Most people don't realize that when an insurance company wrongly denies or underpays a legitimate claim, they may be committing what's called "bad faith" — a separate, independent legal violation. Both Texas and New Mexico have specific statutes designed to hold insurance companies accountable when they violate their duties to policyholders.
What is insurance bad faith?
Insurance bad faith occurs when an insurer fails to handle a claim in good faith. Common bad faith conduct includes:
- Unreasonable denial of a legitimate claim
- Failure to investigate the claim properly
- Unreasonable delay in paying or processing the claim
- Lowball offers not supported by the facts or policy
- Misrepresentation of policy provisions
- Failure to communicate with the policyholder
- Failure to settle a third-party claim within policy limits when they should have
- Improper claim handling generally
Texas bad faith statutes
Texas has some of the most policyholder-favorable insurance laws in the country. Key statutes include:
Texas Insurance Code Chapter 541
Prohibits "unfair or deceptive acts or practices" by insurance companies — including misrepresentation, unfair claim settlement practices, and failure to provide a reasonable explanation for claim denial.
Texas Insurance Code Chapter 542 (Prompt Payment Act)
Requires insurers to acknowledge claims within 15 days, accept or deny within 15 business days of receiving needed information, and pay accepted claims within 5 business days. Violations can result in penalties of 18% interest per year plus attorney fees.
Common Law Bad Faith
Texas also recognizes common-law bad faith claims — providing additional avenues to recover when insurers violate their duty of good faith and fair dealing.
Damages
Successful bad faith claims in Texas can recover policy benefits, actual damages, mental anguish, attorney fees, prejudgment interest, and in egregious cases, treble (triple) damages.
New Mexico bad faith law
New Mexico also provides strong protection against insurance bad faith. Key statutes include:
New Mexico Insurance Code §59A-16-20
Defines unfair claims practices, including misrepresentation, failure to acknowledge claims, failure to settle in good faith, and unreasonable delay.
NM Unfair Practices Act §57-12-1 et seq.
Allows claims against insurers engaged in unfair or deceptive trade practices.
Common Law Bad Faith
New Mexico courts have long recognized bad faith claims based on the insurer's duty of good faith and fair dealing.
Damages
Successful claims can recover policy benefits, consequential damages, attorney fees, and punitive damages in cases of egregious conduct.
Types of claims we handle
First-Party Claims
When your own insurance company refuses to pay on your policy — homeowner's coverage, auto insurance, health insurance, disability, life insurance.
Underinsured/Uninsured Motorist Claims
When your own auto insurer refuses to pay UM/UIM benefits after another driver injures you.
Storm and Property Damage Disputes
Hail damage, wind damage, hurricane damage — when the insurer underestimates or denies legitimate claims.
Health Insurance Denials
When insurers wrongfully deny coverage for medical treatment.
Third-Party Bad Faith
When another party's insurance company refuses to settle a claim within policy limits — exposing their insured to excess judgment.
"Insurance companies have entire legal departments dedicated to finding reasons not to pay. You deserve someone fighting just as hard for the policy you paid for."
If you've been hurt, don't wait. Call us now or fill out our free case review form. We listen, evaluate honestly, and tell you what we think — no obligation, no pressure.