A Video Explaining an Insurer’s Dispute or Denial of a Claim

Dispute or Denial of a ClaimShow more

Before an insurer is able to dispute or reject a claim presented by its insured, it is required to thoroughly investigate the claim to prove that the loss is one specifically excluded from coverage. The Supreme Court of California explained the obligation of the insurer, noting that while the task of “distinguishing fraudulent from legitimate claims may occasionally be difficult for insurers,” an insurer cannot in good faith deny liability under the policy “without thoroughly investigating the foundation for its denial.” [Egan v. Mutual of Omaha, 24 Cal. 3d. 809, 157 Cal. Rptr. 482 (1979)].

In first party cases, the implied covenant of good faith and fair dealing obligates the insurer to make a thorough investigation of the insured’s claim for benefits. It is improper for a first party insurer to unreasonably delay or withhold payment of benefits. If the insurer “without proper cause” (i.e., unreasonably) refuses to timely pay what is due under the contract, its conduct is actionable as a tort.

Insurers are obligated to find some means to pay for a loss rather than finding a means to avoid payment. An adjuster must work to justify paying every loss that can be brought within the coverage by a thorough investigation, even if that means is contrary to the insurer’s own financial interest. If the adjuster does not conduct such an investigation with that intent, the insurer opens itself to charges of breach of the covenant of good faith and fair dealing and an assessment of punitive damages. A thorough investigation seeks to avoid unnecessary litigation and prevent payment of losses for which there is no coverage.