Wrongful Repudiation of an Insurance Policy

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 What Is Wrongful Repudiation of an Insurance Policy?

Wrongful repudiation of an insurance policy is the illegal action by an insurance company of refusing coverage for a claim under a health, life, automobile, or property insurance policy or any other kind of insurance. It is treated by the law as either a form of breach of contract or what is called “Insurance bad faith.”

An insurance company has also wrongfully repudiated an insurance policy if they do the following:

  • Deny the existence of a valid policy;
  • Refuse to comply with the terms of the policy;
  • Try to change the terms of the insurance policy without the consent of the insured person;
  • Express its intention not to perform their obligations under the policy,
  • Fail to renew a policy without providing a valid reason for doing so.

For example, a self-employed person might have purchased a disability insurance policy that would provide them with income in the event they should become unable to work. The insured person then becomes disabled in fact and makes a claim for payment of the disability insurance. The company might pay for a time and then find some pretext to deny continuing payments. Or the company might deny the claim altogether. Or, it might pay for a year or two and then purport to cancel the policy in order to try to avoid continuing payments.

Any of these acts of the insurance company would be wrongful repudiation of an insurance policy.

Of course, it is important to remember that an insurance company can always deny a claim for a valid reason or refuse to renew an insurance policy for a legitimate reason as well. For example, if a person has been at fault in two or three car accidents within one year, it is reasonable for their auto insurance company to refuse to renew their policy when it expires. The termination is wrongful if the company does not have any legitimate reason, other than, perhaps, a desire to avoid paying a claim that its policy obligates it to pay.

What Can I Do If My Insurance Policy is Wrongfully Repudiated?

In most states, suing an insurance company is sanctioned by the law if the company has wrongfully repudiated their insurance policy. Lawsuits for wrongful repudiation of an insurance policy can be based on breach of contract law. There are generally three different approaches that a victim of a wrongful repudiated insurance policy can take based on the theory of breach of contract:

  • Treat the insurance policy as terminated, or rescinded, and sue for any appropriate consequential damages, i.e. return of premiums paid;
  • Claim that the company has engaged in anticipatory breach of the contract by wrongfully repudiating its obligation to pay benefits in the future under the policy;
  • File a lawsuit against the insurance company to enforce the existing policy and collect the payments owed under the policy.

Often, the repudiation of an insurance policy takes place when the insurance company anticipates having to pay a benefit into the future that it does not want to pay. So it cancels the policy in an attempt to limit its loss on the policy. This action can be challenged as an anticipatory breach of the insurance contract.

Another option that a person has if an insurance company wrongly refuses to pay a claim or even repudiates an entire insurance policy is to sue on a theory of insurance bad faith. This is a kind of a tort claim based on the fact that insurance companies owe a duty of good faith and fair dealing to the persons they insure. This duty is based on the assumption that every contract, including contracts of insurance, contain an implied covenant of good faith and fair dealing. This covenant is automatically included by law in every insurance contract.

If an insurance company violates the covenant by wrongfully refusing to honor its contractual obligations, the insured person may bring suit against for the tort of insurance bad faith. This is important, because in a tort action a person can recover punitive damages, which cannot be recovered in a claim for breach of contract. consequential damages for breach of contract are traditionally subject to certain limitations that do not apply to compensatory damages in tort actions.

The result is that a plaintiff in an insurance bad faith case may be able to recover an amount larger than the insurance contract provides, if the insurance company’s conduct was particularly egregious.

What Can I Recover?

The damages that a person can recover in either a breach of contract or bad faith case depends on the law of the state in which they file their lawsuit. In most states, a lawsuit for the wrongful repudiation of an insurance policy is a form of breach of contract case. Thus, the damages for a wrongful repudiation lawsuit can include:

  • Any damages a person suffered during the time the person was covered by the insurance policy, including money damages to compensate for policy benefits that were not paid;,
  • Damages prescribed by any statute in the state where the person files the lawsuit;

If a person sues on a theory of insurance bad faith, they might recover the following elements of economic damages:

  • The amount of money the insurer rightfully owed under the policy, up to the limits of the policy;
  • Possibly lost wages the person may have suffered if they could not work because of their health if the denial of a medical insurance claim delayed treatment.

In addition in an insurance bad faith case, a person might recover non-economic damages which could include:

  • An amount to compensate the person for the pain and suffering they experienced as a result of denied medical treatment or a condition that was allowed to become worse unnecessarily;
  • An amount to compensate for emotional distress caused by the denial;
  • Possibly punitive damages could be awarded in the rare case in which the insurance company’s conduct was especially egregious. The goal of punitive damages is to punish an insurance company for its bad faith in order to deter it from doing the same thing to other policyholders in the future.

In cases that involve an employee who has insurance under an employment benefit plan, the federal Employee Retirement Income Security Act (ERISA) may apply instead of state common law tort and contract claims, including bad faith. In these cases, the insured person would be able to collect only the remedies that are provided for by statute un ERISA. Remedies prescribed by ERISA include the benefits due according to the policy, enforcement of the rights owed under the plan, and clarification of future benefits under the plan.

However, if the insurance at issue is not part of an employee benefit plant, bad faith claims can still be made.

Do I Need an Attorney If My Insurance Policy is Wrongfully Repudiated?

If you think your insurance policy was wrongfully repudiated, it is strongly recommended that you contact an experienced plaintiff’s personal injury attorney or a finance lawyer who deals with insurance law. As can be seen from the information relayed above, the law in this area is complicated and there are numerous technical issues involved in deciding when and how to bring a lawsuit. Only an attorney will be able to adequately explain the issues, help defend your rights and decide on the best course of action if a lawsuit must be filed.


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