Recently, I was discussing my job with a non-lawyer friend. I told him that I typically pursue claims against insurance companies on behalf of policyholders for a variety of reasons, including “unfair insurance practices.” At that point, he asked about “unfair insurance practices” because he didn’t know what that meant. His question made me think about how lawyers use terms such “unfair insurance practices” when communicating with clients without ever considering that their clients may not actually know what those terms mean. For my friend’s benefit, and anyone else who does not already know what “unfair insurance practices” means, here is some of what “unfair insurance practices” encompasses.
Texas Insurance Code Chapter 541 defines and prohibits unfair and deceptive insurance practices. The Texas Insurance Code prohibits a laundry list of acts by the insurer, but the most commonly used provisions are those relating to unfair settlement practices and misrepresentations of insurance policies.
With respect to property insurance, section 541.060 prohibits engaging in any of the following unfair settlement practices with respect to a claim by an insured:
1. misrepresenting to claimant a material fact or policy provision relating to coverage at issue;
2. failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim (a) with respect to which the insurer’s liability has become reasonable clear, or (b) a claim under one part of a policy of a claim with respect to which the insurer’s liability has become reasonably clearing order to manipulate the claimant to settle an additional claim under another part of the coverage, unless payment under one part of the coverage constitutes evidence of liability under another part of the policy;
3. failing to provide promptly to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer’s denial of a claim or for the offer of a compromise settlement of a claim;
4. failing within a reasonable time to (a) affirm or deny coverage of a claim to a policyholder, or (b) submit a reservation of rights to a policyholder;
5. refusing, failing, or unreasonably delaying an offer of settlement under applicable first-party coverage on the basis that other coverage may be available or that third parties are responsible for the damages suffered, except as may be specifically provided in the policy;
6. undertaking to enforce a full and final release of a claim from a policyholder when only a partial payment has been made, unless the payment is a compromise settlement of a doubtful or disputed claim;
7. refusing to pay a claim without conducting a reasonable investigation with respect to the claim;
8. requiring a claimant to produce the claimant’s federal income tax returns for examination or investigation by the person, as a condition of settling a claim, unless (a) a court orders the claimant to produce those tax returns, (b) the claim involves a fire loss, or (c) the claim involves lost profits or income.
As you can probably already tell, “unfair insurance practices” is a fairly loaded term. Although the list above contains eight different unfair settlement practices, it is not a complete list of what constitutes “unfair insurance practices.” Chapter 541 of the Texas Insurance Code also protects policyholders from an insurance company’s misrepresentations and it prohibits conduct described in the Deceptive Trade Practices Act. I will write about misrepresentations and the Deceptive Trade Practices Act in future posts, but the list above is a good start for understanding the type of insurance company behavior Chapter 541 prohibits.