Not every denied insurance claim is bad faith — but many are. Understanding the distinction between a legitimate coverage dispute and improper claim handling is essential to knowing whether you have remedies beyond the basic claim amount.
Legitimate Claim Denials vs. Bad Faith Denials
An insurer can legitimately deny a claim when the loss is genuinely excluded by the policy. A bad faith denial occurs when the insurer denies coverage based on a misreading of the policy, applies exclusions that don't apply, ignores favorable evidence, or makes coverage determinations without conducting an adequate investigation.
The 'Reasonable Basis' Standard
Under Texas law, a bad faith claim typically requires showing that the insurer denied the claim without a reasonable basis and either knew there was no reasonable basis or acted with reckless disregard for whether a reasonable basis existed. The bar is intentionally higher than mere error — but many insurers cross it.
Building a Bad Faith Case
CDF Law builds bad faith cases through: detailed analysis of the denial letter vs. policy language, documentation of the adjuster's investigation (or lack thereof), preservation of all claim file notes and communications, expert analysis of the coverage question, and evidence of the insurer's claims handling practices.