DOES A POLICY-HOLDER HAVE A CAUSE OF ACTION AGAINST INSURER WHO ACTS IN BAD FAITH IN DENYING A CLAIM?
Texas law recognizes a duty of good faith and fair dealing in the insurance context. Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). The duty arises from the special relationship that is created by the contract between the insurer and the insured. Id.; see also Viles v. Security Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990) (recognizing that the duty arises "not from the terms of the insurance contract, but from an obligation imposed in law" as a result of the special relationship).
NOT THE SAME AS BREACH OF INSURANCE CONTRACT
A claim for breach of the duty of good faith and fair dealing is separate from any claim for breach of the underlying insurance contract, Viles, 788 S.W.2d at 567, and the threshold of bad faith is reached only when the breach of contract is accompanied by an independent tort. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994).
ELEMENTS OF CLAIM (breach of duty of good faith and fair dealing)
To prevail, the insured must prove that the insurer had no reasonable basis for the denial or delay in payment of a claim and that the insurer knew or should have known of that fact. Id. at 18; Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 213 (Tex. 1988). An insurer does not breach its duty merely by erroneously denying a claim. Moriel, 879 S.W.2d at 17. An insurer may demonstrate its entitlement to summary judgment on this type of claim by demonstrating that there is "a good faith dispute as to coverage." United States Fire Ins. Co. v. Williams, 955 S.W.2d 267, 268 (Tex. 1997); see also Perotta v. Farmers Ins. Exch., 47 S.W.3d 569, 575 (Tex. App—Houston [1st Dist.] 2001, no pet.) (affirming summary judgment on insured’s good faith and fair dealing claim because the evidence demonstrated that the insurer "had a reasonable basis for denying the claim based on [the insured’s] own breach of the policy").
The insured can also establish that an insurer breached the duty of good faith and fair dealing by demonstrating that the insured "wrongfully cancel[ed] an insurance policy without a reasonable basis" and "the insurer knew or should have known of that fact." Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex. 1994); see also Rice v. Metro. Life Ins. Co., 324 S.W.3d 660, 672 (Tex. App.—Fort Worth 2010, no pet.) (reversing summary judgment on breach of good faith and fair dealing claim because "there is more than a scintilla of evidence that MetLife wrongfully canceled Larry’s new coverage without a reasonable basis and knew or should have known of that fact").
The supreme court has held that, while an insured’s failure to timely submit documentation will not always defeat a claim that an insurer breached its duty of good faith and fair dealing, in certain cases "failure to comply with the policy’s requirement as to proof of loss may constitute a reasonable basis for denial of the claim." Viles, 788 S.W.2d at 567. "Whether there is a reasonable basis for denial, however, must be judged by the facts before the insurer at the time the claim was denied." Id.
TWO YEAR LIMITATIONS PERIOD
Negligence and breach of good faith and fair dealing claims are also governed by a two-year limitations period. Tex. Civ. Prac. & Rem. Code § 16.003(a) (West Supp. 2011). Limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy. Kenneco Energy, 962 S.W.2d at 514. “[A] plaintiff’s cause of action for bad-faith breach of a first-party insurance contract accrues at the time the insurer denied the insured’s claim.” Knott, 128 S.W.3d at 221 (citing Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990)).
SOURCE: HOUSTON COURT OF APPEALS - 01-10-00672-CV - 12/1/11