By David A. Gauntlett*
Introduction
Insurance bad faith is often associated with an insurer’s wrongful refusal to pay a covered claim, but an outright denial is only one way an insurer may violate the implied covenant of good faith and fair dealing. Depending on the governing law and the policy benefits at issue, liability may arise from an inadequate or outcome-oriented investigation, an unreasonable delay in evaluating or paying a claim, the withholding of an undisputed portion of a loss, or other claims-handling conduct that unfairly deprives the insured of contractual benefits. A recent Ninth Circuit decision adds an important dimension to this subject by recognizing that bad faith may exist even without a breach of an express policy provision. The decision also underscores the importance of jurisdiction: although certain states provide insurers substantial protection when coverage is genuinely disputed, others impose statutory duties and remedies that make unreasonable claims handling significantly more costly.
Quilbillies, LLC v. First American Title Insurance Co.
In Quilbillies, LLC v. First American Title Insurance Co.,[1] the Ninth Circuit held that an insured’s bad-faith claim may exist even when the insurer has not breached an express term of the insurance contract. The holding is significant because it distinguishes the implied covenant of good faith and fair dealing from the policy’s specific promises. Express provisions define the benefits and duties to which the parties expressly agreed; the implied covenant governs whether a party has exercised its contractual rights and performed its obligations in a manner that unfairly frustrates the agreement’s benefits.
That distinction does not make the implied covenant independent of the policy. Rather, it recognizes that contractual performance can be technically consistent with an express provision yet still be undertaken in a manner that deprives the insured of the agreement’s intended benefits. California authority has described the implied covenant as a supplement to express contractual covenants that prevents a contracting party from frustrating the other party’s right to receive the benefits of the agreement. At the same time, the covenant cannot create coverage or benefits that the policy does not provide.[2]
Earlier Ninth Circuit authority illustrates the limits of this principle. In Solomon v. North American Life & Casualty Insurance Co.,[3] the court recognized that California law does not invariably make breach of an express contract term a prerequisite to bad-faith liability. Nevertheless, it rejected the particular bad-faith claim because the insurer’s challenged conduct was expressly permitted by the policy and lacked evidentiary support.[4] Thus, the relevant question is not merely whether the insurer violated a specific sentence in the policy. Courts must also ask whether the insurer used its contractual authority, claims procedures, or discretion to obstruct benefits the agreement was intended to provide.
The practical importance of Quilbillies lies in its rejection of a categorical defense. An insurer cannot necessarily defeat bad faith simply by demonstrating literal compliance with the policy’s express language. The insured must still identify a policy benefit or contractual purpose that the challenged conduct allegedly frustrated, and conduct expressly authorized by the agreement generally will not become actionable merely because it disadvantaged the insured. But where claims handling unfairly interferes with the insured’s receipt of contractual benefits, the absence of a separate express-term breach does not automatically end the inquiry.
Bad Faith Can Take Many Forms
An unreasonable denial remains the most familiar basis for bad-faith liability, but claims-handling conduct must be evaluated as a whole. One recurring basis for liability is failure to conduct a full, fair, and objective investigation. An insurer generally cannot reach a predetermined result, ignore material evidence supporting coverage, or investigate only facts that reinforce a basis for denial. California decisions emphasize that the adequacy of the investigation is central to the good-faith analysis and that an insurer must fully inquire into potential grounds supporting the claim.[5]
An investigation may also be deficient when the insurer relies uncritically on selected experts or seeks opinions calculated to support a desired outcome. Texas law, for example, does not treat an expert report as an automatic bar to bad-faith liability. The Texas Supreme Court explained that a bona fide coverage dispute, standing alone, does not establish bad faith, but reliance on an expert does not conclusively foreclose recovery when the reliability or objectivity of that reliance is legitimately questioned.[6] The distinction is between a genuine effort to determine coverage and an investigation designed to manufacture a defensible reason for withholding benefits.
Unreasonable delay is another potential form of bad faith. Delay can be harmful even if the insurer ultimately accepts the claim, because insurance benefits are commonly sought when the insured is already facing a covered loss. A prolonged investigation, repeated requests for unnecessary or duplicative information, failure to communicate, or internal inaction may become actionable when the delay lacks a reasonable basis. Texas recognized the rationale for addressing both denials and delays in Arnold v. National County Mutual Fire Insurance Co.[7] The court stated that a claim may arise when there is no reasonable basis for denying or delaying payment, or when the insurer fails to determine whether such a basis exists.[8]
Other actionable conduct may include refusing to provide a defense when one is owed, unreasonably declining a reasonable settlement opportunity within liability limits, misrepresenting pertinent policy language, or using the insurer’s control over claim administration to pressure the insured into accepting less than the benefits due. The common thread is not simply an unfavorable coverage decision. It is claims handling that, without a proper basis, places the insurer’s interests above the insured’s right to receive the protection purchased under the policy.
Bad Faith Standards Vary by Jurisdiction
Bad-faith law is predominantly state law, and the governing standards and remedies differ substantially. Texas ties common-law bad faith to the objective strength of the insured’s entitlement. In Universe Life Insurance Co. v. Giles,[9] the Texas Supreme Court stated that an insurer may be liable when it knew or should have known that it was reasonably clear the claim was covered. The court also treated whether liability had become reasonably clear as a factual issue rather than invariably a question of law. This standard protects insurers when coverage remains subject to a bona fide dispute, while allowing liability when the available information makes the insurer’s obligation reasonably clear. It also leaves room to examine whether the insurer investigated objectively or attempted to create a pretext for denial.
Colorado is comparatively less forgiving of unsupported delay or denial because it supplements common-law principles with a statutory cause of action. Colorado Revised Statutes section 10-3-1115 prohibits an insurer from unreasonably delaying or denying benefits owed to a first-party claimant and defines unreasonableness by the absence of a reasonable basis. The statutory claim differs from Colorado’s common-law standard, under which a first-party claimant generally must establish that the insurer knew its conduct was unreasonable or recklessly disregarded that fact.[10] Colorado authority recognizes the statutory duty as additional to, and different from, the common-law cause of action.[11]
The remedies reinforce that distinction. Under Colorado Revised Statutes section 10-3-1116, a qualifying first-party claimant may recover reasonable attorney fees, court costs, and two times the covered benefit for an unreasonable delay or denial. The statutory action is cumulative of other available statutory or common-law claims, subject to the statute’s restrictions on duplicative recovery. These consequences make Colorado’s statutory regime more protective of insureds than the standards of most other states, particularly where an insurer lacks a reasonable basis but the evidence may not establish conscious wrongdoing.
These variations make choice of law and claim characterization critical. The same conduct may be protected as participation in a genuine dispute under one state’s law, present a jury question under another state’s “reasonably clear” standard, and support enhanced statutory recovery elsewhere. Evaluating bad faith therefore requires attention not only to the policy and claim file, but also to the precise substantive law governing the insurer’s investigation, communications, timing, payment obligations, and available defenses.
Conclusion
Quilbillies confirms that bad faith cannot always be reduced to the question whether an insurer breached an express policy term. Because actionable conduct and available remedies vary by jurisdiction, both insurers and insureds must evaluate the entire claims-handling process under the specific common-law and statutory standards that govern the policy.
*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.
[1] Quilbillies, LLC v. First American Title Insurance Co., No. 25-501, 2026 LX 578862 (9th Cir. (Wash.) Sept. 16, 2026).
[2] Am. Med. Int'l v. Nat'l Union Fire Ins. Co., 244 F.3d 715, 720 (9th Cir. (Cal.) 2001).
[3] Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d 1132 (9th Cir. (Cal.) 1998).
[4] Id. at 1136.
[5] Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062, 1072 (2007).
[6] State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448 (Tex. 1997).
[7] Arnold v. Nat'l County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex. 1987).
[8] Id. at 167.
[9] Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56 (Tex. 1997).
[10] C.R.S. 10-3-1113.
[11] Kisselman v. Am. Family Mut. Ins. Co., 292 P.3d 964, 974 (Colo. App. 2011).