The Development of the Implied Covenant of Good Faith and Fair Dealing
The Covenant of Good Faith and Fair Dealing is a general assumption of the law of contracts, that people will act in good faith and deal fairly without breaking their word. When insurers use shifty means to avoid obligations or deny what the other party obviously understood was a violation of the duty of good faith. The covenant, with regard to insurance, has been implied in every contract of insurance since the beginning of modern insurance at the Lloyd’s Coffee shop more than three centuries ago.
The implied duty of good faith and fair dealing is a centuries-old concept. It is aimed at ensuring that the parties to a contract do not interfere with the other party’s performance or destroy the other party’s reasonable expectations with respect to the benefits of the contract. Given that the duty has been in place for hundreds of years and is firmly rooted in the common law, it is unlikely that it will disappear in the near future. The implied duty of good faith and fair dealing protects the ability of the parties to rely on their contract, the promises and risks undertaken, and the parties’ reasonable expectations.
The first recognized statement of the covenant of good faith and fair dealing was issued by Lord Mansfield in the British House of Lords in 1766 in Carter v. Boehm S.C. 1 Bl.593, 3 Burr 1906, 11th May 1766 provided that the reason for the rule “obliges parties to disclose is to prevent fraud, and to encourage good faith. It is adapted to such facts as vary the nature of the contract; which one privately knows, and the other is ignorant of, and has no reason to suspect.” Lord Mansfield was faced with a need to determine whether there was, under all the circumstances at the time the policy was underwritten, a fair representation; or a concealment; fraudulent, if designed; or, though not designed, varying materially the object of the policy, and changing the risks understood to be run.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts
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