Commercial and Insurance Litigation FAQ

What is a contract?

When does a breach of contract occur?

What are my remedies in the event there is a breach?

What legal remedies do I have if my insurance company won't pay my claim or won't pay what I think the claim is worth?

What does the duty of ‘good faith’ on the part of insurance companies involve?

Do damages for an insurer's bad faith go beyond what I would be entitled to under the contract?


QUESTION:

What is a contract?

ANSWER:

A contract is an agreement between two or more persons (individuals, businesses, organizations or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value. Contracts generally can be written, using formal or informal terms, or entirely verbal. If one side fails to live up to his/her/its part of the bargain, there's a "breach" and certain remedies for solving the differences are available. The terms of the contract - the who, what, where, when, and how of the agreement - define the binding promises of each party to the contract.


QUESTION:

When does a breach of contract occur?

ANSWER:

If one side fails to stick to her/her/its part of the bargain, there is a breach. A breach occurs when:

One party to a contract makes it impossible for the other parties to the contract to perform

A party to the contract does something against the intent of the contract; or
a party absolutely refuses to perform the contract


Not all breaches of contract are necessarily "contract killers" that require a suit be filed. Much depends on the nature of the breach and who the parties are. What makes sense for you will depend on the facts. Where the matter is substantial, seek the advice of an attorney with experience in this area of the law.


QUESTION:

What are my remedies in the event there is a breach?


ANSWER:

Depending on your circumstances, you may have a choice of remedies:

(1) Compensatory Damages - money to reimburse you for costs to compensate for your loss.

(2) Consequential and Incidental Damages - money for losses caused by the breach that were foreseeable. Foreseeable damages means that each side reasonably knew that, at the time of the contract, there would be potential losses if there was a breach.

(3) Attorney fees and Costs - only recoverable if expressly provided for in the contract.

(4) Liquidated Damages - these are damages specified in the contract that would be payable if there is a fraud.

(5) Specific Performance - a court order requiring performance exactly as specified in the contract. This remedy is rare, except in real estate transactions and other unique property, as the courts do not want to get involved with monitoring performance.

(6) Punitive Damages - this is money given to punish a person who acted in an offensive and egregious manner in an effort to deter the person and others from repeated occurrences of the wrongdoing. You generally cannot collect punitive damages in contract cases.

(7) Rescission - the contract is canceled and both sides are excused from further performance and any money advanced is returned.

(8) Reformation - the terms of the contract are changed to reflect what the parties actually intended.

Bear in mind that it often makes sense for both parties to directly negotiate a settlement for a breach. However, if the matter involves a significant amount of money, a wise option would be to retain an attorney to help you propose settlement terms and to review any proposed settlement in advance. Other alternatives for dispute resolution include mediation and arbitration. These avenues for obtaining a remedy may be more cost effective than simply filing a lawsuit and letting the court settle the dispute.


QUESTION:

What legal remedies do I have if my insurance company won't pay my claim or won't pay what I think the claim is worth?

ANSWER:

An insurance policy is a contract between the insurer and the insured. If the insurance company fails or refuses to pay a claim which should be paid under the terms of the policy, it is in breach of the contract, and the insured can pursue all available legal remedies for the breach. This usually involves filing a lawsuit against the insurance company. If successful, the insured will be able to recover its damages, which at least will equal the amount the insurer should have paid under the terms of the policy. Depending on state law and the circumstances of a specific case, damages may also include other expenses that were incurred because of the breach as well as costs of the lawsuit.


QUESTION:

What does the duty of ‘good faith’ on the part of insurance companies involve?

ANSWER:

The duty of "good faith and fair dealing" basically means that your insurance company must

(1) adjust your claim (either pay it or deny it) within a reasonably prompt time,

(2) must cooperate with you regarding the claim (timely respond to your letters and phone calls),

(3) must tell you in writing precisely why it is denying the claim specifying each contract term or provision upon which it relies,

(4) must attempt to find a basis to pay the claim rather than find reasons to deny it, and

(5) must (as the duty itself states) "play fair" with you.

QUESTION:

Do damages for an insurer's bad faith go beyond what I would be entitled to under the contract?

ANSWER:

Yes. In addition to what the insurer owes you under the policy (plus interest), if the denial can be shown to have been "unreasonable," you might also recover "consequential damages" (monies you had to pay out-of-pocket because of the denial), and "extra-contractual damages" to compensate for mental and emotional distress, and, in some cases, "punitive" or "exemplary damages" designed to punish the insurer and deter it and its employees from wrongfully denying similar claims in the future.