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What Is Breach of Contract?

A breach of contract might occur if an insurance company fails to fulfill its end of the terms in your policy. A contract is a legal document, typically written but sometimes verbal, that governs the terms of an agreement between two parties. In Arizona, a breach of contract occurs when one party violates one of the terms of the agreement. A breach of contract could lead to material losses for you. If the other party is guilty of a breach, you may be able to hold that party financially responsible for your related damages.

Arizona Laws on Breaches of Contract

Before you can have a breach of contract claim, you must have a valid contract. If the contract between you and the other party does not stand up to scrutiny by the courts, you might not have grounds for a breach of contract claim. Arizona Revised Statute 44-101, the Statute of Frauds, states that most contracts must exist in writing to be valid. Contracts that involve services that will not be completed within one year, for example, must be in writing. The same is true for contracts for sales worth more than $500.

A written contract must have the signatures of both parties, who must have entered into the agreement willingly and knowingly. Fraud, deception, misrepresentation, intimidation and coercion will invalidate a contract in Arizona. Some parties cannot lawfully enter into contracts. These include children under 18, people under the influence of drugs or alcohol, and people legally mentally incapacitated. You may consider a breach of contract lawsuit after you confirm the validity of the original contract between you and the defendant.

Elements of a Breach of Contract

A breach of contract under Arizona law can refer to any situation in which one party entered in the contract fails to fulfill its provisions. In an insurance sense, this could mean the insurance company failing to pay the benefits promised on a policy. Three types of breaches of contract exist in Arizona.

  1. Material. A material breach is one so significant that it renders the contract irreparably broken. It is a failure to fulfill the main purpose of the contract, going to the roots of the agreement. It is also known as a total breach.

  2. Partial. A partial breach, or immaterial breach, does not strike to the heart of a contract but still constitutes a failure of one party to fulfill its terms. A partial breach is still significant enough to cause the contract to fail.

  3. Anticipatory. The other party has not yet breached the contract but you have reason to believe he or she will based on the party’s actions or failures to act. You may still be able to salvage the contractual relationship.

The type of breach of contract involved in your case can determine your legal rights. If you have proof of a material breach, for instance, you can end your agreement and bring your case to court for damages. With an immaterial breach, the courts may require you to try to get the other party to fulfill the contract’s terms first before filing a breach of contract lawsuit.

Breach of Contract vs. Bad Faith

Bad faith by an insurance company refers to its failure to treat a claim fairly and reasonably based on the circumstances. Examples of insurance bad faith include taking too long with an investigation, unfairly delaying a claim, requesting excessive information from the claimant, undervaluing losses, refusing to offer a reasonable settlement and denying a valid claim. Bad faith can also refer to an insurance company deceiving, intimidating or misrepresenting facts to the claimant.

An insurance company may breach a contract without engaging in bad faith and vice versa. The difference lies in contract law vs. good faith law. An insurance company’s duties of care under both laws are different. An insurer may have treated a claim in good faith but still broken a provision of the contract. Likewise, an insurance company may have technically obeyed the terms of a policy but still treated the claim in bad faith. Both types of wrongdoing could give you the right to file a suit against the insurance company to pursue damages.