Insurance Expert Witness On Bad Faith Cases - Part 7
In Negotiating and Settling Insurance Bad Faith Cases , insurance expert witness Guy O. Kornblum of GK Consultants, LLC, writes:
The duty to investigate is an important duty of an insurer. Hence, it can be an important part of a bad faith case. The erroneous withholding of policy benefits based on the insurer’s failure to investigate a claim may constitute a breach of the implied covenant of good faith and fair dealing. In order to protect the insured’s peace of mind and security, “an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.” An insurer must “fully inquire into possible bases that might support the insured’s claim.” The investigation must be prompt, thorough, reasonable, and conducted in good faith. That is to say, the insurer must consider facts favorable to the insured’s position as well as those that favor the insurer. This is one aspect of the insurer’s duty to give equal consideration to both the insurer’s and the insured’s interests.
California has codified the duty to investigate in the Unfair Practices Statute (“UPA”) which requires the insurer “to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.” Even though no private right of action may exist under these statutes, the application of the duty to investigate remains important. The UPA confirms the industry standards. Alternatively, other standards may be adopted by the company as fair standards for processing a claim. A violation of the statutory, industry, or self-imposed standards provides support for a bad faith claim. They can serve as standards for determining the bad faith conduct of the insurer.
The Insurer’s “Good Faith Dispute” Defense
Recent cases have allowed an insurer to defend against charges of bad faith by raising the “good faith dispute” or “genuine issue” defense. That is, the insurer claims that because there is a genuine issue of fact or law regarding its liability for the claim, it is insulated from any potential bad faith liability. This is a misleading statement and may very well not be a sound argument. The “genuine issue” argument must be carefully analyzed.