"In every contract there is an implied covenant that neither party shall do anything, which will have the effect of destroying or injuring the right of the other party, to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing."
In the United States, it is understood that all contracts carry an implied covenant of good faith and fair dealing. This legal principle was asserted by a 1933 ruling by the New York Court of Appeals which stated;
This legal principle is even more important when it comes to insurance companies.Consumers purchase insurance because they want to protect themselves, their families, their property, or their businesses. However they have extremely limited bargaining power both upon entering a contract with an insurance company and in a situation where the insurance company refuses to make claim payments, failing to fulfill the terms of the contract.
In general, insurance companies only offer a 'take-it-or-leave-it' insurance policy, and the customer has little or no ability to negotiate the terms of the policy. Since customers have little wiggle room, the law requires insurance companies to treat their customers fairly. Many states have gone an extra step and passed further regulations governing how insurance companies must deal with customers and processing a customer claims for insurance benefits.
Insurance companies owe a duty of good faith and fair dealing to every person or company they insure which means an insurance company is required to treat their customers fairly and honestly. The reason the law places requires insurance companies is because insurance companies are commonly so large and powerful that it is generally not possible for a customer to negotiate the terms and details of an insurance policy in a fair manner.
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LIFE INSURANCE LITIGATION
Insurance bad faith refers to an allegation that an insurance company treated a customer unfairly or inappropriately or was non-compliant with the state legislation on claim processing.An insurance company can act in bad faith in a variety of ways.
Some examples include:
An insurance company can commit an act of bad faith while processing claims for all types of insurance--life, medical, disability, homeowner's, commercial and more. The most common instances occur in claims for life insurance benefits, homeowner's insurance benefits, and disability benefits.