Example of an Unfair Claims Practice
An unfair claims practice occurs when an insurance company fails to handle a claim honestly, promptly, or in good faith. Insurance companies have a legal duty to investigate and process claims fairly. When they don’t, their conduct may violate state insurance laws. In Texas, unfair claim settlement practices are regulated by the Texas Department of Insurance and outlined in the Texas Insurance Code.
Example: Unreasonably Delaying a Claim
One common example of an unfair claims practice is unreasonable delay.
Imagine a homeowner files a claim for tornado damage. The insurance company:
- Fails to acknowledge the claim within a reasonable time
- Repeatedly postpones inspections
- Requests unnecessary or duplicative documents
- Does not provide a clear explanation for the delay
If the insurer drags out the process without justification, it may be engaging in an unfair claims practice. Texas law generally requires insurers to acknowledge, investigate, and accept or deny claims within specific deadlines.
Example: Misrepresenting Policy Terms
Another unfair practice involves misrepresenting coverage.
For instance, an adjuster might incorrectly tell a policyholder that wind damage is excluded, even though the policy clearly provides coverage. If an insurer knowingly misstates policy language to avoid paying a claim, that can violate Texas insurance law.
Policyholders rely on insurers to accurately explain coverage provisions.
Example: Failing to Conduct a Reasonable Investigation
Insurance companies must perform a thorough and fair investigation. An unfair practice may occur if an insurer:
- Conducts a superficial inspection
- Ignores clear evidence of covered damage
- Fails to interview relevant witnesses
- Denies the claim without proper evaluation
Denying or underpaying a claim without adequate investigation may constitute bad faith.
Why It Matters
Unfair claims practices can leave policyholders facing significant financial stress. When insurers fail to comply with legal standards, policyholders may have the right to dispute the decision, file a complaint with regulators, or pursue legal action.
Conclusion
An unfair claims practice typically involves delay, misrepresentation, or failure to investigate properly. Understanding your rights and reviewing your policy carefully can help you recognize when an insurer may not be acting in good faith.
