A majority of courts have determined that all contracts impose on the parties to the contract an implied covenant of good faith and fair dealing in their actions with each other. This implied covenant prohibits a contracting party from injuring another party's right to receive the benefits of the agreement. Breach of this implied covenant usually creates a cause of action based on contract rights. Moreover, California courts maintain that breach of the implied covenant of good faith and fair dealing creates a tort action as well. The California courts initially limited these tort actions to claims against insurance companies. Other states have followed California in allowing tort recovery for breach of the implied covenant of good faith and fair dealing in insurance contracts. The imposition of tort liability in contract suits has allowed courts to award the injured party all damages proximately caused by breach of the contract, as well as punitive damages.'
Susan D. Gresham,
"Bad Faith Breach": A New and Growing Concern for Financial Institutions,
42 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol42/iss3/6