Statute of Bad Faith Insurance in Texas
Bad faith insurance occurs when an insurer unfairly denies, delays, or mishandles a valid claim. In Texas, policyholders have legal rights to hold insurers accountable. Understanding the statute of limitations and protections under Texas law is essential for anyone facing unfair insurance practices.
Defining Bad Faith Insurance
Bad faith happens when an insurer violates its duty to act fairly and in good faith toward policyholders. Examples include:
- Unreasonable delays in claim processing
- Denying claims without a proper investigation
- Offering unfairly low settlements
- Misrepresenting policy terms
Texas law allows policyholders to sue insurers that act in bad faith, but strict deadlines apply.
Statute of Limitations in Texas
The statute of limitations sets the time limit for filing a lawsuit. In Texas, policyholders generally have two years to bring a bad faith insurance claim. This two-year period typically begins from the date of the wrongful act, such as the denial of a valid claim or when the policyholder first becomes aware of the bad faith conduct.
Relevant Texas Laws
Texas provides multiple legal protections for policyholders:
- Texas Insurance Code, Chapter 541, prohibits unfair settlement practices and deceptive acts by insurers.
- Texas Insurance Code, Chapter 542 (the “Prompt Payment of Claims Act”) requires insurers to handle claims within specific deadlines.
- Policyholders may recover damages, attorney’s fees, and, in some cases, additional penalties if the insurer’s actions are found to be in bad faith.
Why the Statute Matters
Missing the two-year deadline can result in losing the right to pursue legal action, even if the insurer clearly acted unfairly. This makes it critical for policyholders to act quickly when they suspect bad faith. Consulting an attorney early ensures that evidence is preserved and claims are filed within the proper timeframe.
Conclusion
In Texas, bad faith insurance lawsuits must generally be filed within two years of the wrongful act or discovery of misconduct. Supported by strong consumer protection laws, policyholders have the right to hold insurers accountable for unfair practices—but timing is crucial. Acting promptly helps protect both financial recovery and legal rights.