Standard view of good faith fails to answer important questions

The conventional view of good faith is misleading or incomplete in that it does not answer essential questions such as whether the obligation is contractual, Roderick Winsor, partner with Blaney McMurtry LLP told delegates at the Insurance Law: Spring Update 2008 in Toronto on May 15.
In Maschke Estate v Gleeson, Winsor observed, it was found that “a contract of insurance is one of uberrima fides, the utmost good faith The duty to act promptly and in good faith arises the day the insurer receives the claims.”
This view represents a common understanding of implied obligation of good faith in insurance, Winsor noted.
But this notion leaves out important questions, Winsor added, such as:
is the obligation owed only to the insured;
what is good faith; and
what is the standard of care?
It is important to realize the definition of utmost good faith has great practical significance for insurers and their counsel, Winsor said.
He said a more comprehensive definition should consider whether:
the obligation is limited to the stated terms of the contract, or goes beyond them;
utmost good faith is limited to obligations such as paying a property loss within 60 days, or goes beyond that to mean in some cases:
(a) the insurer must pay sooner;
(b) the insurer should pay replacement cost in situations in which an insured has not replaced; or
(c) an insurer cannot rely on an insured’s failure to pay the premium to terminate the contract in all circumstances.
The claim should be seen as a contractual one and any obligation of good faith should be seen as recognition of the mutual intent of the parties, Winsor noted.
It is not an excuse to allow a party to renegotiate the agreement, to avoid a careful analysis of the contract or justify reliance on the reasonable expectation of the insured, he added.