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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.

Before the insurer can deny a claim it must first conclude that:

• the claim and the coverages were thoroughly investigated;


• the basis for the denial was thoroughly investigated;


• the investigation was conducted with as much interest in the rights of the insured as in the rights of the insurer;


• all reasonable doubts and ambiguities with regard to the coverage were resolved in favor of the insured;


• the insurer listened to all information provided by the insured in an attempt to find coverage;


• the insurer sought the aid of the insured to bring the loss within coverage;


• all leads were followed, especially those that would favor the insured’s position;


• the insurer did everything within its power to assist the insured to prove the loss was compensable; and


• The insurer consulted with experienced local coverage counsel.