Good Faith

Definition - What does Good Faith mean?

Good faith means fair and open dealing between parties in a contract. It requires honesty, sincerity, and integrity among the parties engaging in a contract, regardless of the outcomes of an action. In the context of insurance, as each policy represents a contract between the insurer and insured, both parties must act in good faith.

Insuranceopedia explains Good Faith

In any form of contract, good faith is important as it creates trust and eliminates any motives or malice among the parties. The term comes from the Latin "bona fide," which means real or genuine and is thus translated to "utmost good faith."

In insurance law, anyone entering into a contract with an insuring firm has an obligation to act with utmost good faith and therefore provide accurate and honest information to the insurance company. For example, an individual applying for life insurance is required to disclose their health conditions, including pre-existing conditions, that might affect the decision of the insurance firm. As for insurers, they have a legal responsibility to act in good faith too in all their dealings. A breach of it may lead to legal liability termed as insurance bad faith. It is, therefore, important to act in good faith when entering into an insurance contract.

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