Chapter 5

Question 1

Detrimental reliance

Answer 1

A situation in which an insured relies on the words or actions of an insurer and that reliance harms the insured’s financial position.

Question 2

Declaratory judgment action

Answer 2

A legal action in which the insurer (or insured) presents a coverage question to the court and asks the court to declare the rights of the parties under the applicable insurance policy.

Question 3

First-party bad faith

Answer 3

The insurer’s mishandling of a first-party claim that can result in extracontractural damages.

Question 4

Extracontractual damages

Answer 4

A payment awarded by a court that exceeds the usual contract damages for a breach of contract.