INSURANCE LAW
64 ■ For The Defense ■ October 2017
■ Tyler Gerking is chair of Farella Braun & Martel LLP’s insurance recovery group and co-chair of its pri-
vacy and cybersecurity group. From the firm’s San Francisco office, Mr. Gerking represents corporate poli-
cyholders in complex, high-stakes insurance matters. Alex Potente is a partner in the San Francisco of fice
of Sedgwick LLP, where he represents insurers in complex commercial insurance litigation matters, in-
cluding those involving general and professional liability policies, with an emphasis on bad-faith and cov-
erage issues from claims involving class actions, product defects, public sector liability, and environmental
and other long-tail insurance coverage disputes. He is vice chair of the DRI Cybersecurity and Data M anage-
ment Committee. Heather J. Zacharia, an associate in Sedgwick LL P’s San Francisco office, assisted in the
research and preparation of this article.
Bad-Faith
Insurance Cases The Ramifications
of a Less-
Than-Thorough
Investigation
motivation—the carrier has done little, if
anything, to investigate the cla im tendered
to it: no Google search, no phone calls, and
very little factua l investigation other than
the information tendered by the insured.
e 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 nds that the
carrier’s coverage position was wrong—
the facts in existence created a potential
for coverage and hence triggered the carri-
er’s duty to defend—the insured may argue
that its carrier’s failure to investigate sup-
ports a nding that it breached the implied
warranty of good faith and fair dealing;
that is, the insurer acted in bad faith . is
leads to two questions:
• In defending itself against its insured’s
bad-faith claim, can the carrier rely on
facts that it would have discovered—had
it conducted a more c omplete investi-
gation—that tend to show the coverage
question was a close one and thus the
denial was reasonable?
• Could the existence of a genuine dispute
over the potential for coverage insu-
late the carrier from bad-faith liability,
even if the carrier had failed to investi-
gate thorough ly, particula rly when the
dispute involves a third-party insur-
ance polic y?
In this article, we review possible an-
swers to these questions from the per-
spective of both insurance carriers and
policyholders in both rst- and third-party
By Tyler Gerking
and Alex Potente
Can an insurer defend
itself against a bad-faith
claim with information
that it did not know?
And when should the
insurer have known
the information?
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 le, or some other
© 2017 DRI. All rights re served.
