Claims · Insurance Term
Bad Faith (Unfair Claim Settlement Practices)
Definition
Bad faith is when an insurer handles a claim unreasonably, such as denying or delaying payment without a reasonable basis, failing to investigate, or misrepresenting the policy. In Texas, statutes and court decisions give policyholders remedies for certain unfair claim practices.
In Plain English
An insurer is allowed to deny a claim it reasonably believes is not covered or to dispute the amount. A simple disagreement is not bad faith. Bad faith is about unreasonable conduct, such as ignoring evidence, stalling without reason, or refusing to explain a denial.
Texas law lists unfair settlement practices in Insurance Code §541.060. Examples include misrepresenting a policy provision, failing to try in good faith to settle once liability is reasonably clear, failing to promptly explain a denial, and refusing to pay without a reasonable investigation. The Texas Prompt Payment of Claims Act separately sets claim-handling deadlines.
Bad faith claims are legal claims with their own procedures and timelines. For weather-related property claims, chapter 542A pre-suit notice rules apply before a lawsuit. Talk to a Texas insurance attorney if you think your claim was handled unfairly.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical: after a fire, an owner submits all requested documents. Months pass with no decision and no explanation, despite follow-ups. The owner's attorney reviews whether the insurer missed Texas prompt-payment deadlines or engaged in unfair settlement practices.
Why It Matters for Texas Property Owners
Texas has both statutory remedies (Insurance Code Chapters 541 and 542) and court-made duties of good faith in first-party claims. Chapter 542A adds a 61-day pre-suit notice requirement for weather-related property claims, and TWIA claims follow a separate process under Chapter 2210.
What to Watch For
- Keep a written log of every call, email and document sent to the insurer.
- Ask for denial reasons in writing, with the policy language relied on.
- Track the Texas prompt payment deadlines that apply to your claim.
- Consult a licensed Texas attorney before filing suit or making legal threats.
Sources
- Texas Insurance Code §541.060 (unfair settlement practices)
- Texas Insurance Code Chapter 542 (prompt payment of claims)
- Texas Insurance Code §542A.002
- Texas Insurance Code §542A.003 (61-day pre-suit notice)
Last updated October 14, 2026 · Primesure editorial team · How We Write