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Thou Shall Always Conduct A Thorough Investigation  

This is the second in a series of fifteen claims commandments that I  believe must be followed by every insurance claims professional.  

INVESTIGATION 

 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:  \\u201cInvestigation\\u201d means all activities of an insurer, or its claims agent  related to the determination of coverage, liabilities, or nature and  extent of loss or damage for which benefits are afforded by an insurance  policy, obligations or duties under a bond, and other obligations or  duties arising from an insurance policy or bond. [California Code of  Regulations, 10CFR2695.2(k)]  Courts will not subject an insurance company 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 can be imposed for a constructive denial imposed after the  insurer has conducted a more thorough investigation that confirms an  earlier determination of no coverage, on the theory of delay coupled  with a wrongful intent.  Courts, state statutes and regulations require that an insurer complete a  thorough investigation before it decides the resolution of a claim for  property damage, bodily injury, personal injury, or for defense and/or  indemnity under a liability insurance policy. Initial conclusions based  on a bare reading of a lawsuit or initial investigative interview are  not enough. Rather, the insurer is required to perform a thorough  investigation before deciding on a claim.  Even though an insurance company is entitled to make a thorough  investigation to determine whether there is coverage under its policy of  insurance, the company acts at its peril in refusing to defend its  insured. If it is subsequently determined that the company erroneously  denied coverage, the company will be liable for damages for breach of  its agreement under the policy, but if done in good faith it will not be  required to pay exemplary damages.  Insurers should conduct their thorough investigation 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  under a reservation of rights, including a reservation to withdraw the  defense and seek reimbursement for moneys expended in providing the  defense under reservation.