What are Consequential Damages in an Insurance Contract?
All contracts must be made in good faith with the intent to do as you agreed. An insurance policy is a contract between the buyer and the insurance underwriter. When valid claims are filed, the insurer should honor them and pay the policyholder in a reasonably prompt manner.
For example, when you buy an auto insurance policy, you agree to abide by traffic laws, reasonably maintain your vehicle, and pay your insurance premiums. The insurer agrees to provide detailed insurance coverages and pay for damages and medical costs as needed.
Most states require insurers to pay valid insurance claims within 30 days of a claim’s filing. Work might be required to repair a vehicle, home, or other insured property. The insurer should cover the costs up to policy limits.
When insurers do not honor valid claims or delay claims payments for an unreasonable amount of time, bad faith occurs. Bad faith means at least one party to a contract did not abide by the contractual agreement. Bad faith also could trigger consequential damages.
Consequential Damages Due to Bad Faith
When a party to a contract engages in bad faith, that could cause financial damages for other parties of that contract. Those additional costs qualify as consequential damages.
For example, your car might be damaged in an accident. Your insurer might not pay your valid claim in a timely manner. That could force you to rent a car or run up other transportation costs. Similarly, if your home suffers damage that makes it temporarily inhabitable, your insurer might delay approving your valid claim, which could force you to stay in a hotel and increasing your costs.
Such additional costs are direct consequences of the insurer’s bad faith. Had the insurer honored its obligations, those costs would not have been necessary. You might have to sue the insurer for bad faith and to recover the consequential damages.
New Jersey Laws Regarding Insurance Claims Payouts
New Jersey law allows insurers up to 10 business days to acknowledge receipt of any claim filed. The 10 business days apply no matter what type of insurance the policy provides or the type of claim filed.
The insurer has 30 calendar days to investigate, and pay or deny claims that are filed by a policyholder. The policyholder is the first party to the contract.
The insurer also has 45 days to investigate property damage claims filed by third parties. Among other examples, a third-party could be the owner of another vehicle that might be damaged in an accident caused by whoever was driving your vehicle.
New Jersey allows insurers up to 90 days to investigate bodily injury claims from third parties. Anyone who might have suffered a bodily injury that required medical treatment would be an example of a third-party bodily injury claim.
Types of Consequential Damages
Anyone who files a valid claim could claim consequential damages when appropriate. Whether the person or entity is a first-party or a third-party to the insurance contract, the insurer must abide by state laws regarding claims payouts.
Consequential damages might include:
- Additional expenses
- Adjusting costs and fees
- Court costs and attorney’s fees
- Finance charges and interest
- Reasonably foreseeable losses
There are no monetary limits on consequential damages because there are no statutory penalties for bad faith. Instead, you must seek them in civil filings in a state or federal lawsuit.
Filing Claims for Consequential Damages
When an insurer commits bad faith, it is then liable for consequential damages. Consequential damages are additional to the direct costs of a bad faith breach of contract. When an insurer commits bad faith, it is liable for the foreseeable losses that you suffer.
You would need to file a lawsuit in a New Jersey court to recoup your losses. You need to show evidence that the bad faith led to the loss. Demonstrating the chain of events could help you to clearly show the cause and effect of the insurer’s breach of the contract.
You also would have to show that the loss was reasonably foreseeable when the insurance policy was written.
For example, you might have a business insurance policy that the insurer violated. The bad faith might cause you to lose business opportunities.
You might have an auto policy, and the insurer’s bad faith leaves you without transportation. That could cause you to lose your job.
A judge can review the case and determine whether or not the losses cited were foreseeable when the insurance policy was enacted. An experienced insurance attorney can help you to present the strongest case.
Consequential Damages Waivers Could Become Costly
Some insurance contracts might include a waiver of consequential damages. Your insurance policy might include language that waives consequential damages. If so, the insurer would not be liable for them.
Most insurance policies do not have such waivers included. But you should be aware of the possibility of a consequential damages waiver that might stop you from filing court claims for damages. Whenever obtaining insurance, it is important to ensure there is no waiver for consequential damages.
The entire premise of insurance is to indemnify the policyholder for covered losses. Indemnity means you are restored as much as possible to your prior financial condition. That is why you should purchase insurance to protect against specific perils.
When an insurer denies a valid claim or unreasonably delays paying a fair settlement, indemnity is delayed or denied. That is where lawsuits filed in state courts can help.
Where you live would determine which New Jersey court would have jurisdiction in the matter. If you need to file a lawsuit to recoup consequential damages, an experienced insurance attorney is a great asset to help you make the strongest case.
Plainfield insurance lawyers at Herold Law, P.A., Help to Hold Insurers Accountable for Bad Faith
If your insurer has delayed or improperly denied your claim, the experienced Plainfield insurance lawyers at Herold Law, P.A., can help. You can call 908-647-1022 or contact us online to schedule an initial consultation at our law office in Warren, New Jersey. We represent clients in Warren, Plainfield, and throughout New Jersey.