Watch the full video at https://rumble.com/v1qhiq4-claims-commandment-ii.html and at https://youtu.be/tb4_cLhLy24
This is the second in a series of fifteen claims that I believe must be followed by all insurance companies.
Investigation is a search for truth. It is an art form where facts are established. It has been defined by the state of California, for example, as follows:
“Investigation” means any activity performed by an insurer, or its claims agent in connection with the determination of coverage, liability or the nature and extent of loss or damage for which benefits are provided by an insurance policy, obligations or obligations under a bond, and other obligations or obligations arising from an insurance or surety. [California Code of Regulations, 10CFR2695.2(k)]
Courts will not subject an insurer to a choice between liability under a bad-faith-failure-to-investigate theory for publication of a denial of coverage without an adequate investigation. Liability may be imposed for a constructive denial imposed after the insurer has conducted a more thorough investigation confirming a prior decision of non-coverage, on the theory of delay combined with wrongful intent.
Courts, state laws and regulations require an insurer to conduct a thorough investigation before deciding on a settlement of a claim for property damage, bodily injury, personal injury or for defense and/or indemnification under a liability insurance policy. Initial conclusions based on a bare reading of a trial or initial investigative interview are not enough. Rather, the insurer is required to conduct a thorough investigation before deciding on a claim.
Although an insurance company has the right to make a thorough investigation to determine whether there is coverage under its policy, the company acts at its own risk by refusing to defend its insureds. If it is later determined that the company wrongfully denied coverage, the company will be liable for breach of its contract under the policy, but if done in good faith, it will not have to pay exemplary damages.
Insurers should do their due diligence as soon as possible. If a defense is required before the investigation can be completed, the prudent insurer will provide a defense to the insured subject to a reservation of rights, including a reservation to withdraw the defense and seek reimbursement for money expended in providing the defense under the reservation.
Where an insurer denies or delays payment of insurance benefits because there is a genuine dispute with its insured or where coverage is quite debatable as to the existence of coverage, the insurer will usually find that it is not liable in bad faith although it may be liable for breach of contract. A court gave the following instructions to a jury:
In determining whether an insurance company had a genuine dispute as to whether or not a loss was covered, you may consider among other things: (1) Whether the insurance company was guilty of misrepresenting the nature of the investigation; (2) Whether the insurance company’s adjusters and investigators lied during their depositions or to the insured; (3) Whether the insurance company dishonestly selected its experts; (4) Whether the insurers’ experts were unreasonable; and, (5) whether the insurance company failed to conduct a thorough investigation.” [McCoy v. Progressive West Insurance, Co., 90 Cal.Rptr.3d 74, 171 Cal.App.4th 785 (Cal.App. Dist.2 02/04/2009)]
An insurer has an obligation to carry out an appropriate and thorough investigation before deciding on a claim. However, if the insurer, after conducting a thorough investigation of the facts and circumstances giving rise to a claim, can reasonably conclude that the claim is quite debatable or doubtful, there cannot be bad faith even if mistakenly, but in good faith , refused. to pay the claim.
The same requirement for a thorough investigation applies to first party property claims such as fire, lightning, storm and hail damage to property covered by the policy.
How to do a thorough investigation
The investigative interview is a structured conversation between a trained and experienced interviewer and a person who has no training in interviewing. It’s not an interrogation. It’s not about spy films, police investigations or prisoner of war camps. Interviews happen everywhere. Interviews are conducted by almost everyone. Because interviewing is an art as well as a science, the most effective interview is one conducted by someone knowledgeable in the art and science of interviewing.
Investigation to gather information is partly an artistic endeavour. The art is complemented by scientific techniques obtained from criminal investigators and professional psychologists but performed by individuals without thinking about what they are doing. The art of investigation must be honed until it becomes a matter of course just as a skilled typist does not think about where to put his or her fingers while typing.
The science of police interrogation relies heavily on human nature and the skills of the interviewer. The art of uncovering the truth of an allegor derives much from police science. Because the interrogation is formal, in a confined space, and conducted by an official such as a police officer or a lawyer questioning a witness under oath in court, the techniques used are more formal and controlled than an interview as part of an insurance investigation.
Insurance investigators do not have the powers of government investigators. They have to get the information they need through intelligence, wit, skill and experience. They listen carefully. They put people at ease. The expert’s skill makes the person being investigated want to give information to the investigator. The claims specialist’s most important skill is to get the person under investigation to want to provide information to the claims profession that the claims profession needs. The insured who believes in honest and accurate answers to the claim report will then receive the benefits promised by the insurance.
In order to carry out a thorough investigation, the claims investigator should at least do the following:
- Read the claim report and the insurance policy.
- If a lawsuit has been filed, read the lawsuit along with the policy statement.
- Interview the insured – preferably in person.
- Obtain a recorded statement from the insured about the actual circumstances surrounding the damage.
- Interview and obtain a recorded statement from each independent witness.
- Interview and obtain a recorded statement from the plaintiff if the lawsuit has not been filed.
- If a lawsuit has been filed, interview the plaintiff’s attorney about the factual basis for the lawsuit.
- See the location of the event.
- Obtain all documents relevant to the claim, such as:
- The insured’s copy of the policy
- Police or fire report, if any.
- Medical records.
- Financial records.
- Application for insurance.
- Any agreements between the insured and the injured party.
- Any other information that may be relevant to the claim and the policy.
- Consult with necessary experts such as:
- Investigative Engineers.
- Coverage assistant.
- Defense attorney.
- Forensic accountants.
- Any other experts that may be relevant to the claim and the policy.
If it turns out that there is coverage for the claimed damage, the injured party must immediately notify the insured’s insurer of the decision. If it is determined that there is no coverage, the claimant must consult with management to review the facts gathered by the thorough investigation before making a decision.
Failure to carry out a thorough investigation is a breach of the insurance policy’s promises to provide defense and/or compensation to the insured. Failure to do so may also result in the insurer being sued for breach of contract and bad faith.
Insurers must, in order to comply with applicable law:
- A detailed investigation of the facts of the loss and the insurance acquisition.
- A determination of the expectations of the insured and the insurer at the time of the policy.
- A determination of the purposes for which the insurance was acquired.
- A review of all communications between the insurer and the insured or their representative.
- If the investigation is not carried out, the insurer will invariably be sued for bad faith.
The thorough investigation requirement first enunciated by the California Supreme Court in Egan v. Mutual of Omaha Insurance Co., 24 Cal. 3d 809, 620 P.2d 141, 169 Cal. Rptr. 691 (Cal. 08/14/1979) is decisive when attempting to interpret a disputed insurance policy or disputed fact situation.
IN Eganthe Supreme Court concluded that “an insurer cannot reasonably and in good faith deny payments to its insured without carefully examining the basis for its denial.”
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org. Subscribe and receive videos limited to Excellence in Claims Handling subscribers at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
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