Often during the litigation “fog of war,” insurance companies become privy to additional information regarding the policyholder’s claim that they were not aware of at the time they denied it. And sometimes defense lawyers try to use that new information against the policyholder. This situation raises the following question: what facts do courts in Texas consider for purposes of bad faith claims?

In Douglas v. State Farm Lloyds, 37 F.Supp.2d 532 (S.D. Tex. 1999), the U.S. District Court for the Southern District of Texas stated the following:

Under Texas law, there is a duty on the part of the insurer to deal fairly and in good faith with an insured in the processing of claims. A cause of action for breach of the duty of good faith and fair dealing exists when the insurer has no reasonable basis for denying or delaying payment of a claim or when the insurer fails to determine or delays in determining whether there is any reasonable basis for denial. In order to sustain such a claim, the insured must establish the absence of a reasonable basis for denying or delaying payment of the claim and that the insurer knew, or should have known, that there was no reasonable basis for denying or delaying payment of the claim. In determining whether a reasonable basis existed for denying a claim, the facts available to the insurer at the time of denial are considered.

Douglas at 536-7 (emphasis added)(internal citations and quotations omitted).

To rephrase, the facts available to the insurance company at the time of denial are considered in determining whether a reasonable basis existed for denying a claim. Now, I know what some of you defense lawyers are thinking: “But Sergio, the court didn’t say that ONLY the facts available to the insurance company at the time of the denial are considered.” You’re right, it didn’t say that. However, how would considering facts discovered after the insurance company denied the claim be fair and in the interests of justice? Maybe one of two of you can comment with a response.