Bad Faith Insurance Claims During Storm Season in Texas: What Policyholders Need to Know
Texas storm season brings intense weather like hailstorms, hurricanes, and tornadoes, and with them, a surge of insurance claims for damaged homes and businesses. Most insurers handle claims fairly, but unfortunately some engage in “bad faith” practices, leaving policyholders in the lurch when they most need help. This article explains what a bad faith insurance claim is under Texas law and what legal protections you have. We’ll look at common scenarios after major storms (hail, wind, and flood damage) for both homeowners and commercial policyholders. We’ll also discuss Texas-specific laws (including the Texas Insurance Code and recent court decisions) that protect you, and outline steps you should take if you suspect your insurer is acting in bad faith. Our goal is to inform and empower Texas policyholders so you know your rights and can take action if an insurance company wrongfully denies, delays, or underpays your storm damage claim.
What Is a “Bad Faith” Insurance Claim in Texas?
In Texas, insurance companies have a legal duty to treat policyholders fairly and in good faith. “Bad faith” refers to an insurer’s improper or dishonest conduct in handling your claim—essentially, when the company puts its own interests ahead of its contractual obligations to you. Under Texas law, an insurer may be acting in bad faith if it denies or delays payment on a valid claim without a reasonable basis, or fails to conduct a prompt and fair investigation of your loss. In a first-party claim (when you are seeking coverage under your own policy, such as property damage to your home or business), the insurance company must diligently investigate the damage, determine if the loss is covered, and pay the proper value for repairs or replacement. Bad faith often involves the insurer not doing those things—for example, failing to properly investigate or valuate the damage, ignoring clear evidence supporting your claim, unjustly denying coverage, or unreasonably delaying payment.
Texas recognizes both common law bad faith (a judge-made law duty of good faith and fair dealing) and statutory bad faith under the Texas Insurance Code. In practical terms, this means if an insurer knowingly or recklessly mishandles your claim—such as denying a claim that everyone agrees is covered or offering a grossly inadequate payout with no reasonable justification—the company can be held liable beyond just the amount of the claim. Bad faith insurance practices are more than simple accidents or errors; they involve an element of unfairness or deception. Texas insurance law explicitly prohibits unfair claim settlement practices like misrepresenting policy provisions, refusing to pay a claim without conducting a reasonable investigation, or failing to attempt a fair settlement when liability is reasonably clear (Texas Insurance Code § 541.060). In short, if your insurer isn’t playing by the rules and your valid claim is wrongfully denied, delayed, or underpaid, you may have a bad faith insurance claim under Texas law.
Common Examples of Bad Faith After Major Storms
Storm season in Texas often leads to thousands of property damage claims. Unfortunately, this is also when bad faith by insurers tends to surface. Here are some common post-storm scenarios—affecting both homeowners and businesses—where insurers have been found acting in bad faith:
Hail Damage to a Home Roof: Texas is notorious for massive hailstorms. After a hailstorm, a homeowner might find shingles battered and leaks appearing. A bad-faith insurer may deny that the hail caused the damage, claiming it was “pre-existing” or just cosmetic wear and tear. In some cases, damage from hail isn’t obvious immediately—it often goes unnoticed until water starts leaking in through a compromised roof. Unscrupulous insurers might exploit this by saying the homeowner failed to report damage promptly, or by lowballing the repair cost (e.g. paying for a few patch jobs when the entire roof actually needs replacement). If the insurer ignores clear evidence of hail impact or grossly underestimates repair costs without justification, it could constitute bad faith.
Windstorm or Tornado Damage: High winds can tear off roofs, shatter windows, or down trees onto structures. In a common bad faith scenario, a homeowner or commercial property owner files a wind damage claim after a severe storm or tornado, but the insurance company unreasonably delays sending an adjuster or processing the claim. Texas law requires insurers to promptly acknowledge and investigate claims, yet some will drag their feet for weeks or months. Another example is when an insurer offers a token payment that doesn’t come close to covering the actual wind damage repair costs—effectively underpaying the claim with no reasonable basis. For business policyholders, wind damage might also trigger a business interruption claim (for lost income while repairs are made). A bad-faith insurer might wrongfully refuse to cover the downtime, perhaps by arguing your business wasn’t completely shut or that you could have reopened sooner, even when that’s unrealistic. If these denials contradict the facts or the policy terms, the insurer may be acting in bad faith.
Hurricane Flood vs. Wind Coverage Disputes: Coastal Texas faces hurricanes that bring both intense winds and flooding. A classic dispute is whether the damage was caused by covered wind or excluded floodwaters. For instance, in 2017, Hurricane Harvey caused catastrophic losses across Texas. The Insurance Council of Texas estimated about $19 billion in insured losses, with roughly $11 billion from flood (mostly covered by the National Flood Insurance Program) and $3 billion in windstorm and other property losses. Because standard homeowners policies in Texas generally exclude flood damage, insurance companies sometimes try to pin as much damage as possible on flooding rather than wind. A bad faith scenario would be: your house is battered by the hurricane—roof torn off by wind allowing rainwater in—but your insurer labels the damage as “flood” (not covered) instead of wind (covered), without a reasonable investigation. If evidence shows wind caused the opening that led to water damage, an insurer’s blanket denial as “flood” could be wrongful. Similarly, a commercial property insurer might unfairly claim that storm surge (flood) destroyed your building when in reality wind forces did the primary damage. Failing to fairly distinguish covered wind damage from flood damage, or misrepresenting the cause to deny a claim, is bad faith when done knowingly or recklessly.
Delayed Repairs and Additional Damage: Another example affects both homeowners and businesses after a storm. Say a warehouse’s roof is partially blown off by a storm. The insurer accepts the claim but refuses to pay enough upfront to properly repair the roof, or stalls payment. As a result, the roof isn’t fixed promptly and subsequent rain causes extensive interior damage. If the insurer’s unreasonable delay or underpayment led directly to that additional damage, the insurer can be on the hook for it. Texas law views such conduct as failing to effectuate a prompt and fair settlement when liability was clear—a hallmark of bad faith.
These scenarios are all too common after Texas storms. Keep in mind that not every claim dispute is bad faith—insurance policies are complex, and insurers are entitled to investigate and even deny claims for legitimate reasons. But when an insurer’s excuses cross into stonewalling, unfounded denials, or intentional lowball offers contrary to the evidence, the law can hold them accountable.
Legal Protections for Policyholders Under Texas Law
The good news is that Texas law provides strong protections for policyholders facing bad faith insurance tactics. Key sources of protection include the Texas Insurance Code, the Texas Deceptive Trade Practices Act (DTPA), and decades of Texas court decisions that have consistently emphasized an insurer’s duty to act fairly.
Texas Insurance Code Chapter 541 (Unfair Settlement Practices): This statute is essentially Texas’s insurance bad faith law. It prohibits insurers from engaging in unfair or deceptive acts in handling claims. For example, Section 541.060 of the Insurance Code lists specific unfair claim practices, such as: misrepresenting important facts or policy provisions, failing to promptly communicate with claimants, not attempting in good faith to reach a prompt and fair settlement when the insurer’s liability is reasonably clear, and refusing to pay a claim without conducting a reasonable investigation of the loss. If an insurer violates these provisions, the policyholder can file a lawsuit under Chapter 541. Importantly, if you prove the company acted knowingly, you can recover extra damages (potentially up to three times what you’re owed, as punishment) in addition to your actual claim amount. The Texas DTPA also gives consumers a cause of action for insurance bad faith, since an unfair insurance practice is considered a deceptive trade practice too. This means you could recover mental anguish damages and attorney’s fees as well, where applicable. In sum, Texas statutes give policyholders the right to seek compensation beyond the policy benefits when an insurer handles a claim in bad faith.
Texas Insurance Code Chapter 542 (Prompt Payment of Claims Act): Texas law doesn’t only require fairness—it also demands speed. Under Chapter 542, insurers must meet strict deadlines when processing claims. For most property damage claims, an insurer must acknowledge your claim, begin an investigation, and request any needed info within 15 days of notice. They then generally must accept or reject your claim within 15 business days after receiving all needed documents (this can be extended to 45 days in some cases). If the claim is approved, payment is due within 5 business days. If an insurer delays longer than allowed or doesn’t follow the timing rules, they face a hefty penalty: interest on the claim amount, plus attorney’s fees. Specifically, the insurer can owe interest at an annual rate of 18% on the claim amount for the period of delay (though note, a 2017 legislative change now pegs this rate at 10% for certain weather-related claims). This Prompt Payment Act gives insurers a strong financial incentive to pay on time, and it gives policyholders a way to recover extra money if payment was wrongly delayed. For example, if your claim was $100,000 and the insurer unnecessarily delayed payment for a year, you could potentially recover $18,000 in interest on top of the $100,000, along with your attorney’s fees for having to pursue the matter. Recent Texas Supreme Court decisions have reinforced these protections—even if an insurer eventually pays a claim (say, after an appraisal or due to pressure), it may still owe the 18% (or 10%) interest penalty for failing to pay promptly in the first place. In other words, insurers can’t wash away slow-walking a claim by simply cutting a late check; Texas law can still hold them accountable for the delay.
Recent Case Law: Texas courts have a long history of siding with policyholders when insurers egregiously mishandle claims. Starting with Arnold v. National County Mutual (Tex. 1987), which first recognized a policyholder’s right to sue for bad faith, to more recent cases, the message is consistent: insurers must deal fairly. In USAA Texas Lloyds Co. v. Menchaca (Tex. 2018), the Texas Supreme Court clarified how statutory bad faith claims relate to the insurance contract—generally, you can’t recover more than the amount of your covered loss unless the insurer’s actions caused additional harm, but if you do have a covered loss, you can pursue bad faith remedies even if the policy benefit is eventually paid. In another notable case, Barbara Technologies Corp. v. State Farm Lloyds (Tex. 2019), the court held that an insurer’s payment of a claim after an appraisal did not automatically shield it from liability under the Prompt Payment of Claims Act. In plain terms, even if the company ultimately paid what was owed, it could still owe the statutory interest penalty for the period it delayed. These decisions (and others like Hinojos v. State Farm Lloyds in 2021) demonstrate that Texas courts are serious about enforcing the insurance code and the duty of good faith. They give policyholders important precedents to cite when negotiating with insurers or in court. The upshot is that Texas law and courts provide multiple avenues to hold insurers accountable if they act in bad faith—through extra-contractual damages, interest penalties, and attorneys’ fee awards.
Steps to Take if You Suspect Bad Faith by Your Insurer
If you’re dealing with a storm damage claim and something doesn’t feel right about your insurer’s response, it’s important to be proactive. Here are steps Texas policyholders (homeowners or commercial) should take if you believe the insurance company is engaging in potential bad faith conduct:
Document Everything: Start a claim diary. Keep detailed notes of every phone call (dates, times, who you spoke with, and what was said). Save all emails, letters, and voicemails from the insurer. Take plenty of photos and videos of the damage as soon as it’s safe to do so. Also document any temporary repairs or mitigation you perform (and keep receipts). Good documentation is your best friend—it creates a paper trail of the insurer’s actions and your efforts, which can be critical evidence if you need to escalate the matter.
Review Your Policy and Claim Denial (or Offer): Carefully read your insurance policy to understand your coverages, exclusions, and duties after a loss. Texas policies come with a Declarations Page summarizing your coverage limits for wind, hail, etc. If your insurer denies your claim or offers far less than expected, closely review their explanation letter. By Texas law, an insurer must provide a reasonable explanation of why a claim was denied or underpaid. See if they are citing specific policy language (exclusions or conditions) and whether those apply to your situation. Sometimes denial letters are vague or cite inapplicable reasons—a red flag for bad faith. Identify exactly why the insurer says they won’t pay what you claimed.
Ask for Clarification in Writing: If anything is unclear or seems improper, write to the insurance company (email or letter) to clarify the decision. Politely point out evidence they may have overlooked. For example, if an adjuster claimed your roof damage was “pre-existing,” provide any proof to the contrary (such as maintenance records or photos from before the storm showing no damage) and ask them to reconsider. Getting the insurer’s responses in writing is important. It forces them to articulate their position (or lack thereof) and can later demonstrate unreasonable behavior. Always keep copies of your correspondence. This also shows you gave the insurer a chance to do the right thing before taking further action.
Mitigate Your Damages: Even while disputes are ongoing, Texas policyholders have a duty to mitigate (prevent further damage). Make reasonable temporary repairs to protect your property from additional harm—for instance, tarping a damaged roof or boarding up broken windows. Not only does this fulfill your obligations under the policy, it also denies the insurer an excuse to blame you for any subsequent damage. Keep receipts and records of any expenses; these costs are usually recoverable from the insurer. (Note: If the insurer unreasonably delayed, causing additional damage, document that timeline carefully as it may support a bad faith claim for those consequential damages.)
File a Complaint with Regulators (If Needed): If you’re hitting a brick wall with the insurer, you can file a complaint with the Texas Department of Insurance (TDI). TDI oversees insurance companies and can investigate complaints. While TDI won’t adjudicate your claim or force the insurer to pay overnight, involving the state regulator can put additional pressure on the insurer to act properly. Sometimes the mere fact that a complaint was filed prompts a more favorable response. Be sure to include all relevant details and correspondence in your complaint. (You can file complaints through the TDI website.)
Get an Independent Evaluation: Consider hiring independent experts if there’s a disagreement about the extent of damage or cost of repairs. For property claims, you might get a second opinion from a reputable contractor or public insurance adjuster who works for you, not the insurer. For example, if your insurer says your roof can be patched for $5,000 but a contractor estimates $20,000 for full repair, that independent report bolsters your position. Many commercial policies and some homeowner policies have an appraisal clause—an alternative dispute resolution process where each side appoints an appraiser to assess the loss, with an umpire to resolve differences. Invoking appraisal can sometimes break a stalemate on amount of loss (though it usually won’t address coverage disputes). Make sure you understand the pros/cons of appraisal and consult an expert or attorney if unsure.
Consult an Attorney: If you truly suspect bad faith—for instance, you have clear evidence your claim is valid and the insurer is still unreasonably denying or stalling—seek legal advice sooner rather than later. Texas attorneys who handle insurance litigation often offer free initial consultations. They can evaluate whether the insurer’s conduct crosses the line and advise you on next steps. Remember, Texas law allows recovery of attorneys’ fees and additional damages in bad faith cases, which makes it easier for policyholders to get legal help. An attorney can help draft a strong demand letter citing the Texas Insurance Code and any relevant case law, which alone might prompt a fair settlement. And if not, they can file suit on your behalf. (Note: In 2017, Texas passed a law (often called the “Hail Storm Bill”) that requires policyholders to provide written notice to the insurer at least 60 days before filing certain weather-related insurance lawsuits. The notice must state your complaint and damages. If you do need to sue, a qualified attorney will ensure you comply with these pre-suit requirements so as not to jeopardize your rights.)
Preserve Evidence and Be Mindful of Deadlines: While pursuing all the above, keep an eye on the calendar. In Texas, the statute of limitations on insurance bad faith claims (and related DTPA claims) is usually two years from the date the bad faith occurred or was discovered. Contract claims (breach of the policy) have a four-year limit, but many insurance policies contractually require you to sue within two years of the date of loss or denial. Don’t let the clock run out. If negotiations are dragging on close to a deadline, that’s the time to involve an attorney to either get an extension or file suit to preserve your claim. Also, preserve all evidence—don’t throw away damaged items until the insurer has inspected (or if you must for safety, take thorough photos). Keeping a solid evidentiary record will strengthen your case in any legal action or settlement discussion.
Following these steps will put you in the best position to either resolve the dispute or build a strong bad faith case if the insurer remains recalcitrant. The key is that you don’t have to simply accept a wrongful denial or endless delays. Texas law is on your side when you’ve been treated unfairly, but you must advocate for yourself and use the available tools to enforce your rights.
Texas-Specific Insights and Final Thoughts
Texas policyholders should take comfort in the fact that our state’s laws are relatively consumer-friendly in the insurance arena. Here are a few Texas-specific insights to keep in mind:
Texas Disaster Claims Act (2017): In response to a surge of hailstorm lawsuits, Texas enacted Chapter 542A of the Insurance Code. This law, among other things, requires that you give advance written notice to the insurer before filing a lawsuit over a weather-related property claim, and it adjusted the interest penalty rate from 18% down to 10% for those claims. The idea was to encourage prompt resolution without litigation. For policyholders, the practical takeaway is: if you have to pursue legal action, make sure to send the required notice (itemizing your complaint and damages). Also, even at 10%, the interest penalty is still significant—a deterrent against insurer delay.
Replacement Cost vs. Actual Cash Value: Many Texas home and commercial policies provide replacement cost coverage, which pays the full cost to repair or replace damaged property (typically once you actually make the repairs). Initially, insurers often pay actual cash value (ACV), which is replacement cost minus depreciation. A bad faith issue can arise if an insurer unfairly over-depreciates items or refuses to pay the difference even after you do the repairs. Know what your policy promises. If you have replacement cost coverage, you’re entitled to that full amount (minus deductible) when you repair/replace—don’t let an insurer settle for only the ACV if the policy says otherwise.
Concurrent Causation in Texas: Texas has tricky rules on losses caused by both covered and non-covered perils (e.g. wind vs. flood). Insurers sometimes cite “concurrent causation” to avoid paying anything if part of the damage is from an excluded peril. However, Texas law says that if you can segregate the damage, the insurer must pay for the portion caused by the covered peril. They can’t deny the whole claim just because flood contributed, for example, if wind clearly caused a discernible part of the loss. Insurers acting in bad faith might ignore this and issue a blanket denial. Be prepared to push back with expert analysis apportioning the damage if needed.
Insurance Agent Misconduct: Sometimes the issue isn’t just the insurer but also what an agent told you when you bought the policy. If an agent assured you that you had full coverage for “everything” and you relied on that (only to find out after a storm that, say, you lacked flood coverage or a particular endorsement), you might have a claim for misrepresentation. Texas Insurance Code ch. 541 also covers misrepresentations by agents. While your immediate focus after a storm will be on the insurer’s actions, keep in mind any potential bad faith or deception that occurred before the loss as well.
Attorneys’ Fees: Texas generally follows the “American Rule” (each party pays their own legal fees), but in insurance cases, if you win a suit against your insurer, the law usually requires the insurer to pay your attorneys’ fees. This is important because it enables policyholders to seek legal help without having to pay a lawyer out-of-pocket up front—many insurance lawyers will take viable bad faith cases on contingency, expecting to recover fees from the insurer. This levels the playing field when going up against a deep-pocketed insurance company.
While Texas weather can be unforgiving, Texas law gives you a fighting chance to ensure your insurance company keeps its promises. A “bad faith” insurance claim is not something any policyholder wants to deal with—but if it happens, knowing your rights and the tools at your disposal can make all the difference. Always remember: you paid premiums for the peace of mind that your insurer will be there after the storm. If they aren’t holding up their end, Texas law empowers you to hold them accountable. Stay safe this storm season, and don’t hesitate to seek professional advice if you suspect your insurer is acting in bad faith. Your home or business is too important to settle for anything less than the full, fair benefits you’re entitled to.