I recently blogged about the insurer’s duty to “thoroughly” investigate a claim and what constitutes a “thorough” investigation. But when does the duty to investigate arise? In California, an insurer’s duty to investigate does not arise until it has notice of a claim. While this sounds simple enough, there are some aspects of the notice requirement that warrant discussion. For one, in order to maintain an action based on bad faith, the insurer must be shown to have had actual, as opposed to merely constructive, notice of the insured’s claim.1
An insurer has actual notice when the claim is presented by the insured in compliance with the claims procedures contained in the policy. An insurer may have constructive notice if it is aware of certain facts that would cause a reasonable person to make further inquiry. While constructive notice may give rise to an insurer’s contractual liability, it is not sufficient for a bad faith action.
To ensure that an insurer has actual notice of the claim and impose on the insurer a tort duty to investigate, the insured must make a good faith effort to comply with the notice provisions in the insurance policy.2 In almost all cases, a policy requires both written notice of the claim and written proof of loss. If an insured does not make a reasonable effort to comply with both requirements, the insurer generally is under no duty to investigate.