Within every contract, the parties involved in the relationship have duties and obligations they owe one another.

In most insurance policies, the policyholder has duties such as the duty to mitigate further damages, and the duty to send timely notice of the claim. On the other side, the insurer also has its own duties and obligations. One of the most important duties the insurer has is the duty to fully investigate the claim in good faith. While the failure to properly and thoroughly investigate a claim is not a cause of action itself in most jurisdictions, it is extremely relevant evidence to be used in bringing a bad faith action against an insurance company.

As one author puts it:

The purchase of such insurance provides peace of mind and security in the event the insured is unable to work. To protect those interests it is essential that an insurer fully inquire into possible bases that might support the insured’s claim and it cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.1

Statutes, case law, and treatises will all tell you the same thing: An insurer confronted with a claim owes the insured a duty to investigate the claim fully and fairly.

In Florida, § 624.155 governs bad faith insurance claims. Section 624.155 provides that an insurer has acted in bad faith if it has “[n]ot attempt[ed] in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for [the insured’s] interest.” § 624.155(1)(b). While this does not expressly state that an insurer must fully investigate the claim in good faith, it could easily be implied; and caselaw helps clear that up.

Several district courts are now applying a totality of the circumstances approach when determining whether Florida Statute 624.155 was violated.2 The totality of the circumstances doctrine expressly includes “thorough investigations,” and looks at the following factors in totality:

  1. whether the insurer was able to obtain a reservation of the right to deny coverage if a defense were provided;
  2. efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to the insureds;
  3. the substance of the coverage dispute or the weight of legal authority on the coverage issue;
  4. the insurer’s diligence and thoroughness in investigating the facts specifically pertinent to coverage; and
  5. efforts made by the insurer to settle the liability claim in the face of the coverage dispute.3

Other jurisdictions have expanded on this duty to investigate and have held that the insurer is required to investigate a claim objectively, not simply in order to prove that there is no coverage.4 Additionally, an insurer may not jump to a conclusion on the basis of particular or certain evidence and then perform a perfunctory investigation.5

Couch on Insurance, a popular secondary source for insurance practitioners and attorneys, describes the duty to investigate:

An insurer’s duty of investigation is generally construed to require sufficient investigation to determine coverage under the policy in question. The duty therefore requires that the insurer investigate before it denies or settles a claim, and before it makes a determination as to its duty to defend. Insurers also have the responsibility to inquire as to the existence of other insurers or whether the duty to defend is present. The investigation also must be reasonable, both in terms of depth and timeliness. These requirements are often defined by statute.6

While each jurisdiction may have its own statute or own way of interpreting the extent of the duty and whether or not it may be its own cause of action, every jurisdiction agrees that an insurer confronted with a claim does in fact owe the insured a duty to investigate the claim fully and fairly.

The traditional and longstanding duty to fully investigate an insurance claim is extremely practical, and important to the relationship between an insurer and a policyholder. As previously explained, the purchase of insurance is to provide peace of mind and security to a policyholder. If the policyholder cannot be certain that its insurer is not fully and thoroughly investigating its claim, then the insurance contract is not doing its job at providing that peace of mind and security.

As a first-party property insurance law firm, a lot of our cases would not come to us if the insurer would simply conduct a thorough and full investigation. However, throughout the discovery process, it soon becomes evident that some insurers are simply not following these guidelines of good faith, thorough investigations outlined by applicable statutes, caselaw, and treatises.
1 46 Am. Jur. Proof of Facts 3d 289 (Originally published in 1998).
2 State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 62 (Fla. 1995).
3 Robinson v. State Farm Fire & Casualty Co., 583 So.2d 1063, 1068 (Fla. 5th DCA 1991); State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 63 (Fla. 1995).
4 See Mariscal v. Old Republic Life Ins. Co., 42 Cal.App.4th 1617, 50 Cal.Rptr.2d 224 (Cal.App. 2 Dist., Feb 29, 1996); Commonwealth Lloyd’s Ins. Co. v. Thomas, 825 S.W.2d 135 (Tex. App. Dallas 1992), judgment set aside on other grounds, 843 S.W.2d 486 (Tex. 1993) and writ granted, (Jan. 20, 1993).
5 See Capstick v. Allstate Ins. Co., 998 F.2d 810 (10th Cir. 1993).
6 § 198:28.Extent of duty; breach or fulfillment, 14 Couch on Ins. § 198:28.