Not every denied or underpaid claim is bad faith, but some cross a clear legal line. Bad faith happens when your insurer had no reasonable basis to deny or delay your claim and knew, or should have known, that it had no basis.
As San Angelo bad faith insurance lawyers, Scott Templeton and our team hold insurers accountable when they treat a policyholder unfairly. The distinction matters, because bad faith opens the door to damages far beyond the amount of your original claim.
The consultation is free. Call (325) 482-9120 or use our contact form. You pay nothing unless we recover.
What Is Bad Faith Insurance in Texas?
Bad faith is when an insurer breaks its legal duty to treat you fairly, not just its promise to pay a claim. Texas law recognizes that an insurance company holds far more power than the policyholder, so it imposes a duty of good faith and fair dealing on the insurer.
This duty is separate from the insurance contract itself. A company can pay a claim late and simply owe the money, or it can handle the claim so unreasonably that it commits a distinct legal wrong. That second situation is bad faith.
The difference is not about whether the insurer made a mistake. It is about whether the insurer had any reasonable basis for what it did, and whether it knew better.
Where Is the Line Between an Honest Mistake and Bad Faith?
The line is drawn by a single legal test: did the insurer have a reasonable basis for its decision? An insurer that makes a wrong call after a genuine investigation may owe the claim, but it has not necessarily acted in bad faith.
Texas courts require more for a bad faith finding. The policyholder must show the insurer had no reasonable basis to deny or delay the claim, and that it knew or should have known that. That is a higher bar than simply proving the company was wrong.
Honest Mistake vs. Bad Faith
| A Coverage Dispute Looks Like | Bad Faith Looks Like |
| A genuine disagreement over policy terms | Denying a claim with no supporting reason |
| A wrong decision after a real investigation | Refusing to investigate before denying |
| A reasonable dispute over the amount owed | Ignoring evidence that clearly supports the claim |
| A delay with a valid, stated reason | Misrepresenting what the policy actually covers |
Think your insurer crossed the line? Call (325) 482-9120 for a free case review.
What Bad Faith Conduct Looks Like
Bad faith usually shows up as conduct that no reasonable insurer would engage in when handling a valid claim. Texas law, through the Insurance Code, prohibits a specific set of unfair practices.
Common examples of bad faith conduct include:
- Denying a claim without conducting a reasonable investigation
- Refusing to pay a valid claim without explaining why
- Misrepresenting what the policy covers or excludes
- Offering far less than the claim is clearly worth
- Failing to respond to the claim within a reasonable time
- Ignoring evidence and documentation that supports the claim
A single misstep does not always rise to bad faith. A pattern of these behaviors, or a denial with no reasonable basis at all, is what moves a claim from a contract dispute into bad faith territory.
Why a Bad Faith Finding Changes the Case
Bad faith changes the case because it is a tort, not just a breach of contract, and that unlocks a much wider range of damages. In an ordinary coverage dispute, the insurer generally owes only what the policy should have paid.
When the conduct is bad faith, the recoverable damages expand well beyond the policy amount. This is the single most important reason to know whether your insurer crossed the line.
Contract Dispute vs. Bad Faith Damages
| Type of Claim | What You Can Recover |
| Simple coverage dispute | The amount the policy should have paid |
| Prompt payment violation | Policy amount plus 18% interest and attorney fees |
| Bad faith (tort) | The above, plus mental anguish and other actual damages |
| Knowing bad faith | Up to three times the actual damages |
When the evidence shows the insurer acted knowingly, Texas law allows a court to award up to three times the actual damages. That exposure is what gives a bad faith claim real leverage.
How a Bad Faith Case Is Proven
Proving bad faith comes down to showing the insurer had no reasonable basis for its decision. That requires building a clear record of what the company did, what it knew, and what it ignored.
The evidence that builds a bad faith case includes:
- The claim file and the insurer’s internal notes
- The timeline of every communication and decision
- Independent estimates or evidence the insurer disregarded
- The stated reasons for denial and whether they hold up
- Any pattern of similar conduct by the same insurer
Farrah, our case manager and a licensed insurance adjuster with more than 15 years in the field, knows how claims files are built and what a reasonable investigation is supposed to include. She can spot where an insurer skipped steps that its own standards require.
Ready to find out if you have a bad faith claim? Call (325) 482-9120.
Which Insurance Claims Involve Bad Faith Most Often?
Bad faith can arise with any type of coverage, but it tends to surface in claims where the stakes are high and the policy language is complex. The more an insurer stands to pay, the more incentive it has to look for a way out.
First-Party Claims
Bad faith law in Texas focuses on first-party claims, meaning claims you file under your own policy. These include property and storm damage, life insurance, health and disability coverage, and uninsured motorist claims.
In each of these, you and your insurer are on opposite sides of the same policy. That is the relationship where the duty of good faith applies most directly, and where a broken duty becomes a bad faith claim.
High-Value and Complex Losses
Large property losses, serious injury claims, and total losses draw the most scrutiny from insurers. A bigger payout gives the company more reason to delay, underpay, or deny.
These are also the claims where a bad faith finding matters most, because the added tort damages can be significant. The larger the underlying loss, the more a bad faith case can be worth.
Why Would an Insurance Company Act in Bad Faith?
Insurance companies act in bad faith for the same reason they cut any corner: the short-term math can favor it. An insurer that denies or underpays a claim keeps that money, and only a fraction of wronged policyholders ever push back.
The business model depends on collecting premiums and limiting payouts. When a company believes a policyholder will not fight, denying a valid claim can look like a profitable gamble.
Texas bad faith law exists to change that math. By allowing damages beyond the policy amount, it makes treating a valid claim unfairly a costly decision rather than a safe one.
Can You Report Bad Faith to the State?
Yes, you can report an insurer’s conduct to the Texas Department of Insurance, known as TDI, the state agency that regulates insurance companies. A complaint creates an official record and can prompt the insurer to respond.
You can file a complaint through the TDI consumer complaint portal, online or by phone, at no cost.
TDI also explains what it can and cannot do for policyholders, which is worth understanding before you rely on the complaint process alone.
A TDI complaint is a useful step, but it cannot award you mental anguish damages or the treble damages available in a bad faith lawsuit. For those, you need a legal claim, which is why serious bad faith cases usually require an attorney.
Frequently Asked Questions
These are the questions policyholders typically bring with them before they call our office.
My claim was denied. Does that automatically mean bad faith?
No. A denial alone is not bad faith. The question is whether the insurer had a reasonable basis for the denial. If it denied your claim without investigating, ignored clear evidence, or gave a reason the policy does not support, that can be bad faith.
What is the difference between a bad faith claim and a regular claim dispute?
A regular dispute is a disagreement over coverage or amount, and the insurer generally owes only the policy benefits. A bad faith claim is a separate legal wrong that can add mental anguish damages and, in knowing cases, up to three times the actual damages.
How much extra can I recover in a bad faith case?
It depends on the conduct and the harm. Beyond the policy benefits, you may recover additional actual damages including mental anguish, and if the insurer acted knowingly, a court can award up to three times those damages. Attorney fees are also often recoverable.
Does it cost anything to have my claim reviewed for bad faith?
No. The consultation is free, and bad faith cases are handled on contingency. You pay no attorney’s fee unless we recover for you.
What is the legal standard for bad faith insurance in Texas?
A policyholder must show the insurer had no reasonable basis to deny or delay the claim, and that it knew or should have known that. This standard comes from long-standing Texas Supreme Court decisions and is higher than simply proving the insurer was wrong.
Is bad faith a breach of contract or something more?
It is more. A breach of contract is failing to pay what the policy owes. Bad faith is a separate legal wrong, a tort, based on how the insurer handled the claim, and it allows damages beyond the policy amount.
How long do I have to file a bad faith claim in Texas?
Texas generally allows two years from the date of the bad faith conduct to file a claim. Because the exact deadline can depend on the specific facts, it is important to confirm it early before the window closes.
Can I bring a bad faith claim and a prompt payment claim together?
Often, yes. A single course of conduct can violate both the prompt payment law and the duty of good faith. Pursuing them together can maximize the penalties and damages available to you.
What Should You Do if You Suspect Bad Faith?
If you believe your insurer acted in bad faith, the most valuable thing you can do is preserve the record before anything changes. A bad faith case is built on documentation, and that documentation is easiest to gather early.
Keep Everything the Insurer Sent You
Save every letter, email, and claim document, especially any denial or explanation. The insurer’s own words about why it denied or delayed your claim are often the strongest evidence that it had no reasonable basis.
Also keep your own records of every call and conversation, with the date and what was said. Those notes fill the gaps that the insurer’s file leaves out.
Do Not Give a Recorded Statement First
Before you give the insurer a recorded statement or accept any offer, talk to an attorney. Adjusters are trained to ask questions in ways that can limit what you recover later.
An early legal review can tell you whether the conduct rises to bad faith and what evidence you need to protect. That review costs nothing.
Talk to a San Angelo Bad Faith Insurance Lawyer Today
If your insurer treated your valid claim as if the rules did not apply to it, Texas law may give you far more than the policy amount. Templeton Law Firm has held bad faith insurers accountable across San Angelo and West Texas for more than 25 years, and the consultation costs nothing.
Call (325) 482-9120 or use our contact form. Free consultation. No fee unless we recover.
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