Insurance bad faith

Insurance bad faith is a tort^[1] unique to the law of the United States (but with parallels elsewhere, particularly Canada) that an insurance company commits by violating the "implied covenant of good faith and fair dealing" which automatically exists by operation of law in every insurance contract.^[2]

If an insurance company violates the implied covenant, the insured person (or "policyholder") may sue the company on a tort claim in addition to a standard breach of contract claim.^[3] The contract-tort distinction is significant because as a matter of public policy, punitive or exemplary damages are unavailable for contract claims, but are available for tort claims. In addition, consequential damages for breach of contract are traditionally subject to certain constraints not applicable to compensatory damages in tort actions (see Hadley v. Baxendale).^[4] The result is that a plaintiff in an insurance bad faith case may be able to recover an amount larger than the original face value of the policy, if the insurance company's conduct was particularly egregious.

^ Anderson, Eugene R.; Stanzler, Jordan S.; Masters, Lorelie S. (1999). "§ 11.01, Introduction". Insurance Coverage Litigation (2020 supp. ed.). Wolters Kluwer. p. 11-7. ISBN 978-0-7355-1173-6.
^ Combee, Jamie R. (22 December 2014). "Insurance Bad Faith" (PDF). Mealey's Litigation Report. 28 (16). Archived from the original (PDF) on 2019-06-04. Retrieved 19 March 2018.
^ Midlige, Suzanne; Re, Robert; Hoffman, William (2011). "Chapter 6, Claims: an overview of the US tort of 'bad faith' – a common law approach to regulating insurer claims and settlements". In Burling, Julian; Lazarus, Kevin (eds.). Research Handbook on International Insurance Law and Regulation. Cheltenham: Edward Elgar Publishing. pp. 120–145. ISBN 978-1849807890. Retrieved 15 September 2020.
^ Eugene R. Anderson, Jordan S. Stanzler, & Lorelie S. Masters, Insurance Coverage Litigation (New York: Aspen Publishers, 2020-1 supp.), § 11.01 at 11-6.

[1] Anderson, Eugene R.; Stanzler, Jordan S.; Masters, Lorelie S. (1999). "§ 11.01, Introduction". Insurance Coverage Litigation (2020 supp. ed.). Wolters Kluwer. p. 11-7. ISBN 978-0-7355-1173-6.

[2] Combee, Jamie R. (22 December 2014). "Insurance Bad Faith" (PDF). Mealey's Litigation Report. 28 (16). Archived from the original (PDF) on 2019-06-04. Retrieved 19 March 2018.

[Midlige_Page127-3] Midlige, Suzanne; Re, Robert; Hoffman, William (2011). "Chapter 6, Claims: an overview of the US tort of 'bad faith' – a common law approach to regulating insurer claims and settlements". In Burling, Julian; Lazarus, Kevin (eds.). Research Handbook on International Insurance Law and Regulation. Cheltenham: Edward Elgar Publishing. pp. 120–145. ISBN 978-1849807890. Retrieved 15 September 2020.

[4] Eugene R. Anderson, Jordan S. Stanzler, & Lorelie S. Masters, Insurance Coverage Litigation (New York: Aspen Publishers, 2020-1 supp.), § 11.01 at 11-6.

[1]

[2]

[3]

[4]