Here are the details you should know about:
Chapter 25: Bad Faith Breach of Insurance Contract
25:1 Elements of Liability—Third-Party Claims
Chapter 25.1 states that the following three elements must exist in order for bad faith to occur:
- You sustained damages;
- The insurance company acted unreasonably; and
- The insurance company’s unreasonable behavior caused you to sustain losses.
25:2 Elements of Liability—First-Party Common-Law Claims
In order to recover damages for your losses due to bad faith, the following must be proved:
- You sustained damages;
- The insurance company acted unreasonably;
- The insurance company was aware they were being unreasonable or recklessly disregarded the fact that their conduct was unreasonable; and
- You sustained losses as a result of the insurance company’s unreasonable conduct.
25:3 Unreasonable Conduct/Unreasonable Position—Common-Law Claims—Defined
This section defines “unreasonable conduct” and “unreasonable position” as used in the legislative text.
“The failure to do an act that a reasonably careful insurance company would do, or the doing of an act that a reasonably careful insurance company would not do, under the same or similar circumstances, to protect the persons insured from [losses].”
“A position taken by an insurance company with respect to a claim being made on one of its policies that a reasonably careful insurance company would not take under the same or similar circumstances.”
25:4 Elements of Liability—First-Party Statutory Claims
In order to recover damages for an unreasonable claim delay or denial, you must prove:
- The insurance company delayed or denied your benefits; and
- The insurance company’s delayed or denied payment was unreasonable.
25:5 Unreasonable Delay or Denial
“An insurer’s delay or denial in authorizing payment of a covered benefit is unreasonable if that action is without a reasonable basis.”
25:6 Unreasonable Conduct/Unreasonable Position—Statutory Violations—Defined
An insurance company has acted unreasonably in delaying or denying payment if:
- They willfully engaged in such conduct;
- The conduct caused or contributed to the insurance company’s delay or denial of benefits; and
- The conduct caused or contributed to any of your claimed losses.
25:7 Reckless Disregard—Defined
“An insurance company recklessly disregards the unreasonableness of its [conduct] when it [acts] with knowledge of facts that indicate that its [conduct] lacks a reasonable basis or when it is deliberately indifferent to information concerning the claim.”
25:8 Duty of Good Faith and Fair Dealing
Insurance companies owe their policyholders the duty of good faith and fair dealing. A breach of duty occurs when an insurance company delays or denies benefits or fails to promptly and effectively communicate with claimants and the company is aware that the delay or denial is unreasonable or recklessly disregards the unreasonable conduct.
25:9 Actual Damages—Common-Law Claims
You must prove the nature and extent of your damages. The following must be considered:
- Noneconomic losses you’ve endured or will likely endure in the future;
- Economic losses you’ve sustained or will likely sustain in the future;
- Any physical impairment or disfigurement.
25:10 Benefit Amount—First-Party Statutory Claims
You must provide evidence of the extent of your benefits that were wrongfully delayed or denied.
25:11 Punitive Damages
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