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Automobile Insurer’s Duty to Exercise Good Faith

Automobile Insurer’s Duty to Exercise Good Faith


Among its other duties, an automobile insurance company is required to act in good faith when dealing with an insurance claim. This duty to exercise good faith continues throughout the entire claim process. There is an implied covenant of good faith and fair dealing in every insurance contract.


An insurance company has a duty to act in good faith toward its insured, who presents a claim under the uninsured motorist provision of his or her automobile insurance policy. However, some courts find that an insurance company has no duty to settle a claim or to bargain in good faith. Many states, however, recognize that an insurance company has a duty to act in good faith in the settlement of third-party claims.


Some of the things an insurance company cannot do are harass a claimant; trick a claimant into waiting too long to file a lawsuit; make a claimant retain an attorney; and misrepresent a claimant’s injuries. An insurance company cannot in bad faith withhold payment of a claim.


Some courts say that it is the existence of a fiduciary duty between an insurance company and an insured that requires the insurance company to negotiate the settlement of a claim in good faith. If no fiduciary relationship exists, those courts would find that no obligation of good faith existed for an insurance company with respect to claims made against it. Most states find that insurance agents do not have a duty of good faith under an insurance policy. An insurance agent is not party to the insurance contract.

Copyright 2014 LexisNexis, a division of Reed Elsevier Inc.