Win Some – Lose Some

Bad Faith Suit Fails Because of Good Faith Investigation and Decision

David Clark v. Indemnity Insurance Company of North America and Gallagher Bassett Services, Inc., No. 16-16880, United States Court Of Appeals For The Ninth Circuit (March 5, 2018)

David Clark appeals from the district court’s grant of summary judgment to defendants Indemnity Insurance of North America and Gallagher Bassett Services, Inc.

Clark argues that Indemnity acted in bad faith by denying his January claim without reviewing his medical records, as opposed to a summary of them. “[A]n incomplete pre-denial investigation of an insured’s claim can expose the insurance company to liability for bad faith,” but the inadequacy of the investigation has to be material. Aetna Cas. & Sur. Co. v. Superior Court, 778 P.2d 1333, 1336 (Ariz. Ct. App. 1989).

Clark does not explain how examination of his medical records, rather than a summary of them, might have revealed facts supporting coverage for his neck injury under the January claim.

Moreover, Indemnity had ample reason to reject the January claim. Clark raised his injury more than a month after it was allegedly sustained and informed the hospital where the fusion surgery was performed that his injury was not suffered in the course of his employment. Besides casting doubt on whether the cervical injury was compensable as work-related, Clark’s decision to use his own group health insurance policy deprived the insurer of sufficient facts to deal with his claim.  On the basis of what was known at that time, and with a statutory deadline looming, Indemnity’s denial of Clark’s January claim could not have been unreasonable.

Even though the adjuster was not at liberty to “speculate” on how Clark wished his claim for benefits to be handled, jurors could decide that she could and should have inquired. She did not, and this omission precludes summary judgment.

Indemnity suggests that coverage under the November accident claim could have been properly rejected because Indemnity’s investigation revealed that Clark had prior cervical claims, despite Clark’s original representation that he had never injured his cervical spine before this claim.

The documents cited in its appellate brief, however, do not show when the adjuster became aware of Clark’s prior medical history. The court, therefore, reversed the grant of summary judgment in favor of Indemnity on this part of Clark’s claim.

Clark also contends that Indemnity’s delay in paying benefits after they were awarded by the Industrial Commission of Arizona amounted to bad faith. This delay, however, is at least equally attributable to Clark’s attorney who provided the debt collector with the claim number for the January accident claim—which had been denied as moot—rather than the claim number for the November accident claim under which benefits were to be paid. Indemnity moved quickly to settle the debt collection action brought against Clark once it became aware of the lawsuit.


The injured worker lost part of his case because the conduct of the insurer was proper and reasonable. He won another part because there was the possibility that the adjuster should have inquired how Clark wanted his claim handled and gave him the opportunity to prove he was entitled to benefits.

© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Mr. Zalma’s books available as Kindle books or paperbacks at can be reached at

Mr. Zalma’s reports can be found on Tumbler at  on Facebook at and you can follow him on Twitter at

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.



About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.