Extra-contractual damages provide crucial protection for insureds dealing with obstinate insurance companies who fail to uphold their end of the special relationship.
By Ernest Martin Jr. and Michael Stoner
The Texas Supreme Court first recognized a cause of action against insurance companies for improper handling of an insurance claim in 1987. The court noted that because of the unequal bargaining power between insured and insurer, “unscrupulous insurers [could] take advantage of their insureds’ misfortunes in bargaining for settlement or resolution of claims” and that “without such an action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed.” The case was Arnold v. National County Mutual Insurance.
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