Good Faith
What Does Good Faith Mean?
Good faith refers to fair and transparent dealings between parties in a contract. It requires honesty, sincerity, and integrity from all parties involved, regardless of the outcome. In the context of insurance, since each policy represents a contract between the insurer and the insured, both parties are obligated to act in good faith.
Insuranceopedia Explains Good Faith
In any contract, good faith is essential as it fosters trust and eliminates malicious intent between parties. The term originates from the Latin “bona fide,” meaning real or genuine, and is translated as “utmost good faith.”
In insurance law, anyone entering into a contract with an insurance company is obligated to act with utmost good faith by providing accurate and honest information. For example, a person applying for life insurance must disclose health conditions, including pre-existing conditions, that could influence the insurer’s decision. Similarly, insurers have a legal duty to act in good faith in all their dealings. A breach of this duty can result in legal liability, known as insurance bad faith. Therefore, acting in good faith is crucial when entering into an insurance contract.
