In addition to the duties imposed on contracting parties by the express terms of their agreement, the law implies in every contract a covenant of good faith and fair dealing. The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the benefits of the agreement. The precise nature and extent of the duty imposed by such an implied promise will depend on the contractual purposes.
An insured was covered by a disability insurance contract issued by the insurer. The policy provided for lifetime disability benefits if insured was totally disabled because of an accident. The insured made a claim for permanent benefits following an injury because he was unable to return to work. The insurer's agents denied the claim and offered only three months' temporary benefits although they never consulted with the insured's physicians or obtained an independent medical examination. The trial court directed a verdict for the insured as to liability and left the issue of compensatory and punitive damages to the jury. The insurer appealed.
Are agents of an insurer personally liable for damages against the insured for failure to properly investigate her claim?
The court said that agents were acting solely as agents of defendant insurer and there was no independent basis for liability against them personally. Failure to properly investigate the claim constituted breach of the implied duty of good faith as a matter of law, and the agents' actions were properly imputed to the company. The court reversed the verdict against defendant agents and reversed the award of punitive damages, but affirmed the compensatory damage award.