On June 6, 2017, the U.S. District Court for the Eastern District of California found, consistent with longstanding California precedent, that a material misrepresentation made in the course of a coverage investigation voids coverage. The holding reaffirms the importance of the insurer’s investigation into claims it suspects may be fraudulent. The court also, again consistent with California precedent, declined to find any bad faith conduct in the absence of coverage.

Young v. Progressive Casualty Insurance Co., No. 1:16-CV-01198-DWM, 2017 WL 2462497 (E.D. Cal. Jun. 6, 2017) concerned Young’s claim to Progressive for the theft of his motor home. His policy provided comprehensive coverage with an agreed value for the motorhome of $63,000 with no deductible. Law enforcement recovered the motor home from a canal the same day Young reported it missing. The license plates and VIN tag were missing. The steering wheel was tied in place and the accelerator was depressed with a pole.

Progressive’s Special Investigations Unit investigated the claim, obtaining the cell phone records of Young’s family. His son’s cell phone “pinged” a cell tower when it was used at a location near the canal at 4:03 a.m. on the same day Young reported the motor home missing. Further, the phone was used several times in the days prior near Young’s home. Progressive also took examinations under oath of Young’s family. Young testified that his son’s phone was inadvertently left in the truck of a customer several days before the purported theft of the motor home, meaning that the 4:03 a.m. “ping” was not because Young’s son used his phone. Young’s son testified, however, that he had access to and used his phone in the days leading up to the motor home’s disappearance. Progressive denied coverage on the ground that Young’s statement about the whereabouts of his son’s phone in the period just before the motor home’s disappearance was a material misrepresentation.

The court, relying on Cummings v. Fire Insurance Exchange, 202 Cal. App. 3d 1407, 1418-19 (1988), indicated that if in the course of an insurance claim an insured knowingly misrepresents material facts intending to deceive the insurer, coverage is voided. The intent to defraud the insurer is implied when the misrepresentation is material and the insured willfully makes it with knowledge of its falsity. The facts establishing misrepresentation remained undisputed, as oddly, Young never opposed Progressive’s summary judgment motion. Progressive proved that Young’s statement about the whereabouts of his son’s phone were false with the cell phone records and his son’s contrary testimony. Progressive proved materiality by showing the location of the phone was near where the motorhome was recovered, suggesting it was intentionally sunk.

California remains a jurisdiction in which a bad faith claim cannot be stated without a breach of contract. The court here invoked this longtime rule, but indicated that even if there were somehow coverage, Progressive’s investigation and position were reasonable, given the facts uncovered.