An insured may assert a bad faith claim even if the carrier made timely payments of an Insurance Appraisal award.

Texas law is that there is no bad faith where a carrier has not breached its duties to the insured. If an insurance company acts reasonably and makes a mistake, it is not bad faith. In almost all circumstances, bad faith entails breach by the carrier of its duties under the policy’s terms or conditions.

This long-established understanding has recently become suspect. There have been occasions where a court interpreting Texas insurance law has suggested that an insured may assert a bad faith claim even when the carrier has made timely payments of an Insurance Appraisal Award.

Specifically, the court ruled that a bad faith claim can survive in the absence of a finding of a breach of contract.

3 separate circumstances…

an insured may prove that a carrier denied or delayed the payment of the insured’s claim when it knew or should have known that it was reasonably clear that the claim was covered.

an insured may sue under the Texas Insurance Code as well as the Deceptive Trade Practices Act to establish that the insurer’s unduly delayed payment of its claim after liability was reasonably clear.

the insured may demonstrate that the insurer committed some extreme acts that caused injury to the insured independent of the policy claim.

In a ruling for Hartford on the breach of contract issue, the court reconfirmed that an insured may not use the difference between the amount originally paid by the carrier and the subsequent appraisal award as evidence of a breach of contract.

However, the court did allow the bad faith claim to proceed citing the three exceptions to the general rule identified above. In other words, the court held that the insured could develop evidence to create a fact issue as to whether any one of these three potential exceptions were met so as to allow a bad faith finding even though the carrier had acted properly under the policy terms. This means that a carrier can act in complete accordance with the Insurance Appraisal clause and still run a risk of bad faith.

Insurance Claim Recovery Support has always encouraged policyholders to exercise their right to an Insurance Claim Damage Appraisal when applicable in the claim process.

Exhausting all policy provisions before filing a lengthy and expensive lawsuit is prudent and reasonable.

This business decision is one that every policyholder needs to make for themselves but it is strongly recommended.

The insured policyholder should explore all possibilities available to them before taking further action on a claim that may have been underpaid, delayed or denied.

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