What is Bad Faith Insurance and Why Does It Matter for Property Owners?
When you purchase commercial property insurance, you’re buying more than a policy; you’re buying peace of mind. You trust that if disaster strikes, your insurance company will act in good faith to help you recover. But what happens when they don’t? This is known as bad faith insurance.
In simple terms, bad faith is when an insurance company unreasonably denies, delays, or underpays a valid claim. It’s a breach of the “implied covenant of good faith and fair dealing” that exists in every insurance contract. For owners of commercial properties, apartment complexes, or HOA communities, an insurer’s bad faith can turn a manageable crisis into a financial catastrophe, jeopardizing your investment and business operations.
Unlike a simple contract dispute, a bad faith claim is a separate legal issue that can allow you to recover damages beyond your original policy limits. With the insurance industry being a multi-trillion dollar business, the financial incentive to minimize payouts is immense. This is why understanding your rights and recognizing the signs of bad faith are critical for protecting your assets.
I’m Scott Friedson, CEO of Insurance Claim Recovery Support. For over 15 years, I’ve helped commercial property owners in Houston, Dallas, Austin, and across Texas steer complex claims and challenge unfair insurance practices. My experience has shown that identifying bad faith early and having an expert advocate on your side is the key to securing a fair and timely settlement, often without the need for lengthy litigation.
Recognizing and Responding to Bad Faith Insurance Tactics
When your commercial property in Dallas, Fort Worth, or Lubbock suffers a devastating loss, you expect your insurer to act promptly and fairly. This isn’t just a courtesy; it’s a legal obligation. Most states, including Texas, have adopted versions of the Unfair Claims Settlement Practices Act (UCSPA), which outlines specific actions that are considered unfair or deceptive. For a neutral overview of the doctrine and history, see insurance bad faith.
Proving bad faith requires more than just disagreeing with your insurer’s decision. It involves demonstrating that their conduct was unreasonable and that they knew or recklessly disregarded the fact that there was no reasonable basis for their actions. As a policyholder, knowing the warning signs is your first line of defense.
Common Red Flags That Signal Bad Faith
Be alert for these common tactics, which may indicate your insurer is not acting in good faith:
- Unreasonable Delays: The insurer drags its feet in investigating, evaluating, or paying your claim without a valid reason. Texas law sets specific timeframes for insurers to respond to claims.
- Inadequate Investigation: They deny your claim without a thorough investigation or ignore evidence that supports your claim.
- Refusal to Pay a Valid Claim: They deny a claim that is clearly covered under your policy without providing a reasonable explanation.
- Lowball Settlement Offers: The insurer offers a settlement that is significantly less than the actual value of your loss, hoping you’ll accept it out of desperation.
- Misrepresenting Policy Language: They twist the meaning of your policy’s terms to avoid paying your claim.
- Shifting Denial Reasons: The insurer repeatedly changes its justification for denying or underpaying your claim, making it impossible to address their concerns.
- Burdensome Documentation Demands: They request an excessive amount of paperwork or irrelevant information to frustrate you into abandoning your claim.
These tactics are why we often say, “Why Insurance Companies Delay, Deny, and Dispute Claims on Purpose.” You can read more about it here: Why Insurance Companies Delay, Deny, and Dispute Claims on Purpose.
Legitimate Denial vs. a Bad Faith Insurance Tactic
Not every denied claim is an act of bad faith. It’s crucial to understand the difference.
| Legitimate Reasons for Denial | Potential Bad Faith Tactics |
|---|---|
| Policy Exclusions: The damage is not covered by your policy (e.g., flood damage without a separate flood policy). | Ignoring Evidence: Disregarding your contractor’s estimates or expert reports that support your claim. |
| Lapsed Policy: Your policy was not active at the time of the loss. | Biased Experts: Relying solely on their own adjusters or engineers who consistently undervalue the loss. |
| Failure to Mitigate: You didn’t take reasonable steps to prevent further damage after the initial loss. | Pretextual Denial: Denying a claim based on a minor technicality while ignoring the larger, covered loss. |
| Deductible Not Met: The cost of repairs is less than your policy’s deductible. | Unreasonable Interpretation: Twisting ambiguous policy language in their favor to avoid coverage. |
An insurer is allowed to dispute a claim if it’s “fairly debatable.” However, if their reason for denial has no reasonable basis, it may cross the line into bad faith insurance.
Your First Steps When Suspecting Bad Faith
If you suspect your insurer is acting in bad faith, take these steps immediately:
- Document Everything: Keep a detailed log of all communication, including dates, names, and a summary of conversations.
- Communicate in Writing: Follow up important phone calls with an email to create a paper trail.
- Review Your Policy: Understand your coverage and the duties of both you and the insurer.
- Gather Evidence: Collect all photos, videos, repair estimates, and other documents related to your loss.
- Consult a Professional: Before giving a recorded statement or accepting a low offer, speak with an expert public adjuster who can advise you on the best course of action.
The Public Adjuster Path vs. a Lawsuit
When you’re at a standstill with your insurer, you have options. For most property damage claims, a public adjuster is the most efficient first step.
The Public Adjuster Path: Your Advocate in the Claims Process
As public adjusters, we work exclusively for you, the policyholder. Our goal is to manage your claim and secure the maximum settlement you’re entitled to under your policy, often preventing the need for a lawsuit. We handle the complex process of documenting your loss, negotiating with the insurer, and ensuring you are treated fairly. This approach is typically faster and less costly than litigation.
The Lawsuit Path: When Litigation Becomes Necessary
A lawsuit is a powerful tool but should be a last resort. It is a lengthy, expensive, and often stressful process. While it can result in recovering additional damages for bad faith, it’s not always the most practical first step. A public adjuster can often resolve the claim without litigation. If the insurer still refuses to act fairly, the detailed claim file we prepare provides a strong foundation for any future legal action.
For more on this, check out our guide on Denied Storm Damage Insurance Claim.
Protecting Your Investment: Your Rights and Next Steps
Your commercial property in Austin, Dallas, or anywhere in Texas represents a significant investment. When it’s damaged by fire, hurricane, freeze, or flood, your ability to recover quickly and completely depends on your insurance company upholding its end of the bargain. Knowing your rights and having a clear plan of action is crucial to protecting that investment and holding insurers accountable.
Understanding Your Rights and Potential Damages from a Bad Faith Insurance Claim
If your commercial property insurer engages in bad faith insurance, you have powerful rights under Texas law. The legal system recognizes the unique vulnerability of policyholders and provides avenues for recourse beyond simply getting your original claim paid.
We deal primarily with first-party claims, which means you, the policyholder, are making a claim against your own insurance company under your commercial property policy. In Texas, like many other states, you can sue your insurer not only for breach of contract (failing to pay what’s owed) but also for the tort of bad faith insurance (for their unreasonable or unfair conduct in handling your claim).
The damages you can seek in a successful bad faith insurance claim can be substantial and extend beyond the face value of your policy:
- Consequential Damages: These cover financial losses that directly resulted from the insurer’s bad faith actions. For a commercial property, this could include lost rental income from an apartment complex, business interruption losses for a retail center, or additional living expenses if the damage displaced tenants.
- Economic Loss: Any other financial harm you suffered due to the delay, denial, or underpayment.
- Punitive Damages: These are awarded in cases where the insurer’s conduct was particularly egregious, malicious, or reckless. Punitive damages are designed to punish the insurer and deter similar behavior in the future. In Texas, the law allows for punitive damages in such circumstances, often significantly exceeding the actual damages.
- Attorney’s Fees: In many successful bad faith insurance cases, the insurer can be compelled to pay for your attorney’s fees, which is a huge relief for policyholders already struggling with financial burdens.
- Statutory Penalties: The Texas Insurance Code includes specific provisions that allow for penalties against insurers who violate certain claims handling practices. These can include interest on unpaid claims or other monetary sanctions.
These additional damages are a direct consequence of the insurer’s bad faith, not just the original property damage. They are designed to make you whole again, covering not just the physical loss, but also the ripple effect of the insurer’s misconduct.
Securing a Fair Settlement for Your Commercial Property
Navigating a commercial property damage claim, especially when facing potential bad faith insurance tactics, is complex. It requires specialized knowledge, meticulous documentation, and a strategic approach. This is precisely where Insurance Claim Recovery Support comes in.
We are not just claim adjusters; we are public insurance adjusters. Our role is fundamentally different: we work exclusively for you, the policyholder, to ensure you receive the maximum settlement you deserve for your commercial buildings, multifamily HOAs, apartment complexes, or religious institutions. Whether it’s fire damage in Austin, hurricane losses in Houston, freeze damage in Lubbock, or flood damage in Round Rock, we bring decades of experience to your corner.
Our proactive claim management approach helps you avoid unnecessary litigation by:
- Thorough Documentation: We carefully document every aspect of your damage, often uncovering hidden issues missed by insurer-appointed adjusters.
- Expert Valuation: We prepare comprehensive estimates of your loss, using industry-standard software and our deep understanding of construction costs in Texas markets like Dallas-Fort Worth, San Antonio, and Waco.
- Strategic Negotiation: We handle all communications and negotiations with your insurance company, counteracting their tactics and advocating for your best interests.
- Policy Interpretation: We interpret complex policy language to ensure your claim is fully covered, challenging any misinterpretations by the insurer.
By engaging our expert assistance, you’re not just getting help with paperwork; you’re getting a dedicated advocate who understands the intricate dance of insurance claims and the subtle signs of bad faith insurance. Our goal is to maximize your settlement efficiently, allowing you to focus on restoring your property and operations. We’ve helped countless commercial property owners across Texas, including those in Georgetown and Lakeway, recover what they’re truly owed.
Don’t let your insurer dictate your recovery. Empower yourself with knowledge and expert support. To learn more about how we can help you with your property damage claim and fight against bad faith insurance practices, visit our website or contact us today.
https://www.insuranceclaimrecoverysupport.com/property-damage-lawyer/
