The Compact Book on Ethics for the Insurance Professional: How Ethical Doctrines from the Beginning of the Written Word to the Present Resulted in the Incorporation of the Covenant of Good Faith

Ethics for Insurance ProfessionalsInsurance is, by definition, a business of the utmost good faith. This means that both parties to the contract of insurance must act fairly and in good faith to each other and do nothing that will deprive the other of the benefits the contract of insurance promised.Without the covenant of good faith and fair dealing, and ethical people who work in the insurance industry applying and fulfilling the covenant, effective insurance to spread the risk of loss to a large community of insurance professionals, is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.In 1776, Lord Mansfield acting as an appellate judge serving in the House of Lords of Britain (the predecessor of the United Kingdom) for the first time referred to the covenant of good faith and fair dealing. In the case designated: Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated the rule of uberrimae fide (Latin for utmost good faith):Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.Insurers, when deciding to insure or not insure a risk, rely on the information provided to them by the insured. As Lord Mansfield instructed, the insured must provide the information requested thoroughly, honestly and in good faith.The implied covenant is simply stated by explaining that no party to a contract of insurance should do anything to deprive the other of the benefits of the contract.The implied covenant of good faith and fair dealing imposes obligations on all parties to the contract of insurance. It not only applied to claims by an insurer, a first party property insured, a third party liability policy insured, the insurer, the insurer’s employees, underwriters, and claims personnel.Since at least 1766, the business of insurance is a business of the utmost good faith. Each party to a contract of insurance must deal with each other ethically. This book will consider and explain different ethical concepts from the Code of Hammurabi more than 3000 years ago to modern ethical philosophers.The general duty of good faith and fair dealing incorporated by reference into every policy of insurance requires a complete understanding of ethics and ethical behavior. For Example, the California Supreme Court noted that:In every insurance contract there is an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. [Gruenberg v. Aetna Insurance Co., 9 Cal.3d. 566, 108 Cal. Rptr. 480 (1973)].The covenant is mutual, and the principles of good faith and fair dealing impose an affirmative obligation on the insured to cooperate as much as it requires the insurer to treat the insured fairly with regard to every claim presented.This is a duty imposed by tradition, by the need to deal fairly and by court precedent and statutory law, not one arising from the terms of the contract itself.The duty to deal fairly and in good faith is nonconsensual in origin rather than consensual. It is an unwritten, but essential part of every insurance contract.It is imposed to fulfill the spirit, as well as the letter, of the insurance relationship and the implied covenant of good faith and fair dealing.The Covenant of Good Faith and Fair Dealing is a statement of the ethical basis of the insurance business. Read more