Vermont Supreme Court Ruling States Good Faith Is Not Care

 Thursday, September 11, 2014

 JD Supra

When an insurer issues a policy, it assumes a duty not only to investigate and pay claims, but to do so in good faith. There is, however, a difference between that duty and the duty of due care that arises under tort law. The difference can be hard to discern, especially since many states recognize a tort of “bad faith” that can render insurers liable for extracontractual damages. But the difference is real. As the Supreme Court of Vermont recently demonstrated, in Murphy v. Patriot Insurance Company, No. 2013-235 (Vt. Aug. 14, 2014), an insurer may not act to prevent an insured from receiving the benefit of her policy, but, on the other hand, it has no obligation generally to protect the insured from suffering harm. In applying this rule, the court also suggested that the “economic loss doctrine” can be broadly applied to tort claims against insurers.