When you purchase a commercial property insurance policy, you are buying more than just a promise to pay for repairs; you are buying peace of mind. You are entering into a contract where the insurance company has a legal and ethical duty to act in "good faith and fair dealing." However, in the aftermath of a major summer storm or hurricane, many insurers prioritize their own profits over their obligations to their policyholders. When an insurer crosses the line from a simple disagreement to unreasonable conduct, it is known as "Bad Faith."
At The Voss Law Firm, P.C., we don't just sue for the cost of repairs; we hold insurance companies accountable for the damage they cause by acting in bad faith. A bad faith claim is a powerful tool that can allow a policyholder to recover damages far beyond the limits of their policy. This article explains what constitutes bad faith, the tactics to watch for, and how the law protects you from unfair insurance practices.
What is Insurance Bad Faith?
Bad faith occurs when an insurance company fails to fulfill its contractual or statutory obligations without a reasonable basis. It is more than just a mistake or a difference of opinion; it is a conscious decision to put the insurer's interests ahead of the policyholder's.
In most jurisdictions, bad faith can be categorized into two types:
- Common Law Bad Faith: Based on the inherent duty of good faith and fair dealing in every contract.
- Statutory Bad Faith: Based on specific state laws (like the Texas Insurance Code) that define "Unfair Claims Settlement Practices."
Common Bad Faith Tactics in Commercial Claims
Insurance companies have a vast array of tactics designed to wear down policyholders and minimize payouts. Recognizing these as potential bad faith is critical:
- Unreasonable Delays: Failing to acknowledge a claim, start an investigation, or issue a decision within a reasonable timeframe.
- Inadequate Investigation: Conducting a "outcome-oriented" investigation that ignores evidence of covered damage while searching for reasons to deny the claim.
- Misrepresenting Policy Language: Telling a policyholder that a certain type of damage is excluded when the policy clearly covers it.
- Lowballing: Offering a settlement that is so low it bears no relation to the actual cost of repairs, hoping the policyholder is desperate enough to accept it.
- Refusing to Explain a Denial: Failing to provide a clear, written explanation of the specific policy provisions and facts used to justify a denial.
- Aggressive Demands for Information: Burdensome and repetitive requests for documents that the insurer already has or doesn't need, intended to stall the process.
The Impact of Bad Faith on a Business
For a commercial property owner, bad faith conduct is not just a legal technicality; it is a direct threat to the business's survival.
- Prolonged Closure: Delays in payment mean delays in repairs, leading to extended business interruption.
- Financial Distress: The need to pay for repairs out-of-pocket or take on high-interest loans can lead to insolvency.
- Loss of Tenants/Customers: A building that remains in disrepair for months will inevitably lose its value and its occupants.
Relevant Legal Considerations: Damages and Penalties
If you can prove that your insurer acted in bad faith, the law provides significant remedies that go beyond the "contract price" of the repairs:
- Extra-Contractual Damages: Compensation for the financial losses caused by the insurer's delay or denial (e.g., lost business value, interest on loans).
- Statutory Penalties: Many states, including Texas, have "Prompt Payment" acts that require the insurer to pay a high interest rate (often 10% to 18% per year) on the delayed portion of the claim.
- Attorney's Fees: In many bad faith cases, the insurer can be forced to pay the policyholder's legal costs.
- Punitive Damages: In cases of extreme or malicious conduct, a jury may award punitive damages to punish the insurer and deter future bad behavior.
Common Mistakes Policyholders Make
The most common mistake is not documenting the insurer's bad behavior. You must keep a detailed log of every phone call, email, and meeting. If an adjuster makes a promise, ask for it in writing. If they miss a deadline, send a polite but firm email noting the delay. This "paper trail" is the foundation of a bad faith lawsuit.
Another mistake is assuming that the insurer is "on your side." Remember, the adjuster works for the insurance company, not for you. Their goal is to close the file as cheaply as possible.
When to Speak with a Policyholder Attorney
Bad faith is a serious allegation that requires a high level of proof. You should consult an attorney if:
- The insurer has stopped communicating with you entirely.
- They have issued a denial that contradicts the clear evidence of damage.
- They are demanding an "Examination Under Oath" (EUO) or other aggressive investigative measures.
- You feel you are being bullied or intimidated by the adjuster.
An insurance policy is a promise of protection, not a license for an insurer to engage in predatory behavior. When an insurance company acts in bad faith, they are violating the law and their own contract. At The Voss Law Firm, P.C., we take pride in being the "equalizer" for policyholders, using the law to hold powerful insurance companies accountable for their actions.
If your insurance claim has been denied, delayed, or underpaid, speaking with an experienced policyholder attorney may help you better understand your rights. The Voss Law Firm represents businesses and property owners nationwide on a contingency fee basis, meaning you pay nothing unless a recovery is made. Contact our office for a free consultation.
