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GOOD FAITH, BAD FAITH
Melissa
Alfredini
The Supreme Court of Queensland recently considered
whether Australian law recognises a tortious duty
of good faith arising out of a breach of contract.
The insurer agreed to insure the plaintiff in
the event he became totally disabled. In 2001,
the plaintiff claimed under his policy. The insurer
denied the claim on the basis that it was made
fraudulently. |
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The plaintiff sought a declaration
that the insurer was in breach of the insurance
contract. The plaintiff also sought damages for
breach of a “tortious duty of good faith”
which was said to arise out of the insurer’s
contractual breach (effectively a tort of bad faith).
The plaintiff claimed that it was an implied term
of the insurance policy that the insurer would deal
fairly with him, have due regard to his interests
and would also act reasonably so as not to deprive
him from the benefit of the policy. In rather extraordinary
pleadings, the plaintiff alleged that the insurer
had “a corporate policy to arbitrarily reject
or attempt to frustrate the processing and payment
of about 30% of claims in order to diminish the
need for it to pay benefits under such policies”.
The plaintiff argued that not only had the insurer
breached its duty to act in good faith by denying
his claim, but that its conduct was undertaken at
a time when it knew that he was suffering from a
serious physical disability and could develop a
serious psychiatric disability with the passage
of time. He also alleged that the insurer knew that
his financial circumstances were becoming increasingly
desperate with the reduction and absence of income
from his employment.
The Court examined the authorities from the USA,
UK, Canada, New Zealand, and other Australian jurisdictions
at great length and noted that some courts, such
as Californian courts, recognise that a tort can
arise out of a contractual breach, but only in certain
circumstances where there is a “special relationship”
such as insurer/insured, bank/customer, employer/employee
etc.
The Court held that Australian law does not recognise
such a tort, nor should it. Importantly, in refusing
to adopt a tort of bad faith, the Court commented
that to do so would extend the scope of tortious
liability unnecessarily and would go against considerations
of public policy. Given the narrowing of concepts
of negligence seen recently in the High Court, we
query whether such a tort has any prospect of ever
entering the realms of Australian tort law: Lomsargis
v National Mutual Life Association of Australasia
Ltd |
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