Holmes, J.
The current action presents for our review the following issue: what is the appropriate standard for demonstrating that an insurance carrier acted in bad faith in withholding payments due the insured under a policy of insurance. Specifically, we must examine the jury instructions to see whether the trial court erroneously defined “bad faith.”2 Because of the apparent [694]*694frequency with which this type of claim is being asserted, and the confusion over what may constitute a basis for such a claim, we conclude that it is necessary to clarify the standard upon which bad faith is predicated under Ohio law.
At the outset, we recognize the well-established principle in Ohio that imposes on the insurer a duty to act in good faith in the handling and payment of the claims of its insured. Hoskins v. Aetna Life Ins. Co. (1983), 6 Ohio St.3d 272, 6 OBR 337, 452 N.E.2d 1315, paragraph one of the syllabus. Moreover, as we emphasized in Hoskins, “[a] breach of this duty will give rise to a cause of action in tort against the insurer.” Id. The tort of bad faith is not a tortious breach of contract, for no matter how willful or malicious the breach, it is no tort to breach a contract. See Ketcham v. Miller (1922), 104 Ohio St. 372, 136 N.E. 145.3 Rather, the tort of bad faith arises as a consequence of a breach of a duty established by a particular contractual [695]*695relationship. In the area of contracts of insurance, the legal duty of good faith imposed by law on the insurer applies with equal force to the company’s settlement of third-party claims against its insured as it does to those claims brought by the insured himself. Hoskins, supra, 6 Ohio St.3d at 275-276, 6 OBR at 340, 452 N.E.2d at 1319. As stated by the Supreme Court of California in the landmark case, Gruenberg v. Aetna Ins. Co. (1973), 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032:
“It is manifest that a common legal principle underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is imminent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.” Id. at 575, 108 Cal.Rptr. at 486, 510 P.2d at 1038.
Therefore, as illustrated by the above language, a cause of action for the tort of bad faith, based upon an alleged failure of an insurance company to satisfy a claim by its insured may, under certain circumstances, be brought by its insured as a separate action, apart from an insured’s action alleging breach of the insurance contract. The insurer’s duty of good faith towards its insured is implied by law. This duty may be breached only by an intentional failure by the insurer to perform under its contract with the insured.
Motorists asserts in its only proposition of law that “[i]n order to demonstrate bad faith on the part of an insurer, an insured must show that the insurer acted with a dishonest purpose, moral obliquity, conscious wrongdoing, or a breach of a known duty through some ulterior motive.” This statement contains language from the syllabus law in this court’s prior decision in Slater v. Motorists Mut. Ins. Co. (1962), 174 Ohio St. 148, 21 O.O.2d 420, 187 N.E.2d 45. Because we find that the effect of Slater is to treat recovery of compensatory damages and punitive damages as inextricably mixed, we will endeavor to separate, distinguish, and clarify the standards for the two forms of recovery when the insured alleges an improper denial of insurance coverage.
A
Recovery of Punitive Damages — Actual Malice Construed
Before addressing the standard of proof necessary to support an award of compensatory damages for the insurer’s bad faith withholding of insurance proceeds due under its agreement with an insured, we believe that it is necessary to distinguish that standard from the conduct which justifies [696]*696imposition of punitive damages. In Hoskins v. Aetna Life Ins. Co., supra, this court addressed the issue of what proof is necessary to uphold a claim for punitive damages when the insurer tortiously refuses payment of a claim made by its insured. We held the following in paragraph two of the syllabus:
“Punitive damages may be recovered against an insurer who breaches his duty of good faith in refusing to pay a claim of its insured upon proof of actual malice, fraud or insult on the part of the insurer. (Columbus Finance v. Howard [1975], 42 Ohio St.2d 178 [71 O.O.2d 174, 327 N.E.2d 654], applied.)”
The above standard was later embraced by this court in Staff Builders, Inc. v. Armstrong (1988), 37 Ohio St.3d 298, 525 N.E.2d 783, which additionally recognized that:
“The requisite conduct necessary to support an award of punitive damages is separate and distinct from that sufficient to establish bad faith on the part of the insurer for wrongfully refusing to pay a claim.” Id. at 304, 525 N.E.2d at 789.
Otherwise stated, evidence which is sufficient to establish an award of compensatory damages does not automatically result in an assessment of punitive damages against the insurer; the insured is required to plead and prove by a preponderance of the evidence actual malice, fraud, or insult on the part of the insurer.4 Therefore, whatever the standard we choose upon which to predicate compensatory damages for the insurer’s bad faith withholding of insurance proceeds, we must specifically distinguish such standard from that conduct which will give rise to an award of punitive damages.
In Preston v. Murty (1987), 32 Ohio St.3d 334, 512 N.E.2d 1174, we examined the definition of “actual malice” in order to determine whether punitive damages were properly awarded. The analysis began with our recognition that past constructions of actual malice were plagued with ambiguity. Case law was discovered which imprecisely defined “actual malice” to include “extremely reckless behavior revealing a conscious disregard for a [697]*697great and obvious harm.” Id. at 335, 512 N.E.2d at 1175. After recognizing that longstanding public policy in Ohio awards punitive damages as a means of punishing the tortfeasor and making him a public example so that others may be deterred from similar conduct, we proceeded to still the waters of confusion by rejecting any definition of “actual malice” which included recklessness as an element. Id.; see, also, Detling v. Chockley (1982), 70 Ohio St.2d 134, 24 O.O.3d 239, 436 N.E.2d 208. Accordingly, we remarked in Preston as follows:
“Since punitive damages are assessed for punishment and not compensation, a positive element of conscious wrongdoing is always required.
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Holmes, J.
The current action presents for our review the following issue: what is the appropriate standard for demonstrating that an insurance carrier acted in bad faith in withholding payments due the insured under a policy of insurance. Specifically, we must examine the jury instructions to see whether the trial court erroneously defined “bad faith.”2 Because of the apparent [694]*694frequency with which this type of claim is being asserted, and the confusion over what may constitute a basis for such a claim, we conclude that it is necessary to clarify the standard upon which bad faith is predicated under Ohio law.
At the outset, we recognize the well-established principle in Ohio that imposes on the insurer a duty to act in good faith in the handling and payment of the claims of its insured. Hoskins v. Aetna Life Ins. Co. (1983), 6 Ohio St.3d 272, 6 OBR 337, 452 N.E.2d 1315, paragraph one of the syllabus. Moreover, as we emphasized in Hoskins, “[a] breach of this duty will give rise to a cause of action in tort against the insurer.” Id. The tort of bad faith is not a tortious breach of contract, for no matter how willful or malicious the breach, it is no tort to breach a contract. See Ketcham v. Miller (1922), 104 Ohio St. 372, 136 N.E. 145.3 Rather, the tort of bad faith arises as a consequence of a breach of a duty established by a particular contractual [695]*695relationship. In the area of contracts of insurance, the legal duty of good faith imposed by law on the insurer applies with equal force to the company’s settlement of third-party claims against its insured as it does to those claims brought by the insured himself. Hoskins, supra, 6 Ohio St.3d at 275-276, 6 OBR at 340, 452 N.E.2d at 1319. As stated by the Supreme Court of California in the landmark case, Gruenberg v. Aetna Ins. Co. (1973), 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032:
“It is manifest that a common legal principle underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is imminent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.” Id. at 575, 108 Cal.Rptr. at 486, 510 P.2d at 1038.
Therefore, as illustrated by the above language, a cause of action for the tort of bad faith, based upon an alleged failure of an insurance company to satisfy a claim by its insured may, under certain circumstances, be brought by its insured as a separate action, apart from an insured’s action alleging breach of the insurance contract. The insurer’s duty of good faith towards its insured is implied by law. This duty may be breached only by an intentional failure by the insurer to perform under its contract with the insured.
Motorists asserts in its only proposition of law that “[i]n order to demonstrate bad faith on the part of an insurer, an insured must show that the insurer acted with a dishonest purpose, moral obliquity, conscious wrongdoing, or a breach of a known duty through some ulterior motive.” This statement contains language from the syllabus law in this court’s prior decision in Slater v. Motorists Mut. Ins. Co. (1962), 174 Ohio St. 148, 21 O.O.2d 420, 187 N.E.2d 45. Because we find that the effect of Slater is to treat recovery of compensatory damages and punitive damages as inextricably mixed, we will endeavor to separate, distinguish, and clarify the standards for the two forms of recovery when the insured alleges an improper denial of insurance coverage.
A
Recovery of Punitive Damages — Actual Malice Construed
Before addressing the standard of proof necessary to support an award of compensatory damages for the insurer’s bad faith withholding of insurance proceeds due under its agreement with an insured, we believe that it is necessary to distinguish that standard from the conduct which justifies [696]*696imposition of punitive damages. In Hoskins v. Aetna Life Ins. Co., supra, this court addressed the issue of what proof is necessary to uphold a claim for punitive damages when the insurer tortiously refuses payment of a claim made by its insured. We held the following in paragraph two of the syllabus:
“Punitive damages may be recovered against an insurer who breaches his duty of good faith in refusing to pay a claim of its insured upon proof of actual malice, fraud or insult on the part of the insurer. (Columbus Finance v. Howard [1975], 42 Ohio St.2d 178 [71 O.O.2d 174, 327 N.E.2d 654], applied.)”
The above standard was later embraced by this court in Staff Builders, Inc. v. Armstrong (1988), 37 Ohio St.3d 298, 525 N.E.2d 783, which additionally recognized that:
“The requisite conduct necessary to support an award of punitive damages is separate and distinct from that sufficient to establish bad faith on the part of the insurer for wrongfully refusing to pay a claim.” Id. at 304, 525 N.E.2d at 789.
Otherwise stated, evidence which is sufficient to establish an award of compensatory damages does not automatically result in an assessment of punitive damages against the insurer; the insured is required to plead and prove by a preponderance of the evidence actual malice, fraud, or insult on the part of the insurer.4 Therefore, whatever the standard we choose upon which to predicate compensatory damages for the insurer’s bad faith withholding of insurance proceeds, we must specifically distinguish such standard from that conduct which will give rise to an award of punitive damages.
In Preston v. Murty (1987), 32 Ohio St.3d 334, 512 N.E.2d 1174, we examined the definition of “actual malice” in order to determine whether punitive damages were properly awarded. The analysis began with our recognition that past constructions of actual malice were plagued with ambiguity. Case law was discovered which imprecisely defined “actual malice” to include “extremely reckless behavior revealing a conscious disregard for a [697]*697great and obvious harm.” Id. at 335, 512 N.E.2d at 1175. After recognizing that longstanding public policy in Ohio awards punitive damages as a means of punishing the tortfeasor and making him a public example so that others may be deterred from similar conduct, we proceeded to still the waters of confusion by rejecting any definition of “actual malice” which included recklessness as an element. Id.; see, also, Detling v. Chockley (1982), 70 Ohio St.2d 134, 24 O.O.3d 239, 436 N.E.2d 208. Accordingly, we remarked in Preston as follows:
“Since punitive damages are assessed for punishment and not compensation, a positive element of conscious wrongdoing is always required. This element has been termed conscious, deliberate or intentional. * * * ” Id.
It was upon this principle that we formulated the following syllabus:
“Actual malice, necessary for an award of punitive damages, is (1) that state of mind under which a person’s conduct is characterized by hatred, ill will or a spirit of revenge, or (2) a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.” (Emphasis sic.)
While correctly stating the punitive damages standard with reference to syllabus law in Hoskins, Staff Builders mistakenly described actual malice as including reckless behavior. In effect, Staff Builders, supra, 37 Ohio St.3d at 304, 525 N.E.2d at 789, inadvertently thrust the recklessness standard into the realm of punitive damages, thereby ignoring the established syllabus law in Preston which, in pertinent part, held that actual malice imports “a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.” Preston, supra, at syllabus (second tier of the definition of actual malice).5 This court, in subsequent cases, has followed Preston by quoting its syllabus verbatim and refraining from allowing punitive damages to be assessed on mere reckless behavior. See Digital & Analog Design Corp. v. North Supply Co. (1989), 44 Ohio St.3d 36, 44, 540 N.E.2d 1358, 1365; Calmes v. Goodyear Tire & Rubber Co. (1991), 61 Ohio St.3d 470, 473, 575 N.E.2d 416, 419; Schellhouse v. Norfolk & Western Ry. Co. (1991), 61 Ohio St.3d 520, 525, 575 N.E.2d 453, 457, fn. 2.
[698]*698Preston observed that actual malice requires consciousness of the near certainty (or otherwise stated “great probability”) that substantial harm will be caused by the tortious behavior. Any less callous mental state is insufficient to incur that level of societal outrage necessary to justify an award of punitive damages. Therefore, it is evident that a reckless actor, who only has knowledge of the mere possibility that his or her actions may result in substantial harm, is not behaving maliciously. See, generally, Prosser & Keeton, The Law of Torts (5 Ed. 1984) 212-214, Section 34. In regard to actual malice, Preston made the following observation:
“The concept requires a finding that the probability of harm occurring is great and that the harm will be substantial. A possibility or even a probability is not enough as that requirement would place the act in the realm of negligence. A requirement of substantial harm would also better reflect the element of outrage required to find actual malice.” Preston, 32 Ohio St.3d at 336, 512 N.E.2d at 1176.
Accordingly, we believe that when an insured premises a demand for punitive damages upon the insurer’s actual malice, the insured may successfully maintain his cause of action after proving his entitlement to compensatory damages for the tort of bad faith when the insured shows that the insurer’s bad faith was also accompanied by a dishonest purpose, actual intent to mislead or deceive the insured, or a calculated scheme to defeat the insured’s claim.
B
Recovery of Compensatory Damages — The Tort of Bad Faith
Having found that, when seeking recovery of compensatory damages for the insurer’s denial of policy coverage, the insured need not plead and prove that the insurer exhibited actual malice, we now turn our focus to that conduct under which the insurer may be subjected to liability for its bad faith denial of coveráge.
It is undisputed that, in the refusal-to-pay-claim type of action, “whenever an insurance company denies a claim of its insured, it will not automatically expose itself to an action in tort. Mere refusal to pay insurance is not, in itself, conclusive of bad faith.” Hoskins, supra, 6 Ohio St.3d at 276-277, 6 OBR at 341, 452 N.E.2d at 1320. See, also, Helmick v. Republic-Franklin Ins. Co. (1988), 39 Ohio St.3d 71, 529 N.E.2d 464, paragraph two of the syllabus.
Even though arguments are advanced to the contrary, there is no precedential authority from any decision of this court that supports the view that [699]*699bad faith imports negligent behavior by the insurer in handling the claims of its insured. Accordingly, in Hart v. Republic Mut. Ins. Co. (1949), 152 Ohio St. 185, 187-188, 39 O.O. 465, 466, 87 N.E.2d 347, 349, quoted with approval in Staff Builders, this court noted that mere negligence in settling or refusing to settle a claim of its insured will be insufficient to impose liability on the insurer.6 Specifically, the Hart court stated:
“ ‘ * * * that [t]he insurer cannot be held liable in tort for mere negligence on its part in failing or refusing to settle or compromise a claim brought against the insured for an amount within the policy limit, but that to be held liable in tort for its failure or refusal in this respect so as to entitle the insured to recover for the excess of the judgment over the policy limit it must have been guilty of fraud or bad faith.’ ” Id.
In order to demonstrate the tort of bad faith, some form of wrongful intent must be proven. A finding of bad faith involves an inquiry into the insurer’s state of mind. It is not enough that the insurance company exercised poor judgment in withholding coverage; the insurer must, through its actions, or inactions, intentionally refuse to satisfy the insured’s claim. Additionally, when the nature of the insurer’s conduct is malicious, such as when it is done for a dishonest purpose, or actual intent to mislead or deceive the insured, or calculated to defeat the insured’s claim, then the insurer may be subjected to punitive damages.
As shown above, the duty of an insurance company to its insured is analogous to that of a fiduciary. Accordingly, it is the duty of an insurance company to assess claims after an appropriate and careful investigation, and its conclusions should be the result of the weighing of probabilities in a fair and honest way. For an insurance company’s decision on a claim to be made in good faith, it must be based upon knowledge of the facts and circumstances upon which liability is predicated. The absence of any diligence concerning a claim and the insurer’s refusal to determine the nature and extent of the liability may, in certain instances, evidence bad faith. See Anderson v. Continental Ins. Co. (1978), 85 Wis.2d 675, 688, 271 N.W.2d 368, 375.
Accordingly, we hold that a cause of action arises for the tort of bad faith when an insurer breaches its duty of good faith by intentionally refusing to [700]*700satisfy an insured’s claim where there is either (1) no lawful basis for the refusal coupled with actual knowledge of that fact or (2) an intentional failure to determine whether there was any lawful basis for such refusal. Intent that caused the failure may be inferred and imputed to the insurer when there is a reckless indifference to facts or proof reasonably available to it in considering the claim.
“No lawful basis” for the intentional refusal to satisfy a claim means that the insurer lacks a reasonable justification in law or fact for refusing to satisfy the claim. Where a claim is fairly debatable the insurer is entitled to refuse the claim as long as such refusal is premised on a genuine dispute over either the status of the law at the time of the denial or the facts giving rise to the claim.
Because we believe that the trial judge in the case sub judice blurred the distinction between the tort of bad faith, under which the insured may recover compensatory damages for harm proximately caused, and the tort of malice, we conclude that the jury instructions were an erroneous statement of law. Therefore, we affirm the judgment of the court of appeals and remand the cause to the trial court for proceedings not inconsistent with this opinion.
Moreover, Said’s cross-appeal is dismissed, sua sponte, as having been improvidently allowed.
Judgment affirmed.
Moyer, C.J., Wright and H. Brown, JJ., concur.
Sweeney, Douglas and Resnick, JJ., dissent.