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 coverage obligations.
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 damages.”
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.