Stay the Course of Reasonable Claims Handling

Part II of a deep dive on bad faith

December 20, 2023 Photo

[For Part 1, click here]

Social inflation is on the rise, increasing public mistrust of large corporations and insurance companies, and the possibility of bad-faith exposure. Proactive claims management diminishes extra-contractual exposure, whereas poor claims handling can undermine a correct coverage decision.

Duty of Good Faith and Fair Dealing

An insurer’s breach of the duty of good faith and fair dealing typically arises from one or more of the following acts or omissions:

•             Failing to affirm or deny coverage or reserve rights within a reasonable time.

•             Failing to make a good faith attempt to promptly, fairly, and equitably settle a claim when liability is reasonably clear.

•             Failing to promptly provide a reasonable explanation for denying a claim.

•             Refusing to pay a claim without conducting a reasonable investigation.

A claims professional’s failure to adjust a claim promptly and appropriately can subject the insurer to tort damages, such as mental anguish and punitive or treble damages. While perfection is not the standard, the bad-faith case rests on whether the insurer’s conduct was reasonable under the circumstances, with the adjuster at the center of the inquiry.


Communication is critical, and the claim file paints a picture of the insurer’s intentions. The claims professional’s notes and correspondence with the insured, with outside consultants, and internally will tell the story. It will either demonstrate diligence and objective good faith or be used to show delay, indifference, bias, and prejudice.

Consider what your tone and content tell jurors about your approach to the claim and your insured. Expect that every note and email will be displayed to the court during your cross-examination. Careless remarks, politically incorrect sentiments, and even lack of proper grammar and punctuation reflect poorly on the adjuster and the carrier, leading a jury to question your professionalism, capability, and character.


Interview your insured to understand the background and scope of the claim presented. Explain to the insured as early as possible what documentation or information you need and the nature of the consultants or experts you retain. Set clear expectations for the claim investigation. Document the facts the insured provided and your requests for information from the insured. Consider following up with the insured in writing to confirm that your understanding of the claim comports with theirs.

A proper investigation requires a thorough, fair, and objective examination of the claim. Make certain any consultant you retain to investigate the claim or to value the loss understands the scope of your assignment and is qualified to complete it. Even if you retain a reputable company, vet the qualifications of the individual consultant assigned. Set an expectation for when the investigation and report should be completed.

Give the expert all materials from your file that are pertinent to the expert’s investigation, be it parts of the policy or other investigative materials. However, take care not to suggest that the expert apply a coverage exclusion or limitation or do anything else that could be interpreted as promoting an outcome-oriented investigation.

Once you receive the expert’s report, review it to ensure it is objectively reasonable. Have the expert address any questions or concerns you have about the methodology or conclusions. You should be able to explain how the expert’s observations and opinions support your coverage decision. If the insured provides you with documents or competing expert opinions, have those evaluated and addressed by your expert.

Be mindful of the state’s prompt-payment deadlines. Advise the insured in writing if you require additional information, documents, or expert evaluations as the claim progresses. If you require more time to reach a claim decision after receiving the necessary information from all sources, notify the insured of this need and when you expect to reach a conclusion. If at any point your investigation suggests a coverage limitation or exclusion might apply, promptly notify your insured with a reservation of rights letter that quotes applicable policy language.

Coverage Determination

Ensure that claim notes and communications, internal and external, do not suggest that you are siding with the insurer or defending its interests. Maintain objectivity in your analysis of the facts. Reach conclusions based on a preponderance of the evidence, i.e., the probable conclusion drawn from all of the facts.

Carefully examine all policy provisions and objectively apply the facts and conclusions from your investigation to the applicable coverages. If your analysis suggests a disclaimer or limitation of coverage, consider involving coverage counsel.

Paying a Covered Loss

When valuing a claim, take note of all applicable policy provisions. For example, property policies may pay for replacement costs and code compliance only after repairs are completed and only if they are undertaken as promptly as possible or within a specified time. Clearly communicate the policy provisions on payment to the insured to avoid confusion.

Once you can quantify the covered amount owed, promptly pay it as undisputed, even if there are other aspects of the claim that remain unresolved. Resist the temptation to negotiate an agreed value for the entire claim before making payment. If you fail to reach an agreement and the claim goes to court, delays in payment will be painted as bad faith. Prompt payment of undisputed amounts encourages the jury to recognize the insurer’s fairness.

Sometimes an insurer may provide an advance payment before determining coverage, based on the extent of the damage and anticipated coverage. Such voluntary payments should be accompanied by correspondence indicating that the insurer is still investigating the claim, coverage has not been determined, and the insurer is still reserving its rights.

Good Faith Negotiations

When coverage is disputed in whole or in part, an insurer may want to explore settlement. However, before suggesting or negotiating a compromise, the carrier must clarify its coverage position, especially if there is a covered portion or if a release is being sought. It also must pay undisputed amounts if applicable. The insurer’s negotiating position should be based on objective criteria documented in the claim file.

With juries looking to hold companies accountable for perceived “misdeeds,” insurers must be extra vigilant in handling the claim from the moment it comes in the door. Even the best trial attorneys will struggle to smooth over a poorly documented claim file or a shaky investigation. Stay on top of the claim. Stay in touch with the insured. Stay the course of reasonable claims handling.

About The Authors
Multiple Contributors
Paul S. White

Paul S. White is partner at Wilson Elser.

Jennifer Martin

Jennifer Martin is partner at Wilson Elser.

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