Which damages arise from an intentional or outrageous act that causes severe emotional distress and are commonly applied in breach of insurance contracts?

• A. Compensatory damages
• B. Punitive damages
• C. Extracontractual damages
• D. Bad faith (outrage)

Answer: (D)

The concept here is damages tied to an insurer’s deliberate or outrageous conduct in handling a claim. When an insurer breaches the duty of good faith and fair dealing—acting with intention or recklessness to deny or delay a claim—the resulting damages are called bad faith damages. In this context, emotional distress can be awarded because the conduct is considered outrageous. In many cases, such bad faith actions may also open the door to punitive damages in jurisdictions that allow them, but the defining term for these extracontractual losses in breach of insurance contracts is bad faith (outrage).

Compensatory damages would focus on actual losses, not the wrongful conduct itself; punitive damages target punishment and aren’t the general category described here; extracontractual damages is a broader label that doesn’t pinpoint the insurance-breach context as clearly as bad faith does.