An insurance carrier has declined to defend a claim
asserted against its insured, arguably without meeting its
obligation to investigate the claim. For whatever reason— a
change in personnel, loss of a file, or some other
motivation—the carrier has done little, if anything, to
investigate the claim tendered to it: no Google search, no phone
calls, and very little factual investigation other than the
information tendered by the insured. The carrier has, however,
relied on the plain language of the policy, and the few facts of
which it was aware supported its denial.
But when a court later finds that the carrier's coverage
position was wrong— the facts in existence created a
potential for coverage and hence triggered the carrier's duty
to defend—the insured may argue that its carrier's
failure to investigate supports a finding that it breached the
implied warranty of good faith and fair dealing; that is, the
insurer acted in bad faith. This leads to two questions:
