As attorneys engaged in personal injury defense in Dallas/Fort Worth and throughout the state of Texas, the lawyers at the Law Offices of Arthur K. Smith, A Professional Corporation, frequently encounter questions dealing with the scope and procedure of insurance coverage disputes. Below are answers to some of the most frequently asked questions we encounter. If you have other questions or need advice and representation in a live insurance coverage dispute, contact the Law Offices of Arthur K. Smith, A Professional Corporation, for immediate assistance.
Q. What does a declaratory judgment do in an insurance coverage dispute?
A. When an individual or business is sued, that business or individual’s insurance company may or may not be obligated to defend its insured. This obligation depends on many factors, such as whether the claim falls within the scope of coverage and whether the policyholder is paid up on premiums, has notified the carrier promptly about the matter, and has made complete and accurate disclosures on the insurance application. As a preliminary matter, the insurance company may seek a declaratory judgment from the court on the issue of whether the insurer has this duty to defend. Alternatively, the insurer may defend the case under a reservation of rights, meaning that if a judgment is awarded against its insured, it may still litigate or dispute the matter of whether coverage applies.
Our firm handles all aspects of defense on behalf of our insurance company clients, including issuing coverage opinions based on our coverage analysis, seeking declaratory judgments and litigating coverage issues, and providing strong, effective defense in personal injury and other cases of negligence under either a reservation of rights or an acknowledged duty to defend.
Q. What does it mean to say that an insurance company acted in bad faith?
A. Every insurance contract or policy comes with an implied covenant of good faith and fair dealing. Whenever an insurance carrier makes a decision that its insured disagrees with, such as denying a claim or benefits, or refusing to defend or settle with a third party, the insured may sue the carrier for bad faith. However, not every unfavorable decision shows bad faith. Insurers may legitimately investigate the claim (in fact, they have a duty to do so) and make a determination as to whether the claim is covered under the terms of the policy. The company may legitimately make a business decision in good faith based on its interpretation of the facts.
Even if the insurance company is wrong in its decision, bad faith requires more than making a mistake, even if due to carelessness, negligence or incompetence. Bad faith requires that the company’s action was both intentional and unreasonable in light of the terms of the policy and the facts at hand.