St. Mary's Law Journal


Evelyn T. Ailts


The concept of good faith and fair dealing as a general derivative contractual obligation remains unrecognized in Texas. However, in English v. Fischer the Texas Supreme Court recognized a duty of good faith and fair dealing exists in some contracts. Subsequent courts, including the Texas Supreme Court, have refused to apply a purely contractual obligation of good faith and fair dealing in every case. Instead, courts have recognized a good faith duty as arising out of “special” relationships of the contracting parties rather than being inherent in the contract itself. The courts focus on “special relationships” as a determinative of good faith tort duties opens the door for expansive litigation to define what relationships may be deemed judicially “special.”

In Arnold v. National County Mutual Fire Insurance Co., the Texas Supreme Court found the duty of good faith and fair dealing arises from the special relationship found in the insurance context. This recognition has important consequences. First, the Texas Supreme Court expressly recognized that a breach of the duty of good faith and fair dealing is an independent tort. This provides a new substantive remedy for an insured faced with bad faith settlement practices. Further, although narrowly recognized in the first-party insurance context, the court laid the framework for expansion of bad faith tort liability outside of insurance disputes. Second, the bad faith tort may provide a powerful tool for Texas courts to impose tort liability on contracting parties by expansive judicial recognition of special relationships. Upon judicial recognition of a special relationship, the confines of traditional contract liability become increasingly meaningless. The dangers of the erosion between contract and tort theory necessitate a narrow interpretation of what relationships are “special” and, therefore, entail good faith and fair dealing duties.


St. Mary's University School of Law