How Ethical Doctrines from the Beginning of the Written Word to the Present Resulted in the Incorporation of the Covenant of Good Faith
New Book from Barry Zalma
The Compact Book on Ethics for the Insurance Professional
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Posted on October 8, 2022 by Barry Zalma
How Ethical Doctrines from the Beginning of the Written Word to the Present Resulted in the Incorporation of the Covenant of Good Faith
Every Person Involved in the Business of Insurance Must Act Ethically in the Business of Insurance
Insurance 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).
Ethics & Ethical Behavior are Essential to Every Insurance Professional
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.
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, when deciding to honor or reject a claim, 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 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.
What is The Purpose of the Book
This book considers and explains different ethical concepts from the Code of Hammurabi more than 3000 years ago to modern ethical philosophers.
The book covers, at least:
What is Insurance?
Ethics & Ethical Behavior.
Ethical Insurance
The Development of the Implied Covenant of Good Faith & Fair Dealing.
The Tort of Bad Faith
The Ethical Insurance Professional
Applying Ethics to the Work of the Insurance Professional
Sarbanes Oxley & the Ethical Insurance Professional
What Happens When a Cort Creates an Ethical Conflict When None Exists?
Ethics and Insurance Fraud
Ethics in the Insurance Industry
Case Studies of Ethical Breach
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.
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.
The book is available as a Kindle book, a Paperback or a Hardcover
Who Needs This Book?
If you employ people in the business of insurance your business will be improved if every one of your employees reads and applies the ethical concepts described in the book.
If you are an insurance claims professional, an adjuster, supervisor, claims manager, defense counsel, or insurance coverage counsel the book will provide the knowledge necessary to apply the ethical concepts described in this book.
If you are a person insured or about to be insured you need this book to understand your ethical obligations to the insurer and the insurer’s ethical obligations to you.
The Author
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com
and [email protected] and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
Now available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com.
Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library
Jury’s Findings Interpreting Insurance Contract Affirmed
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
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Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
