Statutory criteria for insurer bad faith in dealing with insureds exists in almost all states. Sometimes it is based on the Model Act, sometimes not.  The Model Act requires that insurers have rules, principles or guidelines for claims adjustment.

Texas law is more-or-less typical. §542.004(b)(4) of the Insurance Code that is–as a whole–over 2000 pages and reads in part as follows: “[The following act] by an insurer constitutes [an] unfair claim settlement practice: failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer’s policy[.]”

Now, how should the words “adopt” and “implement” be understood.  Here is a suggestion. “Adopt” means: “create, draft and make company rules.”  Taking over someone else’s system counts as these. Nothing can be “adopted” unless it exists.

“Implement” means that the system of rules, principles, guidelines, and so forth, must be made be known to and required of adjusters.  A system of company directives are implemented only if there are negatives for failing to follow them (or–at least–act in accordance with them).  Every act or omission counts as a violation that is inconsistent with implementation. The components of the system must be enforced. Violators have to be penalized in some way for prohibited acts or omissions and there are lots of ways to do that.  Probably such penalties should be formal and written ranging from negative marks in a periodic review to discharge.

A failure to do any of these counts as a violation of §542.004(b)(4).  At the same time, the formulation here is obvious enough, and it can be conformed with easily. Arguably what is said here is nothing but an orderly conceptualization of already existing understandings and practice.