Breach Of Contract and Bad Faith
When you purchase insurance it is suppose to provide you the peace of mind that you have protected yourself and your family in the case of an accident, illness or other catastrophic event. Despite the increasing cost of health, automobile, homeowner and other types of insurance, claims still get denied. When given a copy of your policy it is not easy to read. It is drafted to the insurance company’s benefit. You either sign or are not insured.
Both insurance agents and/or companies may be liable if benefits are not paid for insurance you either were told you had or you in fact did have.
Breach of Insurance Contract
Your insurance company may seek to avoid paying on a claim or cancel your insurance for a number of reasons including: premiums were not received; alleged misrepresentations on the insurance application; a particular person or type of accident was not covered by the insurance contract.
An insurance company’s obligations to its insured’s include what is contained within the insurance contract and what is required by law. If an insurance company fails to honor its obligations it has breached its contract or may still otherwise be required to pay on a claim.
To prove breach of contract you must prove:
- The plaintiff and defendant entered into a contract;
- The terms of the contract;
- That the defendant breached the contract in one or more ways;
- That this breach of contract was a proximate cause of some damage to plaintiff; and
- The nature and extent of that damage.
If a person is successful in a breach of insurance contract case, they are entitled to be “made whole” that is, put in a position they would have been had the insurance company not breached the contract. In addition, attorney fees may be awarded.
Insurance contracts are strictly construed against the insurance company. Ambiguities are interpreted to favor the insured. In addition, provisions with the policy may be held to be invalid as against public policy.
The law governing insurance contracts depends on whether the insurance contract/ plan is under state or federal law. ERISA plans are governed by federal law and offer much more protection to “insurers” than state plans.
In addition, to a breach of contract a claim may be brought for the negligent performance of a contract. However, generally the damages are the same as is the proof necessary.
Bad Faith
An insurance company may be liable for bad faith in the performance or nonperformance of a contract. To establish a claim for bad faith, you must show the absence of a reasonable basis for denying a claim under the insurance policy and the insurer’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It requires intentional action or inaction. More simply, there was no reasonable basis for denying the claim.
Bad faith can arise from a breach of insurance contract, uninsured or underinsured claim. However, they are often difficult to prove.
Damages in a bad faith claim may include those in a bad faith claim, emotional distress and attorney fees.
A bad faith claim may not be brought by a person against motor vehicle insurance company for failing to settle a liability claim. More simply, you cannot sue another’s driver insurance company for failing to settle your case. However, this is distinct from the situation for an-fault driver against his or her insurance company for failing to settle a case with an injured person. This type of case is permitted.
The book and movie “The Rainmaker” by John Grisham involves a health insurance company failing to pay medical expenses for a cancer-stricken teen. The story, while fictional, does give some insight on how insurance companies wrongfully deny claims.
Insurance Agents
An insurance agent may be responsible for negligently failing to obtain insurance for a person after agreeing to do so. In this case, the agent is liable for the amount the insurance company would have paid had the person actually been insured.
At Lapin Law Offices we represent Nebraskans against their insurance companies for breach of contract and bad faith cases including health, automobile, home owners and life insurance. We understand how to read insurance contracts and the law governing them.