In California, an insurer’s failure to investigate the claim “thoroughly” is just one of many types of conduct that may establish “unreasonableness” and “bad faith.” This begs the question: How thorough is thorough? In short, there really is no exact rule.
As a general principal, “it is essential that an insurer fully inquire into all possible bases that might support the insured’s claim.”1 However, it is important to keep in mind that a “thorough” investigation does not have to be a perfect investigation. The mere fact that there may be other areas that could have been investigated in hindsight does not always establish bad faith.2 At a minimum, insurers must investigate the facts or evidence supporting the claim. The duty to investigate is not limited to the facts advanced by the insured, but extends to whatever facts that would support the claim or coverage. Accordingly, insurers must “fully inquire into all possible bases that might support the insured’s claim.”3 This duty to investigate continues even after suit has been filed.4
At the end of the day, to discern if there was any unreasonableness or lack of thoroughness, we should always ask whether the investigation was carried our objectively. Is the insurer investigating to gather material facts pertinent to the claim or is it simply securing evidence to deny benefits to the insured? As one court put it, was the insurer or its investigators’ “feet in cement” regarding the decision to deny the claim?5
1 Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal. 3d 809, 819.
2 Othman v. Globe. Indem. Co. (9th Cir. 1985) 759 F.2d 1458, 1464-65.
3 Jordan v. Allstate Ins. Co. (2007) 148 Cal. App. 4th 1062, 1072.
5 Othman at 1464, fn. 8.