Appendix: GOOD FAITH

Appendix: GOOD FAITH

Barron's Law Dictionary defines good faith as:

[A] total absence of any intention to seek an unfair advantage or to defraud another party; an honest and sincere intention to fulfill one's obligations. In the case of a merchant, good faith refers to honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. U.C.C. § 2-103(1)(b). More generally, the term means "honesty in fact in the conduct or transaction concerned." U.C.C. § 1-201(19). In property law, a "good faith" purchaser of land pays the value of the land and has no knowledge or notice of any facts that would cause an ordinary, prudent person to make inquiry concerning validity of the conveyance. See 220 N.W. 795, 797.

Barron's Law Dictionary (2nd ed. 1984), at 204.

GOOD FAITH

General. A term used to refer to conduct which is to be expected in any other commercial transaction; that is, all parties to a transaction are expected to have honest motives, to fully intend to perform their obligations under the terms set forth in the relationship, and to abstain from defrauding or taking unfair advantage of the other party. In may legal relationships (e.g. the employment relationship, an insurance contract, etc.), there is an "implied covenant of good faith and fair dealing" which requires both parties to treat the other party fairly and to give at least as much consideration to the other party's welfare as it gives to its own.

Rupp's Insurance & Risk Management Glossary (1991) p.156.

Good Faith. Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage, and an individual's personal good faith is concept of his own mind and inner spirit and, therefore, may not conclusively be determined by his protestations alone. Doyle v. Gordon, 158 N.Y.S.2d 248, 259, 260. Honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. An honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious. In common usage this term is ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one's duty or obligation. Efron v. Kalmanovitz, 249 Cal.App. 187, 57 Cal.Rptr. 248, 251. See Bona fide. Compare Bad faith.

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Insurance law. "Good faith" required of a liability insurer in determining whether to accept settlement within policy limits implies honesty, fair dealing and full revelation; while "bad faith" implies dishonesty, fraud and concealment. Davy v. Public Nat. Ins. Co., 181 C.A.2d 387, 5 Cal.Rptr. 488, 492.

Black's Law Dictionary (6th ed. 1990) at 693.

[B]ad faith is the intentional failure by an insurer to perform the duty of good faith and fair dealing implied by law. Generally, an insurer may be acting in bad faith when it refuses to pay a claim and (1) has no reasonable basis for refusing to pay and has actual knowledge of that fact, or (2) has intentionally failed to determine whether it had a reasonable basis for so refusing.

"Bad Faith" And Insurer Actions, Fire Casualty & Surety (FC&S) Bull. (Personal Lines, General B-1 (The National Underwriter Co., Jan. 1995).

Bad faith. . . generally implies or involves "actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive. Term bad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that it contemplates a state of mind affirmatively operating with furtive design or ill will." Insurance case law has softened the "ill will" or "conscious doing of wrong" into areas of more passive action. . .

Id. at General B-2 (quoting Black's Law Dictionary, 5th ed.)

[C]ourts have held that the cause of action against the insurer arises "where there is no reasonable basis for denial of a claim or when the insurer fails to determine or delays in the determination of whether there is any reasonable basis for a denial of the claim...In order to sustain a claim for breach of good faith, the insured must establish (1) the absence of a reasonable basis for denying or delaying payment of the claim, and (2) that the insurer knew, or should have known, that there existed no reasonable basis for denying or delaying payment of the claim."

Id. at General B-5 quoting Dixon v. State Farm Fire and Casualty Co., 1993 C.C.H. (Fire & Cas.) 4023 (S.D. Tex).

When a claim is fairly debatable, an insurer is entitled to debate it, whether the debate concerns a matter of fact or law. A knowing failure on the part of the insurer to exercise an honest and informed judgment constitutes a tort of bad faith. An such may be shown where a claim is not properly investigated or reviewed.

Appleman, Insurance Law and Practice, § 8878.25 (1981 ed.)

"To show a claim for bad faith a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent then that the tort of bad faith is an intentional one. Implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is reckless indifference to facts or to proofs submitted by the insured."

UTMOST GOOD FAITH

What constitutes or what is utmost good faith has also been

addressed.

"[T]he [insurance] company acts in utmost fair dealing with all of its insureds in any claim situation."

Deposition of Robert E. Hyland, Aetna V.P. taken in Colonial Foods v. Aetna, supra, Mar. 28, 1995 at page 59 (emphasis added).

"The insurance transaction...is generally considered a personal transaction requiring complete honesty and full disclosure by both parties....both the insurance buyer and the insurance company expect utmost good faith and fair dealing from one another."

James J. Markham, et al., The Claims Environment (1st ed. 1993) at 5-6 (emphasis added).

"It is to the insured that the insurance company owes the contractual obligation of utmost good faith and fair dealing."

Id. at 18 (emphasis added).

"The insurance...business [is a] business[] of Utmost Good Faith. By custom and practice both the insurer and the insured are held to a higher level of care when dealing with each other."

Letter from Aetna's Insurance Expert, Prof. Peter R. Kensicki, re Penco Prods. v. Aetna Casualty & Sur. Co., Nov. 29, 1994 at 7 (emphasis added).

Utmost good faith has also been deemed:

A phrase in a legal document calling for the highest standards of integrity on the part of the insured and the insurer

Dictionary of Insurance, 7th Rev. ed. p. 473

utmost good faith

Insurer Operations/Reinsurance. The insurance contract is a personal contract between an insurer and insured where each party must be able to rely on the other for valid critical information.

syn: uberrimae fidei

Rupp's Insurance & Risk Management Glossary (1991) at 339.

uberrimae fidei

Insurer Operations/Reinsurance. A Latin legal term which translates to "utmost good faith." As respects insurance contracts, it is assumed both parties to the contract (insurer and insured, insurer and reinsurer) have entered into the contract in good faith and have disclosed all relevant facts with the intent to carry out their obligations. If a lack of such good faith is proven, an insurance contract may be declared null and void.

syn: utmost good faith

Rupp's Insurance & Risk Mgmt. Glossary (1991) at 333.

uberrimae fidei

"Utmost good faith." The basic principle of insurance law is that there must be utmost good faith between an insurer and an insured, especially with regard to the nature of the exposure insured.

Risk Management Society Glossary (1985) at 78.

uberrimae fidei

Of utmost good faith -- certain transactions require the utmost of good faith on both sides, and both parties must disclose relevant facts. It is a fundamental principle of all insurance contracts.

Dictionary of Insurance, (7th Rev. ed.) at 465.

uberrimae fidei contract

agreement "of utmost good faith." Under law, it is assumed that insurance contracts are entered into by all parties in good faith, meaning that they have disclosed all relevant facts and intend to carry out their obligations. Where lack of good faith can be proved, such as a fraudulent application to obtain insurance, the contract may be nullified.

Barron's Dictionary of Insurance Terms (2nd ed.) at 433.

uberrima fides

/ yuwbehreme faydiyz/. Lat. The most abundant good faith; absolute and perfect candor or openness and honesty; the absence of any concealment or deception, however slight. A phrase used to express the perfect good faith, concealing nothing, with which a contract must be made; for example, in the case of insurance, the insured must observe the most perfect good faith towards the insurer. Gulfstream Cargo, Ltd. v. Reliance Ins. Co., C.A.Fla., 409 F.2d 974, 981. Contracts of life insurance are said to be "uberrima fida" when any material misrepresentation or concealment is fatal to them.

Black's Law Dictionary (Sixth ed.) at 1520.

BAD FAITH IN INSURANCE COVERAGE DISPUTES AND THE PUBLIC NATURE OF INSURANCE -- UNDERSTANDING THE RECOVERY TOOLS AVAILABLE TO POLICYHOLDERS

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