Texas courts have held that a special relationship exists between an insurance company and its insured, which requires the insurance company to act in good faith toward its insured. In particular, this means that the insurance company is under an obligation to pay when it becomes reasonably clear that a claim is covered. There are also Texas Statutes which require an insurance company to respond to a claim within certain time limits. Insurance Companies who breach their duty of good faith and fair dealing may also be liable under the Texas Deceptive Trade Practices Act and under Article 21.21 of the Texas Insurance Code.

The following are some examples of Bad Faith:

Failing to acknowledge and act reasonably and promptly upon notice of a claim arising out of an insurance policy.

• Failing to adopt and implement reasonable standards for the prompt investigation of claims.

• Refusing to pay claims without conducting a reasonable investigation.

• Failing to confirm or deny coverage of claims within a reasonable time after proof of loss statement has been completed.

• Not attempting in good faith to effectuate fair and equitable settlements of claims in which liability has become reasonably clear.

• Compelling policyholders to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amount ultimately recovered in actions brought by such insured's.

• Failing to promptly settle claims where liability has become reasonably clear under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.

• Failing to promptly provide a reasonable explanation of the basis in the insurance policy for denial of a claim.