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.
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