Is a Breach of Contract Considered Bad Faith Insurance?
If you deal with an insurance company intentionally stalling a claims investigation or falsifying reasons for a denial, it could be more than bad faith insurance.
Could it be a breach of contract?
While both situations involve some type of breach in terms or contracts, they are distinctive from each other. We have handled many Reno insurance bad faith claims in our law office. Let’s help clear up any confusion between breaches of contract and bad faith insurance.
What Is a Breach of Contract?
In the world of contractual agreements, the notion of a breach of contract can have significant legal implications. How does this occur? When one party fails to fulfill their obligations in the contract, that can violate the agreed-upon terms.
Contract breaches can be categorized into two types: material breaches and minor breaches. A material breach is a fundamental and sustainable contract violation that undermines the entire terms of the agreement, making it impractical or unworkable.
For example, a material breach could be a contractor failing to complete a project within the agreed timeframe. In turn, that resulted in major delays and financial losses. Another example is an employer’s refusal to pay employees their salaries, which clearly violates employment terms.
What Is a Minor Breach?
These violations are less severe and do not impact the purpose of the contract. In short, the impacts of these breaches are limited. One example is a minor delay in a material delivery or an inconsequential deviation from an agreed specification in a construction project.
Breaching a contract can have far-reaching consequences. For one, the non-breaching party can incur financial losses. Additionally, they may need to pay legal fees to take the matter to court.
These breaches can damage business relationships. When entering into any level of agreement, there is a level of trust. When a breach occurs, it can be eroded or destroyed. The breaching party can see their reputations and credibility damaged by these violations.
In many cases, these disputes can end up in court. The injured party (plaintiff) will seek remedies in the courtroom. A judge will need to interpret the language in the contract, assign the damage, and determine the right course of action.
Depending on the specifics of the cases, the court will order the breaching party to fulfill their obligation to pay damages to the plaintiff for any losses suffered.
Is a Breach the Same as a Bad Faith Insurance Claim?
While they seem the same from the outside, there are differences under the law. In Nevada, an insurance policy is considered a contract.
Bad faith refers to intentional misconduct by insurance companies. Often, this goes beyond negligence and involves unfair practices, misleading behavior, and failure to uphold contractual obligations. In most states, there are two types of bad faith: first-party and third-party. However, Nevada does not allow third-party claims under the law.
With a first-party bad faith claim, individuals sue their own insurance company for unfair practices, such as:
- Wrongful denial of claims
- Unreasonable delay in claims processing
- Inadequate investigation of claims
Sometimes, the insurers may also mislead policyholders by providing false information or intentionally concealing important details. Unfortunately, some insurers enter into an agreement without intending to do so or having the means to honor it.
What separates bad faith insurance from a standard breach of contract is a violation of an implied covenant that undermines the insured’s rights or interests.
What Is an Implied Covenant?
Implied covenant focuses on good faith and fair dealing. This legal principle exists in all contracts, including insurance agreements. Under that, the insurance must act in good faith, especially when handling policies and investigation claims.
When it comes to insurance and insurers, there are several key aspects of an implied covenant.
All insurance companies need to be fair in handling claims. Insurers must conduct an honest and thorough investigation. They also need to make decisions based on the facts and terms of the policy.
A denial of a valid claim without proper cases is considered a violation of these principles.
Additionally, all insurers are required to adhere to industry standards. If they fail to meet these requirements, then that is a breach of the implied covenant.
Some examples of these breaches may include:
- Creating false justification of denials
- Unreasonable delays in processing
- Acting against the insured’s best interests
If any of these scenarios occur, policyholders have the legal right to sue insurance for bad faith. In these cases, the breach goes beyond the terms of the contract, as the insurer acted inappropriately and maliciously to deny or stall a claim.
At the Law Office of Matthew L. Sharp, we can assist with discussing the specifics of your bad faith insurance case. These insurers need to be held accountable for their actions and for breaking the trust of policyholders.
