The Consequences of an Insurance Company's Breach

A policyholder in an insurance coverage action generally seeks to prove that its costs were covered under the policies it purchased, and that its insurance company breached those policies. Under general contract law principles, however, a policyholder that establishes its insurance company was in breach need not necessarily show that particular costs were “covered” under the policy in order to recover them as contract damages resulting from the breach. Traditional items of contract damages such as mitigation costs and consequential damages can be recovered if they flow from the breach, even if those costs would not be “covered” by the policy or even fall within the policy's limits. Moreover, as traditional items of contract damages, recovery of such damages should not depend on any heightened showing of bad faith by the insurance company.