The tort of bad faith arose out of contract cases, and usually involves contracts for insurance policies, but has in some cases been extended to employment contracts.

• A. True
• B. False
• C. Only in some states
• D. Not recognized in tort law

Answer: (A)

The idea behind the tort of bad faith is the implied covenant of good faith and fair dealing in contract performance. In the insurance context, courts have long recognized that the insurer must act honestly and promptly in handling claims; when an insurer unreasonably delays, denies, or underpays a claim, the insured can pursue a tort claim for bad faith to obtain remedies beyond the contract itself. This tort serves to deter opportunistic behavior and to compensate for harms not fully captured by breach-of-contract damages.

Over time, some jurisdictions have extended the concept beyond insurance to other contracts, including employment agreements, where a party may act in bad faith to deny deserved benefits or to undermine the contractual relationship. While this extension is not universal and depends on state law and circumstances, the statement is true: the bad-faith tort began in contract cases, usually involving insurance, and has in some cases been extended to employment contracts.