Egan Explains: Insurance Bad Faith vs. Breach of Contract — What’s the Difference?

At The Law Offices of Kenneth G. Egan, we recognize that understanding legal jargon can be a challenge. When it comes to insurance claims, terms like “insurance bad faith” and “breach of contract” are often thrown around. While they may sound similar, these are distinct legal concepts with different implications. 

Let’s break down the differences for a clearer understanding.

Breach of Contract Explained

Starting with the basics, a contract is an agreement between two or more parties. When one party fails to uphold their end of the deal, they’re said to have breached the contract.

In the realm of insurance, if your company refuses to pay out for a claim covered under your policy, they might be in breach of contract. Simply put, they’re not keeping their promise based on the written agreement. The key here is the violation of the policy’s explicit terms.

Insurance Bad Faith Unraveled

While breach of contract is primarily about a party not fulfilling obligations, insurance bad faith delves deeper into the insurance company’s intent and behavior.

Bad faith arises when an insurance company acts dishonestly or unreasonably towards a policyholder. Examples might include:

• Denying a valid claim without proper reasoning.
• Creating unnecessary delays in the claims process.
• Not carrying out a thorough investigation of a claim.

To establish that an insurer acted in bad faith, one must prove the company showed a conscious disregard for the rights of the policyholder. This is a steeper hill to climb compared to proving breach of contract.

Implications and Damages

The outcomes and compensations differ based on whether it’s a case of breach of contract or bad faith.

For breach of contract, the compensation is usually restricted to what’s necessary to “make the person whole.” Essentially, it’s about rectifying the wrong, often covering the original claim’s amount.

In contrast, a successful bad faith claim can lead to more extensive damages. Besides the actual claim amount, policyholders might also be awarded punitive damages. These are not merely compensatory but aim to penalize the insurance company for their ill-intent or extreme negligence.

Finding a Breach of Contract or Insurance Bad Faith Lawyer near Las Cruces, New Mexico

While both breach of contract and insurance bad faith revolve around insurance claims, they stem from different foundational issues and have varied legal ramifications. Policyholders must understand these differences and ensure they are appropriately represented if they believe they’ve been wronged.

If you find yourself navigating these complex waters, The Law Offices of Kenneth G. Egan is here to help, ensuring your rights are protected and you get the justice you deserve.

Have you been a victim of insurance breach of contract or bad faith? Schedule a free consultation with our experienced attorney today!