"Bad Faith" and Insurer Actions—Archived Article

December, 1999

Requirement of Good Faith and Fair Dealing Imposed in Insurance Policies

Summary: Good faith and fair dealing form the basis for any contract of insurance. These requirements can leave insurers exposed to extra-contractual damages, including punitive damages, for its breach. At heart, bad faith is the intentional failure by an insurer to perform the duty of good faith and fair dealing implied at 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.

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