford, or anywhere else in Texas know when the insurance company is acting in “bad faith”? The answer is not easy, but to understand, it helps to know the history a little.

When reviewing the theory of the duty of good faith and fair dealing, understanding the history aids in understanding its current form. But first, when in a situation where you suspect something “ain’t right”, you should consult an experienced Insurance Law Attorney. Even experienced attorneys will argue over this theory and how it applies to the facts of a particular situation.

The Texas Supreme Court, in 1983, in the case, English v. Fischer, is where the development of the common-law duty of good faith and fair dealing in Texas began. There, the plaintiff’s asked the court to recognize an implied covenant, or promise, of good faith and fair dealing that would require the insurance policy proceeds to be paid contrary to the terms of the contract. The court declined. But, the justices on the court pointed out that in other circumstances a duty of good faith and fair dealing arises from a special relationship between the parties. Insurance was one area where such a duty had been recognized.

How does the policyholder in Grand Prairie know if his insurance company is acting in bad faith? This same question might be asked in Arlington, Aledo, Mansfield, Fort Worth, or anywhere else in Texas.

When an insurance company denies a claim it should be obvious that there are times when they have a good reason for doing so. But how do you know if their reason is a good reason or not? What the courts ask or look for is, “proof that the insurance company had a reasonble basis to deny the claim, delay payment, or cancel the policy.” Legally, this is often times called the “bona fide dispute” defense, an insurance company will use to escape some of the liability accusations that are tied to bad faith cases. Another way of putting this is, an insurance company is not liable merely for being wrong on a coverage issue, only for being unreasonable. Even an experienced Insurance Law Attorney will often times have trouble knowing for sure whether the actions and conduct of the insurance company rise to the level of bad faith. Some cases are easy to call, but some are not.

A Texas Supreme Court case, decided in 1994, styled, Transportation Insurance Company v. Moriel, states: