Good Faith and Fair Dealing Balances Negative Bias in Investigations

Potentially fraudulent insurance claims require investigations which are much more rigorous than ordinary claims where no suspicion of fraud exists.  These are conducted by investigators who work out of the Special Investigation Unit (SIU).  In turn the SIU often relies on the integrity of the processes and evidence secured by qualified field investigators from qualified vendors such as Pro Investigative Solutions.

Many states have passed legislation which requires insurance companies to establish the SIU function.  The SIU becomes the “go-to” for claims staff to refer suspicious claims, interact with state fraud bureaus, law enforcement, and the National Insurance Crime Bureau.  But, where there is a suspicion of fraud, flags have already been raised which give rise to a potential bias on the part of the investigators and naturally challenge the objectivity of the investigative effort.  Issues are encountered throughout the special investigation which provide new insights into potential defenses to claims based on fraud however, these also provide potential liability to the insurance company for damages over and above the policy coverage.

Insurance policies provide express duties for both the insurance company and the insured.  Outside the policy, courts have held that “good faith and fair dealing” are expected by the insurance company and its representatives including the field investigator.  A breach of “good faith and fair dealing” will expose the company to damages which exceed the policy’s limits of liability including consequential and punitive damages.  Remember the bias we are balancing here…the lack of “good faith” is “bad faith”.  The “Golden Rule” always works.