Breach of the Implied Covenant of Good Faith and Fair Dealing

What is breach of the implied covenant of good faith and fair dealing?

Under Florida law, every contract contains an implied covenant of good faith and fair dealing, which means that parties must act honestly and fairly with each other. A breach of implied covenant of good faith and fair dealing can occur when a party deliberately breaches the contract to frustrate its common purpose or deny the other party the expectations or benefits of the agreement.

It’s also important to understand what a breach of implied covenant of good faith and fair dealing is not. First, it is NOT a rule that overrides the express provisions of the contract. As a result, a claim for breach of implied covenant of good faith and fair dealing is unavailable when there is no corresponding breach of contract. Additionally, a party may not assert the implied covenant when the other party’s breach of or failure to perform under the contract is because of an honest mistake or negligence.

Breach of the implied covenant of good faith and fair dealing in Florida may occur when:

• An insurer fails to investigate or pay a claim in good faith
• An employer terminates an employee to avoid paying a bonus or other compensation
• A franchisee intentionally misrepresents sales data to avoid paying royalties to the franchisor
• A party to a contract fails to cooperate or provide information necessary to perform the contract

Let’s look at the first example from above to glimpse the bigger picture. Suppose an individual is involved in a car accident and files an insurance claim. The insurance company has an implied duty to investigate the claim in good faith and make a reasonable determination as to the validity of the claim. If the insurer denies the claim without a proper investigation or a reasonable basis for doing so, the policyholder can argue the insurer breached the implied covenant of good faith and fear dealing by frustrating his rights to receive the benefits of the insurance contract. The aggrieved policyholder has a cause of action to seek legal remedies, such as damages or specific performance, depending on his case’s specific facts and circumstances.

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What legal issues typically arise related to breach of the implied covenant of good faith and fair dealing?

The following disputes are among the most common breaches of implied covenant of good faith and fair dealing:

• Breach of contract: Because breach of the implied covenant of good faith and fair dealing is not an independent claim but instead attaches to the performance of a specific contract obligation, it is therefore required to prove that a party breached a term of the contract.
• Contract interpretation: More generally, the implied covenant of good faith and fair dealing cannot contradict the express terms of an agreement. Such contradiction often results in the courts using the covenant as a “gap-filler” when a contract gives a party discretion in handling its obligation.
• Scope of the implied duty of good faith: One of the critical issues in a breach of implied covenant of good faith and fair dealing case is whether the parties to the contract had a duty of good faith and fair dealing. Every contract in Florida implies this duty, but the scope of this duty may vary depending on each case’s specific facts and circumstances.
• Breach of the duty: Another critical issue is whether one party has breached the duty of good faith and fair dealing. Such a breach may involve an analysis of the parties’ conduct and whether it frustrated the other party’s rights under the contract.

What relevant laws relate to breach of the implied covenant of good faith and fair dealing in Florida?

In Florida, the implied covenant of good faith and fair dealing has been developed by case law in the decisions of Florida courts in various cases over the years. For decades, Florida courts have recognized the implied covenant of good faith and fair dealing. In 1997, the Florida Supreme Court agreed that the implied covenant is contained in “virtually every contract.” Cnty. of Brevard v. Miorelli Eng’g, Inc., 703 So. 2d 1049, 1050 (Fla. 1997).

What is required to prove a case of breach of the implied covenant of good faith and fair dealing in Florida?

To prove a case of breach of implied covenant of good faith and fair dealing in Florida, a plaintiff generally needs to establish the following:

• The existence of a contract: The plaintiff must show that there was a valid and enforceable contract between the plaintiff and the defendant;
• The defendant’s breach of contract: The plaintiff must show that the defendant breached an express provision of the contract and failed to perform an obligation written in the contract; and
• Damages suffered by the plaintiff: The plaintiff must demonstrate that they suffered damages due to the defendant’s breach of the implied covenant. These damages may include the plaintiff’s financial losses due to the breach.

When a set of facts is appropriate to meet the requirements of breach of the implied covenant of good faith and fair dealing, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies, such as:

• Specific performance
• Compensatory damages
• Punitive damages

To see what actions may be available for your unique situation, please contact our office to set up your initial consultation.

What are common defenses to breach of implied covenant of good faith and fair dealing in Florida?

The primary defenses to breach of implied covenant of good faith and fair dealing in Florida include:

1. Statute of limitations: The defendant may argue that the plaintiff’s claim is time-barred because of a failure to file the claim within the applicable statute of limitations.
2. Contractual limitations: The defendant may argue that contractual limitation or exclusion of liability in the contract bar plaintiff’s claim.

One core strategy for defending against a breach of implied covenant claim is to show that the defendant’s actions were reasonable and, therefore, not in bad faith. Additionally, a defendant could show that the plaintiff’s damages were not caused by the defendant’s alleged breach of the implied covenant.

To see what defenses may be available for your unique situation, please contact our office to set up your initial consultation.

Have more questions about a breach of the implied covenant of good faith and fair dealing-related situation?

Crucially, this overview of breach of the implied covenant of good faith and fair dealing does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.