Lessons from Hurricane Ike: Texas Revives Statutory Bad Faith

Lessons from Hurricane Ike: Texas Revives Statutory Bad Faith by Evan Schwartz



In the recent decision of USAA Texas Lloyds v. Menchaca, the Texas Supreme Court ruled that homeowners and other insureds can rely on Texas law to seek damages against insurance companies for unfair and deceptive practices in their investigations and payments or non-payments of insurance claims.  

In this case, a homeowner’s claim resulted from property damage caused by Hurricane Ike. Although the damage was not substantial, the Texas Supreme Court ruled that absence of substantial damages does not limit an insured from seeking recovery under the Texas Insurance Code for violations.

This Texas High Court also interpreted the Texas Insurance Code in a very important way, ruling that: If an insured is able to establish their entitlement to benefits under the policy, they then have a claim under the Texas Insurance Code for additional damages—even if they didn’t receive any of the policy benefits.

With this decision, the Texas Supreme Court has revived an existing section of the Texas Insurance Code and has explained how insureds can pursue their rights—allowing those who are harmed by the misconduct of insurance companies to recover extra-contractual, bad faith damages, including: 

•attorneys’ fees;


•potential treble damages, and

•other compensatory damages (if able to establish violations of the Texas Insurance Code). 

Any of these violations can be tried to a jury in the State of Texas. 

Texas may be conservative in certain aspects of its law for insurance policy holders, but this ruling creates a true source of leverage against insurance companies. This decision will alter insurance company behavior in Texas, causing them to review, evaluate, and pay claims more fairly. 


Evan S. Schwartz
Founder of Schwartz, Conroy & Hack