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Bad faith insurance laws outline insurer duties to policyholders

One thing that is surely on all Texans' minds is the devastation that Mother Nature can cause. Early damage estimates from Hurricanes Harvey and Irma are between $150 billion and $200 billion, according to ABC News. Millions of people have been affected in a variety of ways, including loss of homes, businesses and jobs. Now that immediate danger is past, homeowners and business owners are looking ahead to recovery. Along with government aid, insurance money is an important resource in helping recovery efforts.

According to online legal resource FindLaw, insurers are bound by law to fulfill certain duties to policyholders, including prompt and fair processing of claims. If a claim denial is unreasonable, the insurer may be acting in bad faith, which can lead the policyholder to seek legal remedy under bad faith insurance laws. Important duties for insurers include:

  • Indemnification: This is essentially a promise or guarantee by the insurer to pay the coverage amount in settlement of a third-party lawsuit against the policyholder, usually in response to an accident or injury. If the insurer does not pay, it may be considered bad faith.
  • Investigation: An insurer must present its findings to support a claim denial. To offer valid findings, the insurer must appropriately investigate the claim and include a value estimate of the damage. Along with an improper investigation, drawing out the claims process for an unreasonable length of time may be bad faith.
  • Defense: The insurer must defend the policyholder against claims, regardless of whether or not the circumstances involved in a third-party lawsuit are covered under the policy. Failure to do so may also be bad faith.

Bad faith insurance laws can vary from one jurisdiction to another. Their enactment allows policyholders to sue insurers for failure to perform their duties. Depending on the jurisdiction policyholders may file lawsuits as either a breach of contract or a tort, which is a civil suit.

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