Does the insurer of my business also owe me personally a duty of good faith?

Due to the very nature of the insurance industry, in which you are basically paying for a service before you receive it (if you ever happen to need it), insurance companies are expected to operate in “good faith.” This means that they have a duty to fulfill their obligations to their customers as well as is reasonably possible, and they should not take advantage of their position nor the position of their customers. The good faith rules apply whether the insurance is covering a person, his property, or his business. Insurance companies are expected to follow these standards. As such, if you are the owner or operator of a business, the insurance company owes a duty of good faith both to your business and most likely to you as head officer of that business. 

Understanding the Duty of Good Faith

While the specifics of insurance regulation vary by state, most insurance regulations share major similarities, and the good faith rule is typically much the same from state to state. Essentially, the good faith rule says that the insurance company should:

• Perform reasonably (pay you in a reasonable amount of time, respond to your needs in a reasonable and efficient manner, etc.),
• Have a legitimate and documented reason for any denial of benefits or refusal to pay for service,
• Check your policy and your personal information for problems before the claim is needed to avoid putting you in hot water. For example, the insurer should investigate your business and certify it as insurable before signing the contract with you, not when you submit a claim and they aren't willing to pay it.

Punishment for bad faith behavior by an insurer will vary depending on your location, state regulations, and the nature of the violation, but in most cases you and/or your business would be eligible for monetary damages. If you believe your insurance company has breached its duty of good faith, you should strongly consider speaking with a lawyer for advice.