An insurance carrier has declined to defend a claim asserted against its insured, arguably without meeting its obligation to investigate the claim. For whatever reason— a change in personnel, loss of a file, or some other motivation—the carrier has done little, if anything, to investigate the claim tendered to it: no Google search, no phone calls, and very little factual investigation other than the information tendered by the insured. The carrier has, however, relied on the plain language of the policy, and the few facts of which it was aware supported its denial.
But when a court later finds that the carrier’s coverage position was wrong— the facts in existence created a potential for coverage and hence triggered the carrier’s duty to defend—the insured may argue that its carrier’s failure to investigate supports a finding that it breached the implied warranty of good faith and fair dealing; that is, the insurer acted in bad faith.
Continue Reading The Ramifications of a Less-Than-Thorough Investigation