A fair question for someone in Grand Prairie, Arlington, Mansfield, Alvarado, Keene, Joshua, Cleburne, Granbury, Aledo, Hudson Oaks, or anywhere else in Texas might be; What is the potential recovery against an insurance company that breaks their agreement with me?
Of course, the answer would depend on many things. The harm caused by breaking the agreement, the intent of the insurance company in breaking the agreement, was a lawsuit filed or was there just some phone calls and correspondence back and forth, did the insured have to hire an experienced Insurance Law Attorney to protect their rights, etc. Many factors come into play but as it relates to just the breaking of the contract here is some food for thought.
Policy benefits are the basic recovery allowed for the insurance company’s breaking of its contractual obligations. An insurance company’s refusal to pay the insured’s claim causes damages in at least the amount of the policy benefits wrongfully withheld. This was stated by the Texas Supreme Court in the case, Vail v. Texas Farm Bureau Mutual Insurance Company, a case decided in 1988. Another Texas Supreme Court case, which was decided in 1994, styled Transportation Insurance Company v. Moriel, said breaking of the insurance contract allows recovery of benefit of the bargain damages.
In addition to the above an insured person should be able to recover consequential damages that are the foreseeable result of the insurance company’s breach of the contract of insurance. Numerous cases hold that insurance policies are subject to the same rules as other contracts. This was stated in another 1994, Texas Supreme Court case styled, Hernandez v. Gulf Group Lloyds. One of the best established rules is that:
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally; i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach.”
This was stated as far back as 1854, in Hadley v. Baxendale, and quoted by the Texas Supreme Court in 1981, in the case, Mead v. Johnson Group, Inc. The court in Mead stated, “In an action for breach of contract, actual damages may be recovered when loss is the natural, probable, and foreseeable consequence of the defendant’s conduct.”
The Texas Civil Practices & Remedies Code, Section 38.001, tells us that a successful claimant may recover attorney’s fees for the insurance company’s breach of contract. There are also a number of cases standing behind that statute.
One thing that is not recoverable under a breach of contract claim is punative damages. This was made clear by the Texas Supreme Court in the 1995 case, Twin City Fire Insurance Company v. Davis.
When an insurance company breaks an insurance contract with one of its insured’s there are many other theories of recovery beyond the breach of contract claim discussed above. Only an experienced Insurance Law Attorney is going to understand and properly advise on these other powerful theories of recovery.
Updated: