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Dawson and Rosenthal
Dawson and Rosenthal

San Diego Breach of Contract vs. Insurance Bad Faith

Although an insurance bad faith lawsuit may reflect a breach of contract case, the two have distinct differences. While a breach of contract indicates a failure to meet the requirements of a contract, insurance bad faith indicates unethical, deceptive, or exploitative behaviors on the part of the insurer to avoid paying on a legitimate claim made in good faith.

What Is a Breach of Contract?

A breach of contract describes any instance in which a contracting party fails to uphold the requirements of the contract. For example, an insurance policy is a contract that dictates the policyholder must pay premiums on time and the insurer will cover the scope of the policy’s coverage if a claim meets the specified criteria. A material breach describes a contract entirely and irreparably broken. The other type of contract breach is an anticipatory breach or repudiation, which describes a contracting party refusing to fulfill contractual obligations. For example, an insurance company selling an insurance package it couldn’t conceivably cover would be a material breach, whereas an insurance company refusing to pay out on a legitimate claim would be repudiation.

Is a Breach of Contract the Same as Insurance Bad Faith?

Insurance bad faith practices include unreasonably delaying processing a claim, failing to conduct an acceptable investigation of a claim’s legitimacy, failing to disclose the existence of coverage that applies to a particular claim, offering a low payment on a claim without a legitimate reason, misrepresenting a valid claim or elements of a policy, or refusing to pay a valid claim. Bad faith can also include threatening, intimidating, or intentionally deceitful behaviors.

What Are the Differences?

The difference between insurance bad faith and a breach of contract is the insurance company’s requirements regarding contract law and good faith business laws. Any duties rooted in insurance policy contracts and disputes thereof fall under contract law, whereas an insurance company’s duties for processing claims in good faith fall under common law and state provisions. A breach of contract occurs when an insurance company fails to meet the requirements outlined in the contract. Bad faith occurs when the insurance company does so intentionally.

What Are the Laws in CA?

The California Civil Jury Instructions indicate that juries in breach of contract lawsuits must assess the harm sustained by the plaintiff due to the defendant’s actions and award compensation accordingly. Compensatory damages can include coverage for a contract party’s failure to meet a contract’s requirements and the resulting financial damage to the other party. In insurance bad faith cases, plaintiffs often receive punitive damages in addition to compensatory damages beyond the limits of the policy. A jury will award punitive damages based on an insurance company’s overall wealth and the severity of the bad faith in question.

If you believe an insurance company failed to meet the requirements of an insurance contract or processed your claim in bad faith, you need an attorney to help you reach a timely and acceptable solution. The lawyers at Dawson & Rosenthal specialize solely in insurance bad faith cases, so we keep a small and tightly focused caseload at all times. This allows us to provide every client with personalized representation and our undivided attention. Contact us today for a free consultation.