The obligations of good faith and fair dealing are very basic,

it is an obligation to be fair and honest.

While bad faith is most often plead in litigation involving the claims handling process, because of the policyholder’s expectation of fair and equitable treatment, it is also applicable to any of the insurance disciplines, underwriting, sales, etc.

Generally speaking, negligence goes to judgment while bad faith goes to conduct or behavior.

There is a contractual obligation of universal force, which underlies all written agreements. It is the obligation of good faith in carrying out that which is written.

Commonly recognized situations and/or factors that may give rise to claims of breach of good faith are:

▪ Misrepresenting policy provisions

▪ Failure to acknowledge pertinent communications (in a timely fashion)

▪ Inducing an insured to contribute to a settlement

▪ Rejection of attorney’s advice

▪ Failure to inform the insured of an offer

▪ Failure to settle within policy limits

▪ Rejection of a reasonable offer

▪ Inappropriate economizing on offers

▪ Wrongful assertion/Denial of claim

▪ Malicious defense

▪ Unequal bargaining power

▪ A failure to thoroughly investigate a claim in a timely manner prior to its denial

▪ Deceiving or misinforming the insured

▪ Exercising an unfair advantage over the insured

▪ Breach of fiduciary obligation (arbitrary, inflexibility or capricious conduct)

▪ Undue and unexplained delays during any stage of the claim

▪ A failure to notify the insured or her attorney of the denial of the claim in a timely and straight forward manner and to set forth the reasons for the denial.

One of the benefits that flows from the insurance contract is the insured’s expectation that his insurance company will not wrongfully deprive him of the very security for which he bargained, or expose him to a catastrophe from which he sought protection.