While most people have purchased car insurance and homeowners’ insurance policies to protect themselves and their property, many do not understand the difference between first-party and third-party insurance. Because insurance policies, at their core, are simply contracts, it is important to know the distinct differences between the two, should a claim arise.
First-party insurance is obtained for the policyholder (otherwise known as the insured) to cover losses or damages to the policyholder’s property or themselves. A policyholder can be an individual or group of individuals, a corporation, or people in a certain class (for example, employees of a company, the policyholder’s family members, or occupants in a certain vehicle).
Some common types of first-party claims may include the following:
- Health insurance
- Medical payments covered under an auto or homeowner policy
- Personal injury protection under a policy for auto insurance
- Underinsured or uninsured motorist (UM/UIM) coverage under an auto policy
- Property damage coverage on damage to an individual’s home or a business that is caused by a storm or natural disaster (wind, fires, flood, hail damage)
- Coverage under a renter’s insurance policy
With a first-party insurance claim, the policyholder can make a claim directly against their own insurance. What the insured can recover from their first-party insurance claim is defined by the terms outlined in the contract. It will vary depending on the person and type of coverage.
Since the contract is between the policyholder and the insurance company, the contract explains the fiduciary duties and obligations that the insurance company owes the policyholder, such as acting in good faith. A fiduciary-type relationship between the insured and the insurer is regulated by the State of Texas under the Texas Insurance Code.
If there is a failure on the part of the insurance company to follow the terms set out in the contract, it results in a breach of contract. It may also violate the good faith and other duties that are defined under the Texas Insurance Code. These types of violations may subject the insurance company to harsh penalties, including treble damages and 10% interest on the funds that were unlawfully withheld from the insured.
Third-party insurance is purchased to protect the insured against liability for losses or damages the insured causes to another individual or their property. A policyholder could again be an individual, group of individuals, corporation, or people in a certain class (for example, employees of a company, the policyholder’s family members, or occupants in a certain vehicle).
Some common types of third-party claims include the following:
- General commercial liability coverage
- Insurance coverage for liability under an auto policy
- A homeowner’s liability coverage for personal injury caused by the policyholder
- Umbrella insurance policies
- Commercial auto liability coverage
- Animal liability insurance
- Professional or public liability insurance
- Product liability insurance
- Liability insurance for directors or officers of a company
Under a third-party insurance claim, the claimant is not the insured party. The claimant files a claim against the insured party, but not the insurance company itself. The insurer does not have a contract with the claimant and does not have a fiduciary-type relationship with the claimant to act in good faith. Any duties are instead owed to the policyholder. If the insurance company does not handle a claim in good faith, the insured party – not the claimant – could have a potential cause of action against the insurer.
A potential cause of action only occurs if the claimant or their attorney sends a letter called a Stowers demand. This letter is sent to the insurance company and offers to settle claims against the insured for an amount within their insurance policy limits when liability is determined. The claim’s value must be more than the limits of the insured party’s policy.
Bad-Faith Insurance Claims
A policyholder may file a bad-faith claim against an insurance company for its unlawful and inappropriate actions in handling claims. Because this is a violation of the fiduciary-type relationship between the insured and the insurer, the insured party who believes the insurance company has acted unfairly can file a claim against the insurance company for these violations. The Texas Insurance Code regulates how insurers must treat policyholders.
Bad-faith claims can include claims involving auto, health, life, and property insurance.
Some examples of bad faith claims include the following:
- The insurer delayed payments without a legitimate reason.
- The claim was rejected by the insurer without explanation.
- The claim was denied when liability is reasonably clear or certain.
- The claim was not properly investigated for benefits under an insurance policy.
- The claims process was not completed within a reasonable time.
- The insurer failed to defend a policyholder against a third-party claim.
- The insurance company placed its financial interests over the policyholder’s.
- The insurance company offered or paid less than what is owed under the terms and conditions of the policy.
- There was a misrepresentation of the insurance contract to the policyholder.
- The insurer failed to explain an arbitration appeals policy.
- The insurance company requested unnecessary documentation.
- The insurer withheld information regarding a claim.
- The insurance company made unlawful accusations of misbehavior on the part of the insured.
- The claimant was advised to not hire an attorney to represent them.
- The insurance premiums were increased because of a claim in which the insured was not at fault.
Pursuing Compensation for Bad-Faith Claims
If you win a bad-faith claim in the state of Texas, you may receive compensation that includes damages as outlined below:
- Compensation up to three times the amount the insurance company would have paid if it had processed your claim correctly (if it is proven that it was an intentional violation)
- Any attorney fees, interest accrued, and court costs
- Mental anguish or suffering (unless the plaintiff is a business)
- Punitive damages as punishment for the insurance company for bad behavior (which are very difficult to obtain)
Contact a Texas Insurance Claims Attorney Today
If you believe an insurance company treated you unfairly or wrongfully denied or underpaid a first-party or third-party insurance claim, you need the assistance of a lawyer who understands bad-faith claims in Texas. The Houston attorneys at Michael P. Fleming & Associates P.C., have over 30 years of experience helping our clients with insurance claims. Contact us online or by phone to schedule a free consultation with a member of our team today.