Some insurance companies illegally cancel insurance policies or deny claims without credible reasons. When wrongful repudiation happens, a lawsuit can be filed against the insurer.
What is Wrongful Policy Repudiation?
Wrongful repudiation of an insurance policy occurs when an insurance company illegally cancels a policy holder’s life, health, automobile, or property insurance without reasonable or valid reasons. In addition to cancellation, wrongful repudiation can apply when an insurer:
- Fails to renew the policy without good reason
- Changes policy terms without the policy holder’s consent
- Refuses to comply with policy terms
- Fails to perform their obligations outlined in the policy
- Fails to follow established customs of the policy
- Denies the existence of the policy
What’s the Recourse for Wrongful Repudiation?
If an insurance company wrongfully repudiates an insurance policy or acts in bad faith, state laws allow policyholders to file a lawsuit against the insurer under breach of contract laws. The policyholder has three options: (1) Sue for appropriate damages based on policy termination; (2) Sue to enforce the existing policy; (3) Sue for damages once the terms of the policy have matured.
Some states allow policyholders to file a lawsuit based on anticipatory repudiation. This means the policy has not been repudiated, but the policyholder has reason to believe that it will be in the future. If a policyholder files suit based on anticipatory repudiation, he/she should proceed with caution under advice from an insurance claim lawyer. In some cases, the policyholder is found to be in breach of the contract, and the insurance company files a lawsuit against the individual.
What Damages can be Recovered?
Filing a lawsuit against an insurer for wrongful repudiation of an insurance policy allows recovery for any damages suffered during the time a policyholder was covered. Damages include monetary loss; pain and suffering; punitive damages; forthcoming benefits minus premiums paid or recovery of all premiums paid without any benefits; damages prescribed by a statute.
When an insurance policy is rescinded, as opposed to canceled or terminated, it’s like the agreement made between the insurer and the policyholder never existed. If a policy is rescinded by an insurer, the policyholder will be refunded any premiums they paid to the insurance company. If a policy is canceled or terminated, the policyholder only gets back premiums for the remaining portion of the policy term.