Good Faith & Contracts of Insurance

Obviously, the above-titled treatise is a very old one, though by no means the oldest. The date February 2, 1802 is the date the author signed the Preface. There are several different dates to be found in various sources as to the publication dates of the book itself; 1802 is one of them. It looks like the first American edition was published in 1805. 

This means that in 2020, the American edition I’m working from is 215 years old. I don’t know if it should be used in law school courses, but it contains much familiar law. 

The author Samuel Marshal, Serjeant at Law, apparently died in 1823, which is also another publication date of the book. 

The book falls into four sections:
  • Of Marine Insurance
  • Of Bottomry and Respondentia
  • Of Insurance Upon Lives
  • Of Insurance Against Fire.
By far the majority of the 759 pages to which I have access are devoted to the first two of these topics, both of which pertain to matters marine. I shall discuss some of the particular substantive matters the book says elsewhere.

Here I am interested only in the topic of good faith and therefore bad faith. As a start, I am only interested in a short passage on the importance of good faith in contracts of insurance. RThis passage is to be found in the Marine Insurance section.  It is the introductory paragraph in Chapter IX which is entitled “Of Representations.”  It is to be found at p. 334. (I have updated and Americanized the spelling in the passage I quote here.):

“Good faith should preside in all the transactions of commerce, and in none more than those of insurance, of which it is a vital principle. In this contract, each party is bound to conduct himself towards the other, not only with integrity but with the most unreserved openness and candor; and they ought mutually to disclose to each other every circumstance which can in any degree affect the risk. It seldom happens that any such circumstance lies within the knowledge of the underwriter; fraud is seldom imputable to him, and he is much oftener the victim of his own credulity. But the law watches, with a jealous eye, the conduct of the insured, from whom the underwriter must, in most cases, learn all the facts and circumstances from which he makes his calculations, and appreciates the risk. Every material representation is considered as forming an ingredient in the contract, and every material misrepresentation or concealment is therefore deemed a fraud, and will void it.”

The author then indicates he will discuss each of these points in separate chapters, which, of course, he does.

Quinn’s Comments
Three points are of immediate interest. First, the law of good faith and bad faith–or part of it, anyway–is no stranger to insurance law. Second, at the same time, the focus then pertained to purchasing insurance and the protection of the insurer, whereas today–and this is the third point–the law of insurer bad faith mostly pertains to claims handling and is designed to protect the insured. 
At the same time, it is worth remembering that the law of good faith has current existence in contract law in American, though it does not occupy a central role in the practice of law or in judicial reasoning. See Steven J. Burton and Eric G. Andersen, CONTRACTUAL GOOD FAITH: FORMATION, PERFORMANCE, BREACH, ENFORCEMENT (1995). This book contains a chapter on good faith in the context of performance under contracts. (There are other scholarly sources discussing the law of good-faith versus bad-faith in the general area of contract law, and it figures in the Restatement (Second) of Contract, as well as the Uniform Commercial Code, but none of this makes it anything like a central feature of insurance litigation.

For some recent Texas history on this matter, see T. Ray Guy, “Good Faith Revisited: Extra-Contractual Duties in Texas,” 81.8 Tex. BAR J.,  608 (September 2018). Guy reports on several Texas cases on this matter. All of them are hostile to the idea of a duty of good faith and fair dealing being introduced into Texas jurisprudence as a tort. I have wondered for some years now, why it could not simply be treated as what it really is: part of the contract, an implied term, covenant, or warranty. Of course, it’s a vague-ish looking term, but so what? Contracts involve mutual agreements. Parties can agree to use general, abstract, and even vague language, so long as one party does not do something like insert a term, in bad faith,