The recent catastrophic damage sustained along the Texas coast, and the
prospect of an even more-dangerous hurricane striking the American east
coast, does not bode well for the property and casualty insurance industry.
In fact, some industry analysts are estimating that the costs associated
with the Hurricane Harvey disaster could eventually surpass those incurred
during the monetary crisis of 2007-2009. In today’s post, the insurance
claims and accident lawyer at the Doan Law Firm of Houston will discuss
the basic principles of property damage insurance law as well as the legal
options that may be available to families and businesses who suspect their
insurance carriers of being less than diligent in meeting their insurance
First of all, an insurance policy is a
contract. This means that the law of contracts, as defined by both the common law
and any applicable state laws and/or regulations, governs most matters
relating to a legally-valid insurance policy. In general, any contract
is considered valid if:
- The contract is freely entered-into by both parties and no undue influence
was exerted by either contracting party.
As in any contract, neither party can be forced to sign an insurance contract
against their will.
- The contract does not require that an illegal act be performed by either party.
No contract is legally valid if it calls for either party to perform some
action that is itself a crime.
- The contract calls for one party to receive a “consideration”
from the other party as a condition of that contract.
In law, a “consideration” is the receipt of something of value.
In the case of an insurance contract, the consideration is the money paid
as the insurance premium.
- In the case of an insurance contract, the party paying the consideration
(the “insured” or “policyholder”) must have a
valid reason (“insurable interest”) for seeking insurance coverage.
Insurance law holds that the party purchasing insurance against some future
event must have a valid reason for doing so. Such reasons may include
purchasing life insurance on a business partner, protecting a home or
a business against storm damage, and reimbursement for property that may
be lost or stolen.
- If an insurance claim is presented for payment, the insurance carrier is
legally obligated to promptly settle such a claim except as provided for
by the terms of the insurance contract.
Under state law, insurance companies are required by law to settle any
claims within a certain period of time. Usually, these time limits are
set forth in the insurance policy itself. An insurance carrier has the
right to dispute such claims but must have a legally-accepted reason for
doing so. If an insurance company willfully violates any provision of
its obligations to the consumer, it may become liable for damages in a
civil lawsuit alleging that the company has breached its “good faith”
obligations to the policy holder.
Insurance companies live in mortal fear of a “bad faith” allegation.
This is because 1) such allegations may be interpreted by potential policy
purchasers as an indication that the company is more concerned with its
profits than with its obligations to promptly pay claims and 2) because
of the little-known (at least to non-attorneys) doctrine known as “treble
In most states, an insurance company that is found to have committed a
“bad faith” action can be ordered to pay up to
three times greater than the amount it would have paid in the absence of “bad
faith.” As an example, if a company would have been liable to pay
$10,000 to the beneficiary of a life insurance policy but fails to do
so, and that failure was interpreted by a jury to have been the result
of “bad faith,” the company can be ordered to pay $30,000
to the beneficiary in addition to lawyer fees, punitive damages, or any
other compensation the jury may deem appropriate!
In the past, the courts of the various states have held that certain practices
can be considered deliberate acts of “bad faith.” Such practices
include, but are not limited to:
- Setting unreasonable conditions for negotiating a settlement to a disputed claim
- Deliberately misrepresenting the terms and conditions of an insurance policy
- Failure to adequately defend a policyholder in a lawsuit where the policyholder
has been named as a defendant
- Offering a settlement that does not reflect the actual amount of the losses
to the policyholder
In summary, insurance law is somewhat unique in that the individual states
are given almost exclusive jurisdiction over the sales and policy terms
of insurance contracts written within their borders. Although insurance
companies are free to advertise at the national level, which most insurers
do on a regular basis, the “fine print” will always include
a statement to the effect that “some coverage may not be available
in all areas.”
Insurance companies have almost unlimited financial resources at their
immediate disposal and, historically, have been known to bring those resources
to bear in cases where a client has suffered a loss that would expose
the insurer to payment of a substantial claim made by a policyholder.
Fortunately, all states have some form of “bad faith law”
which can impose severe penalties on insurance carriers who attempt to
force an unwary claimant to accept an unjust settlement.
Insurance law can be one of the most complicated aspects of the law of
contracts. For this reason, anyone suspecting that their insurance carrier
may be trying to avoid paying a lawful claim is strongly encouraged to
contact and experienced personal injury and accident lawyer to arrange
a free, no obligation, consultation regarding the facts of their case
and a review of any legal options (such as a “bad faith” lawsuit)
that may be available.