Whether you are an individual or a business, insurance coverage is critical to protect against certain risks. As consumers of insurance products, individuals and businesses expect that their insurance carriers will honor their agreements and their legal duties to consumers. When they don’t, the costs to insurance consumers can be significant.

When an insurance carrier fails to abide by its contractual and legal duties, the insured party can and should seek to protect its rights. Ideally, disputes can be resolved out of court through negotiation, but that isn’t always possible. In any case, the guidance and advocacy of an experienced attorney is invaluable in protecting an insured’s interests. 

Two of the most common claims against insurance companies are breach of contract and bad faith claims. What exactly is the difference, though? The difference lies in where the insurance carrier’s obligation comes from. Most of an insurance company’s legal duties to its insured come from insurance policies and any riders, which are additions to the core policy. Duties rooted in the insurance policy are governed by the principles of contract law, and this is the body of law courts use as a basis for enforcing these contracts.

Bad faith claims, by contrast, are based on the duty of good faith and fair dealing recognized by state courts under common law, as well as on statutory requirements under state law. In our next post, we’ll look a bit more at this issue, and the importance of working with experienced legal counsel in both breach of contract and insurance bad faith claims.