Insurance Codes are regulated by each state, but ask any insurance company representative in any state and they will tell you it is an insurance company’s duty to place the insured’s interest ahead of the insurance company’s interests; and the proper way to handle a claim is to find coverage wherever possible.
Many of my clients have sought legal help because they feel that the insurance company has specifically failed in their duty to properly investigate their claim and put its own interests before the insured’s. My clients tell me that their insurers have taken every opportunity to ignore the numbers provided by their contractors or evidence presented and gone out of the way to find a way to underpay or deny the claim. In these instances, it’s important to scrutinize the insurer’s claims handling practices to see if they properly investigated the claim.
In California, “When investigating a claim, an insurance company has a duty to diligently search for evidence which supports its insured’s claim. If it seeks to discover only the evidence that defeats the claim it holds its own interest above that of the insured.”1
What comes to mind are cases where insurers send their insureds to the Special Investigations Unit (SIU). An SIU claim is one where the insurance company believes specific factors are suspicious, such as a “theft occurring when an insured is not home”. The insurance company then sends the claim to the SIU division which “investigates the claim” rather than “adjust” the claim. The SIU Investigator’s job is then to report the claim to the California Department of Insurance within a certain timeframe if fraud is suspected and to “investigate” each suspicious factor that sent the claim to SIU. Judging by the number of inquiries I receive, more often than not these claims sent to SIU are denied because the investigation yielded by the insurer goes to show that the insured somehow could not overcome these suspicious factors. The most common reason for denial issued by the SIU team is that the insured misrepresented something that the insurer deems “material” and the insurer denies the claim and voids the policy.
Strangely, each factor that cited as suspicious—such as a “theft occurring while an insured is not home”—is often common sense: Burglaries happen more often than not when an insured is away. Another suspicious factor that an insurer indicated was cause to send a claim to SIU was that the insured tried to settle the claim quickly. It’s been my experience most insureds want to get a claim over with so they can move on after the loss.
When litigating a lack of a proper investigation by an insurer in California, there is a jury instruction (CACI 2332) on point that deems it bad faith when an insurer fails to properly investigate the claim. CACI 2332 reads:
[Name of defendant] acted unreasonably or without proper cause if it failed to conduct a full, fair, and thorough investigation of all of the bases of the claim. When investigating [name of plaintiff]’s claim, [name of defendant] had a duty to diligently search for and consider evidence that supported coverage of the claimed loss.
Policyholders must remain vigilant as to why claims are denied and whether their claim has been diligently and properly investigated by an insurer. Finding out and seeking help to see whether their insurer really looked to evidence that supports the insureds claim or if the insurer put the insurer’s interests ahead of that of the policyholder may tell you whether your claim is subject to a bad faith cause of action in California.
1 Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1620 [50 Cal.Rptr.2d 224].