What are insurance bad faith claims?
Insurance bad faith claims refer to situations where an insurance company fails to act in good faith when handling a claim. The intended use of these claims is to allow a policyholder to receive the benefits they are entitled to under their policy. This means that if an insurance company wrongfully denies, delays, or undervalues a legitimate claim, they can be held liable for damages even if the policyholder does not suffer any actual losses. In Texas, an insurance bad faith claim is considered a type of breach of contract suit, and damages must be proven to be awarded. To prove damages, a policyholder must demonstrate that they suffered some sort of tangible harm, such as mental anguish, physical pain or suffering, or economic loss. Courts have also found that a policyholder can recover damages for an insurance bad faith claim even when they did not sustain any actual economic losses. This is known as a "bad faith penalty." It is a way for the court to punish the insurance company for its wrongful conduct and to make the policyholder whole in some way. Overall, insurance bad faith claims allow policyholders to hold an insurance company accountable for their wrongful conduct in dealing with legitimate claims. This provides incentive for the insurance company to treat their customers fairly and honestly, and to make sure that policyholders are able to receive the benefits they are entitled to.
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