Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-01171/USCOURTS-cand-3_05-cv-01171-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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States District C

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SPENCER STECZ,

Plaintiff,

 v.

 STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Defendant.

 /

No. C 05-01171 CRB

MEMORANDUM AND ORDER

DENYING IN PART AND GRANTING

IN PART DEFENDANT’S MOTION

FOR SUMMARY JUDGMENT

Plaintiff Spencer Stecz filed this suit against State Farm Mutual Auto Insurance

Company alleging breach of an automobile insurance contract and breach of the implied

covenant of good faith and fair dealing. Plaintiff also seeks punitive damages. Now pending

is defendant’s motion for summary judgment or in the alternative summary adjudication. 

After carefully considering the pleadings and evidence submitted by the parties, and having

had the benefit of oral argument, the motion for summary judgment is DENIED in part and

GRANTED in part. 

BACKGROUND

On March 30, 2004, plaintiff purchased a 2004 Chevy Blazer Xtreme. Plaintiff’s

mother provided $1,000 as a down payment on the vehicle and plaintiff secured a $29,000

loan for the balance of the purchase price. Title was taken under both plaintiff’s and

plaintiff’s mother’s names. 

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1There is a dispute as to whether plaintiff locked the car that night. Plaintiff claims he

closed the windows and set the alarm; however, the car was found with the windows open and

defendant’s expert claims the window could not have been opened unless a correctly cut key was

used in the ignition. For purposes of defendant’s motion, however, the Court must accept

plaintiff’s version of events.

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A. The Insurance Policy

Defendant issued plaintiff an Automobile Liability Policy for the Chevy Blazer. 

Plaintiff also purchased independent GAP insurance which provides that plaintiff will

recover $50,000 if the car is rendered a total loss. The policy contains a typical “fraud or

concealment” provision which states:

[t]here is no coverage under this policy if you or any other person

insured under this policy has made false statements with the intent 

to conceal or misrepresent any material fact or circumstance in 

connection with any claim under this policy. 

(Decl. of Terra Stone in Support of Motion, Exhibit 1, Stecz State Farm Automobile

Insurance Policy, Conditions, ¶ 7).

B. The Theft of the Blazer

On November 14, 2004, plaintiff visited the Stadium Bar in San Leandro. Plaintiff

states that he went to the bar alone with the intent of having a few drinks. Sometime between

10 p.m. and 12:45 a.m., plaintiff realized he was too intoxicated to drive, and decided to call

a friend for a ride home. The friend picked plaintiff up at the Stadium Bar and plaintiff left

his vehicle parked in front of the bar.1 Plaintiff intended to return the following day to pick

up the vehicle. 

On November 15, 2004, plaintiff borrowed his mother’s car and drove to the vicinity

of the Stadium Bar to meet with someone at ABC bartending where plaintiff was taking

classes. ABC bartending is adjacent to Stadium Bar and plaintiff explains that he needed to

pick up paperwork at the school and that he also intended to check on his vehicle. 

Upon arriving at Stadium Bar plaintiff realized that his vehicle was missing. Plaintiff

called the local sheriff’s office. He also called defendant to report the loss. The sheriff

arrived shortly after plaintiff’s call and issued a theft report. According to the report,

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plaintiff reported that all keys were accounted for. The sheriff also noted that there were no

signs of theft, for example, no broken glass or discarded auto parts. 

C. Plaintiff’s Insurance Claim

On November 16, 2004, plaintiff submitted an Affidavit of Theft to defendant. One

month later plaintiff provided defendant with a recorded statement detailing the events of

November 14, 2004. The following month a woman found the vehicle in an abandoned

warehouse in Oakland. Plaintiff went to the warehouse and, after identifying the vehicle as

his Blazer, called the Oakland Police Department. The police found the vehicle completely

stripped. It was laying on a log and the tires, wheels, seats, stereo and dashboard were

missing. 

On January 9, 2005, defendant’s forensic expert, Dan Kern, inspected the vehicle.

Kern’s official report indicates that neither of the two official keys exhibited signs of

duplication. In addition, the door locks and frames did not appear to have any forcible

markings. Similarly, the ignition wafers did not have any signs of tampering, bypass or

forcible activity. Finally, the vehicle’s anti-theft system was subject to a circuit

disconnection which ensured that the car would not start without a proper rotation of the

ignition. Kern concluded that the car could not have been moved without a correctly cut key. 

Defendant subsequently retained a “coverage” attorney to perform a preliminary assessment

of its liability.

Defendant examined plaintiff under oath on March 31, 2005. During the examination

defendant asked plaintiff about the evening of November 14, 2004. Defendant also inquired

into plaintiff’s financial situation and if plaintiff had ever considered selling the car. 

Defendant’s examination into these subjects revealed a number of inconsistencies in

plaintiff’s statements. 

As a result of these inconsistencies, defendant’s coverage counsel advised defendant

that it had grounds to deny the claim. Counsel informed defendant that she believed plaintiff

had made material misrepresentations during the recorded interview and the examination

under oath. According to counsel, these misrepresentations in conjunction with Kern’s

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expert report established that plaintiff had violated the fraud and concealment provision of

his policy and therefore had voided any right to coverage. Defendant subsequently denied

plaintiff’s insurance claim based on his alleged violation of the fraud provision. 

Plaintiff filed this complaint in state court alleging breach of contract and breach of

the implied covenant of good faith and fair dealing. Defendant removed the action to this

Court on the basis of diversity jurisdiction. Defendant now moves for summary judgment on

the ground that plaintiff’s material misrepresentations voided his right to coverage. In

addition, defendant claims it is entitled to judgment as a matter of law on the bad faith claim

because there is a genuine dispute as to whether it had an obligation to provide coverage and

therefore its decision was reasonable. 

SUMMARY JUDGMENT STANDARD

One of the principle purposes of summary judgment is to isolate and dispose of

factually unsupported claims. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). A

party moving for summary judgment that does not have the ultimate burden of persuasion at

trial has the initial burden of producing evidence negating an essential element of the nonmoving party’s claims or showing that the non-moving party does not have enough evidence

of an essential element to carry its ultimate burden of persuasion at trial. See Nissan Fire &

Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). 

If the moving party does not satisfy its initial burden of production, the non-moving

party has no obligation to produce evidence and summary judgment must be denied. If, on

the other hand, the moving party has satisfied its initial burden, then the non-moving party

may not rest upon mere allegations or denials of the adverse party’s evidence, but instead

must produce admissible evidence that shows there is a genuine issue of material fact for

trial. See Nissan Fire & Marine Ins. Co., 210 F.3d at 1102. A genuine issue of fact exists “if

the evidence is such that a reasonable jury could return a verdict for the non-moving party.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 

In evaluating evidence at the summary judgment stage the Court does not make

credibility determinations or weigh conflicting evidence, and draws all reasonable inferences

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2There is a subsidiary issue as to whether the statements were “made with the intent to

conceal or misrepresent any material fact or circumstance in connection with any claim” under

the policy. Resolution of this issue, however, is unnecessary where there is a dispute as to

materiality. Where the intentionality issue is relevant it is substantively considered. 

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in the light most favorable to the nonmoving party. See T.W. Elec. Serv. Inc. v. Pacific Elec.

Contractors Assn., 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp., 477 U.S. at 317).

DISCUSSION

A. The Breach of Contract Claim

Defendant argues that it owes no contract benefits to plaintiff because he made

misrepresentations as to material facts during the investigation and therefore violated the

fraud provision of his policy. Plaintiff does not contest the validity of the fraud provision

and he concedes that he made a number of inconsistent statements; however, he contends that

the fraud provision is inapplicable because the misrepresentations were not material to

defendant’s investigation.2

According to California law, a fact is material if it “concerns a subject reasonably

relevant to the insurer’s investigation, and . . . a reasonable insurer would attach importance

to the fact misrepresented.” Cummings v. Fire Ins. Exch., 202 Cal. App. 3d 1407, 1417

(1988). “The materiality of the statement will be determined by the objective standard of its

effect upon a reasonable insurer.” Id. at 1415. A material misrepresentation serves to

invalidate an insurance policy. See Perovich v. Glens Falls Ins. Co., 401 F.2d 145, 147 (9th

Cir. 1968); see also Hyland v. Millers Nat. Ins. Co., 91 F.2d 735, 741-43 (9th Cir. 1937) (a

misrepresentation as to the amount of property damaged voided coverage); Cummings, 202

Cal. App. 3d at 1415-17 (holding that insurer did not breach policy by denying coverage

when claimant materially misrepresented identity of vandal). Though materiality is a mixed

question of law and fact, it may be decided on summary judgment when “reasonable minds

could not disagree on the materiality of the misrepresentations.” Cummings, 202 Cal. App.

3d at 1417. 

In Perovich, for example, the court held that the insured’s misrepresentation of the

value of the damaged property was material. 401 F.2d at 147; accord Hyland, 91 F.2d at

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741-43. Such a misrepresentation is undisputably material to the insurer’s investigation since

it affects the insurer’s valuation of the claim. In Cummings, the court held that a

misrepresentation as to the identity of the alleged vandal was material as a matter of law

because it would deflect the insurer’s investigation away from the culpable party, and the

identity of the culpable party was relevant to coverage. 

Defendant identifies several misrepresentations that it claims were material to its

investigation of plaintiff’s claim.. 

1. Conflicting testimony as to who drove plaintiff home

 First, defendant points to plaintiff’s inconsistent statements regarding who picked

him up on the night of the theft. During an initial interview plaintiff asserted that he had

called his friend John Clark on the night of the theft and asked him to pick him up at the

Stadium Bar because plaintiff was too intoxicated to drive. (Decl. of Terra Stone in Support

of Motion for Summary Judgment, Exhibit 2, Recorded Statement, STF-CF0501).

However, on March 25, 2005, plaintiff submitted the declaration of Andy Ciriello. 

According to the declaration, plaintiff called Ciriello on November 14th and Ciriello picked

him up at Stadium Bar. (Decl. of Lawrence Padway in Opposition to Motion for Summary

Judgment, Exhibit 5, Decl. of Andy Ciriello). At plaintiff’s subsequent examination under

oath, plaintiff explained that he had initially identified the friend as John, because to the best

of his knowledge he had believed John had picked him up. (Decl. of Lawrence Padway in

Opposition to Motion for Summary Judgment, Exhibit 4, Exam. under Oath, 53:9-54:22). He

explained that he first learned that Ciriello had picked him up the morning of November 15th

when Andy called to check up on him. Id. Plaintiff claimed that he had no independent

recollection of Ciriello picking him up because he had blacked out on the night of the 14th. 

Id.

Defendant responds that this inconsistency cannot be attributed to a loss of memory.

Since plaintiff learned on November 15th that Andy had picked him the night before, his

statement during his recorded interview, on December 16th, that John had picked him up

must have been an intentional misrepresentation. In addition, defendant’s examination of

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3There is no serious dispute as to the intentionality of this statement -even though plaintiff

claims that none of the misrepresentations were made with the intent to deceive. (Plaintiff’s

Opposition to the Motion for Summary Judgement, 15: 6-7). Plaintiff’s position in untenable

since plaintiff by his own admission, knew on December 16th that Andy and not John had picked

him up on the night of the theft. When a party has knowledge that his statement is false and the

statement is wilfully made, the intent to deceive the insurer is necessarily implied, since the law

presumes every man to intend the natural consequences of his acts. Cummings, 202 Cal. App.

3d at 1416. Plaintiff has put forward no argument that refutes this presumption.

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plaintiff’s phone records indicates that no calls were made from plaintiff’s cellular phone

between 6:30 p.m. on the 14th and 11:30 a.m. on the 15th. (Declaration of Terra Stone in

Support of Motion for Summary Judgment, Exhibit 10). 

Although plaintiff’s misrepresentation is suspicious, reasonable jurors could place

different weight on the importance of this statement.3 A juror could conclude that the

statement was material to the insurer’s overall assessment of the claim; however, a juror

could also conclude that who drove plaintiff home on the night of the theft has little or no

bearing on the defendant’s investigation. Since reasonable jurors could dispute the

materiality of this misrepresentation, the Court cannot use this fact in granting summary

judgment. See Cummings, 202 Cal. App. 3d at 1417 (materiality can be determined on

summary judgment only when “reasonable minds could not disagree on the materiality of the

misrepresentations”). 

2. Plaintiff denies any attempts to sell the vehicle

Plaintiff also misrepresented whether he had ever tried to sell the car. Plaintiff’s

mother told defendant that plaintiff had posted the vehicle for sale during June 2004. During

plaintiff’s subsequent examination under oath, defendant asked plaintiff if he had ever tried

to sell the vehicle or if he had ever considered selling the vehicle. (Decl. of L. Padway,

Exhibit 4, Exam. under Oath, 34:20-25). Plaintiff answered no to both questions. 

Defendant then confronted plaintiff with plaintiff’s mother’s statement. Plaintiff

acknowledged that he had temporarily considered selling the vehicle. (Decl. L. Padway,

Exhibit 4, 35:3-14). Defendant later asked plaintiff if anyone had tried to buy the vehicle. 

(Decl. of L. Padway, Exhibit 4, 76:11). Plaintiff indicated no, and said the conversation

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about selling the car was strictly between him and his mother. Id. at 17. Plaintiff also stated

he had never advertised the car for sale. Id. at 18-21. 

Plaintiff was again confronted with his mother’s contrary account. Id. at 22-25. 

Plaintiff then indicated that he had emailed fliers to six individuals, but that he had decided

shortly thereafter that he did not want to sell the vehicle. (Decl. L. Padway, Exhibit 4, 76:26-

77:1-4). When pressed as to why he considered selling the vehicle, plaintiff explained that

the car was worth less than the outstanding loan and that he had begun to lose interest in it. 

(Decl. L. Padway, Exhibit 4 78:8-9, 80:22-24). 

Plaintiff does not contest that he made inconsistent statements regarding his desire to

sell the vehicle. In addition, even if plaintiff had tried to re-characterize the statements as

consistent, a plain reading of the transcript fully establishes that plaintiff misrepresented his

attempt to sell the vehicle. Defendant claims this inconsistent testimony was sufficiently

material to void coverage. 

Plaintiff’s misrepresentation about selling the car presents a close question of

materiality. A previously expressed desire to sell the insured vehicle would be relevant to the

investigation because it evinces a motive for fabricating the theft. A person that has lost

interest in the vehicle or for whom the car has become a financial hardship–such that he

considered selling it–would have more of a reason to facilitate or fabricate its theft in order to

recover the insurance proceeds. 

Nevertheless, the context and timing of the misrepresentations mitigate the materiality

of the statement. Plaintiff immediately corrected the misrepresentation after he was

confronted with his mother’s contrary statement. Since both the misrepresentation and the

correction occurred contemporaneously, defendant cannot claim that the misrepresentation

influenced its investigation. Defendant does not cite any case in which a fraud provision was

applied to a misrepresentation upon which the insurer could not have relied. See Cummings,

202 Cal. App. 3d at 1415 (holding that insurer had established materiality as a matter of law

because the insurer could have relied on the insured’s misrepresentation). 

//

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28 4Neither party provided the Court with the portions of the transcript addressing this issue

and the Court therefore relies on the recommendation report of coverage counsel. 

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3. Misrepresentations on the morning of the theft 

Finally, defendant alleges that plaintiff made a number of misrepresentations on the

morning of the theft. First, the police report reflects that plaintiff told the police there was no

outstanding loan on the truck even though he owed close to $29,000 for the vehicle. (Decl. of

Terra Stone in Support of Motion for Summary Judgment, Exhibit 5, Alameda County

Sheriff’s Report, STF-CF0666). Second, plaintiff informed the police that the stolen vehicle

was a white sedan when in fact it was a black sport utility vehicle. Id. at STF-CF0665.

There is a dispute as to whether plaintiff made the statement about the loan with the

intent to deceive the police and/or defendant. Plaintiff was shown a copy of the police report

during his examination under oath. (Stone Decl. in Support of Motion for Summary

Judgment, Coverage Counsel’s Recommendation Report, STF-CF0168).4 Plaintiff

confirmed that he told the police that he had no outstanding loans, but explained that he did

not know the proper definition of outstanding loans and that he thought the officer was

asking whether he was delinquent on his loan payments. Id. Defendant does not contest the

plausibility of this explanation. 

Plaintiff’s statement regarding the description of the stolen vehicle raises several

issues. The first is whether the statement to the police is a misrepresentation “made in

connection with any claim under this policy.” Neither party addresses this issue. However,

since plaintiff had to file a police report in order to make a claim under his policy, arguably

the statement falls within the fraud provision. 

The second issue is materiality. Since giving the police an incorrect description of the

vehicle would decrease the likelihood that the vehicle would be found, the statement is

arguably material. 

Nevertheless, summary judgment must be denied because, again, there is a dispute as

to intent. Defendant does not offer any evidence, other than the statement itself, which

establishes that plaintiff intentionally lied about the description of the stolen car. Plaintiff

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5Defendant also claims that it is not liable for bad faith as a matter of law because it relied

in good faith on the advice of its coverage counsel. Since the Court concludes that a genuine

dispute exists as to coverage, it need not address defendant’s claim that it is shielded from

liability because of this reliance; however, the Court does consider the reliance on counsel in

determining whether a genuine dispute exists as to coverage.

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identified the description as an error during his examination under oath. (Stone Decl. in

Support of Motion for Summary Judgment, Exhibit 4, Recommendation Report of Coverage

Counsel, STF-CF0168). Plaintiff also provided the insurance company with a correct

description the day after the incident in the Affidavit of Theft. The incorrect description may

have been the result of a miscommunication between the officer and plaintiff. This scenario

is supported by the additional mistakes in the police report that the plaintiff identified and

corrected under direct examination. As there is at least a dispute as to intent, summary

judgment based on this statement must be denied. 

4. Summary

A reasonable person might consider some or all of the above misrepresentations

material in an overall determination of plaintiff’s claim; however, such a finding is not

unequivocal. Since the materiality of the misrepresentations is subject to dispute, this Court

cannot state as a matter of law that plaintiff violated the fraud provision of the insurance

contract. As such, defendant’s motion for summary judgment on the breach of contract claim

must be denied. 

B. Breach of Implied Covenant of Good Faith and Fair Dealing

1. A genuine dispute as to coverage5

Defendant also seeks summary judgment on plaintiff’s bad faith cause of action. To

establish a breach of the implied covenant of good faith and fair dealing, a plaintiff must

show that benefits were denied and that the reason for the denial was unreasonable or without

proper cause. See Love v. Fire Ins. Exch., 221 Cal. App. 3d 1136, 1151 (1990). A defendant

is entitled to summary judgment if it can show that there was a genuine dispute as to

coverage, such that the denial could be termed reasonable. 

[A] court can conclude as a matter of law that an insurer’s 

denial of a claim is not unreasonable, so long as there existed a 

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genuine issue as to the insurer’s liability. An insurer is liable for 

breach of the implied covenant of good faith and fair dealing 

if it acted unreasonably in denying coverage. 

Lunsfurd v. American Guarantee & Liability Ins. Co., 18 F.3d 653, 656 (9th Cir. 1994)

(citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573 (1973)). In addition, a defendant

insurer may raise the genuine dispute doctrine where the insurer denies a claim based on the

opinion of experts. Fraley v. Allstate Ins. Co., 81 Cal. App. 4th 1282, 1293 (Cal. App. June

14, 2000) (citing Allstate Ins. Co. v. Madan, 889 F. Supp. 374, 381 (C.D. Cal. 1995)). 

The genuine dispute doctrine extends to both legal (contractual) disputes as well as to

quintessentially factual disputes. Guebara v. Allstate Ins. Co., 237 F.3d 987, 994 (9th Cir.

2001). The doctrine also applies equally to factual disputes over valuation as well as disputes

over the underlying circumstances resulting in the loss. In Guebara, for example, the Ninth

Circuit affirmed a grant of summary judgment on a bad faith claim because the overall

factual calculus indicated that the insured had misrepresented the true value of the damaged

property. The court looked to inconsistencies in the insured’s statements, the contradicting

opinion of an expert, and other suspicious factors in concluding that a genuine dispute

existed as to whether the insured had misrepresented her loss.

The insured, Guebara, had alleged that a fire at her residence had destroyed a number

of personal items of monetary value; however, the insurer’s expert and the fire chief were

unable to find any evidence of these items at the scene of the fire. In addition, the insured

changed her testimony regarding these items a number of times. During her first interview

Guebara had not included a TV, stereo, or cameras; however, her subsequent contents list

did include a number of these “big ticket” items. Finally, the court noted that Guebara was

facing extreme financial hardship –her house had declined in value from $75,000 to $35,000

and needed extensive electrical repairs–which provided her with a motive to misrepresent the

value of loss and/or to commit arson. Given these factors the Ninth Circuit held that a

genuine dispute existed as to whether the insured had made material misrepresentations about

the value of the loss that would have voided her right to coverage. 237 F.3d at 996. The

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insurer’s denial of coverage because of alleged fraud was therefore reasonable as a matter of

law. 

Here, the undisputed evidence demonstrates that defendant acted reasonably in

denying plaintiff’s claim. Plaintiff, a 23-year old male, purchased a $30,000 sport utility

vehicle with the help of his mother. Plaintiff purchased GAP insurance that provides

plaintiff with $50,000 if the car is ever deemed a total loss. 

Shortly before the theft plaintiff experienced financial hardship that made the vehicle

a burden. Plaintiff was unemployed during the relevant time and had a negative balance in

both his checking account and his credit union account. All payments due on the vehicle

were made on time, but his mother paid half of each monthly payment. 

Plaintiff then considered selling the vehicle. Plaintiff acknowledged that he had sent

out emails to at least six individuals asking if anyone was interested in buying the car. 

Plaintiff’s mother also told defendant that her son considered selling the vehicle because the

gas was expensive and because he was unemployed. (Decl. of L. Padway in Opp. to Motion

for Summary Judgment, Exhibit 7, 34:23-35:3).

Immediately following the recovery of the stolen vehicle defendant had a forensic

expert examine the vehicle. The expert found that a correctly cut key was required to operate

the vehicle. The expert also found no evidence of foreign key use, or any tampering with the

lock ignition that would be consistent with the normal theft of a car.

Further, plaintiff made a number of inconsistent statements during the investigation

that raise suspicion. Plaintiff misrepresented who picked him up on the night prior to the

theft. Plaintiff also stated that he had made a number of calls on November 14th in order to

secure a ride home; however, his phone records indicate that no calls were made from his

phone on that night. In addition, he flatly misrepresented his attempt to sell his car until

confronted with his mother’s contrary statement; even then he still misrepresented whether

he had advertised the car for sale. His misrepresentations suggest that he did not want

defendant to know he had a motive for being involved in the theft of his vehicle.

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6Plaintiff claims that defendant cannot rely on counsel because it has not provided

discovery regarding which counsel authorized the disassembly of the ignition lock. That

allegation has no bearing on whether the decision to deny coverage was based on good faith.

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These misrepresentations are compounded by plaintiff’s statements to the police. 

According to the police report, plaintiff initially told the police that the stolen vehicle was a

white sedan. Such a misrepresentation raises suspicion that plaintiff did not want police to

find the stolen vehicle, increasing the likelihood that it would be totaled. Impairing the

police investigation would also minimize the likelihood that the police would recover

evidence that would contradict the plaintiff’s story. 

Finally, upon review of this record, legal counsel advised defendant that it could deny

coverage based on plaintiff’s misrepresentations. Plaintiff has not submitted any evidence

that suggests this legal opinion was a sham.6

Although none of these factors are dispositive in and of themselves, when taken

together they raise the possibility that plaintiff misrepresented the theft of the vehicle, or at

least facilitated the theft in order to recover the insurance proceeds. Even when viewed in

the light most favorable to plaintiff, the misrepresentations, the plaintiff’s financial motive,

the expert’s report, and coverage counsel’s legal opinion, create as a matter of law a genuine

dispute over coverage. 

2. Biased investigation 

Plaintiff alleges that even if a genuine dispute exists, summary judgment on the bad

faith claim should be denied because defendant’s acts evince impermissible bias. Plaintiff

also claims that defendant stole and then damaged evidence that was crucial to his case. 

Plaintiff argues the motion for summary should be denied as a sanction for defendant’s

spoliation of evidence. Both claims fail. 

The genuine dispute doctrine is inapplicable where the insurer’s investigation was

biased. Guebara, 237 F.3d at 996. Bias can be demonstrated by a number of factors. 

Chateau Chamberay Homeowners Assn. v. Associated Int’l. Insurance Co., 90 Cal. App. 4th

335, 348 (2001). The relevant factor here is whether the insurer failed to conduct a thorough

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investigation and is therefore precluded from using the genuine dispute defense. Chateau

Chamberay Homeowners Assn., 90 Cal. App. 4th at 348 (2001). 

In support of his contention, plaintiff presents the declaration of forensic vehicle

component analyst Rob Painter. According to Painter, defendant failed to take a number of

steps in conducting its investigation. First, defendant did not consider that the keys for the

Chevy Blazer Xtreme can be easily duplicated if someone obtains the vehicle identification

number. Second, defendant did not take into account that the car could have been stolen by

means of towing. In addition, defendant failed to dust the vehicle for fingerprints thereby

destroying evidence that could have corroborated plaintiff’s story. Finally, defendant’s

expert, Kern, damaged the ignition lock during reinstallation thereby preventing Painter from

assessing whether the ignition lock had been tampered with during the theft. Painter

concludes, based on these assertions, that defendant had not conducted a competent theft

investigation. 

Plaintiff’s reliance on Painter’s declaration is insufficient to preclude the use of the

genuine dispute doctrine. First, in order to establish bias in the bad faith context, plaintiff

must show something more than a lack of competency. Negligence in conducting the

investigation is not sufficient to rise to the level of bad faith. Bad faith implies dishonesty,

fraud and concealment. Congleton v. Nat’l Union Fire Ins. Co., 189 Cal. App. 3d 51, 59

(1973). In addition, a defendant does not breach the implied covenant of good faith and fair

dealing by relying on its own expert and not that of the plaintiff. Fraley v. Allstate Ins. Co.,

81 Cal. App. 4th 1282, 1292-93 (2000). Thus, even if Painter’s declaration is accurate it is

not sufficient to establish bias.

Second, although Painter outlines a number of steps that defendant could have taken

to improve its investigation, none of his conclusions establish that defendant did not engage

in a thorough investigation. Defendant took two separate statements from the person most

knowledgeable about the theft. Defendant retained the services of a forensic locksmith and

also retained a specialized attorney to help it in its determination. After reviewing the

expert’s report, the affidavit of theft, the attorney’s recommendation, the police report, and

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plaintiff’s conflicting statements, defendant decided to deny coverage. Given the number of

steps that defendant engaged in, no reasonable jury could find that its investigation was not

thorough or that it was conducted in bad faith. See Feldman v. Allstate Ins. Co., 322 F.3d

660, 669 (9th Cir. 2003) (finding on an appeal from a grant of summary judgment that the

insurer’s investigation was thorough even though the claim had not been submitted to an

appraiser because no contractual language mandated it); Adams v. Allstate Ins. Co., 187 F.

Supp. 2d 1219, 1230 (C.D. Cal. 2002) (stating on a motion for summary judgment that the

insurer’s investigation was thorough even though it had been assigned exclusively to a third

party investigator). 

Plaintiff’s contention that summary judgment should be denied because defendant

stole and then damaged the ignition lock is equally unpersuasive. Plaintiff’s Automobile

Liability Policy requires the insured to cooperate with the defendant in securing and giving

evidence. (Decl. of Terra Stone in Support of Motion, Exhibit 1, Policy, Reporting a ClaimInsured’s Duties, Para. 5, STF-UF00005). Since the claim centered exclusively on the

vehicle, an investigation of the vehicle and the ignition itself was well within the purview of

the defendant’s rights. Moreover, there is no evidence that suggests that defendant’s expert

intentionally damaged the ignition, and, in any event Kern provided plaintiff with photos of

the ignition lock as it looked prior to reinstallation. Plaintiff has not provided any evidence

that the photos do not accurately depict the ignition or are inadequate for his own expert to

render an appropriate opinion. 

Finally even if spoliation had occurred, and the Court excluded any evidence as to the

ignition, there remains undisputed evidence that establishes that defendant’s denial was

reasonable as a matter of law. 

3. Summary

Since defendant has demonstrated as a matter of law that a genuine dispute exists as to

its coverage liability, the Court must grant defendant’s motion for summary adjudication as

to the bad faith claim. Since plaintiff’s bad fath claim does not survive the motion for

summary judgment, punitive damages are not recoverable. Adams, 187 F. Supp. 2d at 1231

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(holding “a plaintiff who is not able to survive summary judgment on an insurance bad faith

claim, is also unable to survive judgment on a . . . claim for punitive damages”). 

CONCLUSION

Defendant has failed to establish as a matter of law that any of plaintiff’s

misrepresentations rose to the level of materiality (and/or intent) that would absolve them of

coverage liability under the policy. As such, defendant’s motion for summary adjudication

on the breach of contract claim is DENIED. 

However, defendant has established as a matter of law that a genuine dispute existed

as to its right to deny coverage. Defendant’s motion for summary adjudication on the bad

faith and punitive damages claims is therefore GRANTED. 

The parties shall appear for a continued case management conference at 8:30 a.m. on

June 16, 2006 to set a date for trial.

IT IS SO ORDERED.

Dated: April 24, 2006 

 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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