Bad Faith and Excess Liability

Bad faith claims continue to be of serious concern to insurers, and can not only adversely affect their loss ratios, but their reputations as well. What is Bad Faith? It is a general rule that every contract implies the exercise of good faith and fair dealing between the parties to the contract — that neither party will do anything that impairs the right of the other to receive the benefits of the agreement. Good faith simply means that each party places its faith and trust in the other to fulfill the terms of the contract. The failure of either party to fulfill its obligation is referred to as bad faith. Since an insurance policy is a contract, the same general rule applies to insurance policies. The implied covenant of good faith does not arise out of the policy itself, but is a legally recognized principle apart from the policy.