The principles underlying this rule were stated by Lord Mansfield in the leading and often-quoted case of Carter v Boehm (1766) 97 ER 1162, 1164, Insurance is a contract of speculation...
The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon confidence that he does not keep back any circumstances in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist... Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary.
In return, a reinsurer must appropriately investigate and reimburse an insurer's good faith claim payments, following the fortunes of the cedent.
553, 554-55 (N.Y. 1886), applying the doctrine of faithless servant, the New York Court of Appeals held that a broker could not recover commissions from his employer, holding that "An agent is held to uberrima fides in his dealings with his principal; and if he acts adversely to his employer in any part of the transaction ... it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services.
[5] During the mid-20th century, American courts expanded it much farther into a post-formation implied covenant of good faith and fair dealing.