Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01405/USCOURTS-caed-2_05-cv-01405-1/pdf.json

Parties Involved:
Bruce Newland
Plaintiff
Jenny Newland
Plaintiff
Progressive Casualty Insurance Company
Defendant
Progressive Corporation
Defendant
Progressive Halcyon Insurance Company
Defendant
Progressive Marathon Insurance Company
Defendant

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 The various Progressive entities listed as defendants 1

will be referred to simply as “Progressive” or “defendant.” 

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

BRUCE NEWLAND AND JENNY

NEWLAND, 

Plaintiffs,

v.

THE PROGRESSIVE CORPORATION;

PROGRESSIVE CASUALTY INSURANCE

COMPANY; PROGRESSIVE MARATHON

INSURANCE COMPANY; PROGRESSIVE

HALCYON INSURANCE COMPANY; AND

DOES 1-50, inclusive,

Defendants. 

 CIV-S-05-01405 DFL PAN

MEMORANDUM OF OPINION 

AND ORDER

Plaintiffs Bruce and Jenny Newland (“the Newlands”)

submitted an insurance claim to Progressive seeking compensation

for damage to their car. After Progressive refused to pay the 1

claim and accused the Newlands of vandalizing the car themselves,

the Newlands brought suit.

Progressive moves for partial summary judgment against the

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 Progressive does not seek summary judgment on the 2

Newlands’ breach of contract claim.

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Newlands on their claims for: (1) breach of the implied covenant

of good faith and fair dealing; (2) punitive damages; (3)

violation of the Consumer Legal Remedies Act (“CLRA”); and (4)

violation of the Unfair Competition Act, Business and Professions

Code § 17200 (“UCA”). Because the Newlands agreed to a voluntary 2

dismissal of the UCA claim at oral argument, the court addresses

only whether summary judgment is appropriate for the first three

claims noted above. For the reasons stated below, the court

DENIES Progressive’s motion as to claims 1 and 2 but GRANTS its

motion as to claim 3.

I.

On September 11, 2003, the Newlands reported their Volvo S80

missing after returning home from a two-day vacation. (Mot. at

1.) Progressive assigned the case to its adjuster Kelly Dobbins. 

(Pl.’s SUF ¶ 4.) On September 16, Dobbins took a recorded

statement from Jenny Newland about the Newlands’ financial

situation and the circumstances surrounding the disappearance of

the car. (Id.) Dobbins concluded from the interview that the

Newlands were experiencing financial pressure because of high

expenses, including the car payments for the Volvo. (Id. ¶ 11.) 

Also, she discovered that the Newlands had been trying to sell

the Volvo, (id. ¶ 10.), but that they were “upside down” on the

car because they owed more on the car, by several thousand

dollars, than the one offer they had received. (Id. ¶ 128.) 

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Dobbins suspected fraud and referred the case to Progressive’s

Special Investigation Unit (“SIU”). (Id. ¶ 11.) 

On September 17, Dobbins reviewed the Newlands’ credit

report and noted that the account balances were higher than Jenny

Newland had indicated. (Id. ¶ 16.) The parties dispute whether

Dobbins interpreted the report correctly. (Id.) According to

the Newlands, further investigation would have revealed that the

high credit card balances were temporary and coincided with Jenny

Newland’s maternity leave and Bruce Newland’s change in jobs. 

(Opp’n at 6-8.) 

Progressive’s special investigator Greg Jackson then took

over the investigation. He canvassed the neighborhood, speaking

to potential witnesses about the theft. (Id. ¶ 22)

On September 22, there was a new development: Bruce Newland

notified Progressive that the vehicle had been recovered. (Id. ¶

23.) Jackson inspected the vehicle and found significant damage

to the interior. (Id. ¶ 34.) He also found a hatchet inside the

car that appeared to have been the implement of the damage. 

(Id.) But Jackson noted that valuable items such as the stereo

and airbags were “intact and undisturbed,” and that there was no

damage to the ignition, steering wheel, and steering column,

suggesting that the thief had a key. (Id.) 

Dobbins learned on September 23 that the car when purchased

may have come with two regular keys and a valet key. (Id. ¶ 28.) 

However, the Newlands told her that they had not received a valet

key. (Id. ¶ 28.) Jackson then interviewed various people at

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Turner Volvo, where the Newlands bought the car, to inquire into

whether the Newlands received this “third” key. (Id. ¶¶ 31, 32.) 

On September 30, Jackson conducted recorded interviews with

the Newlands. (Id. ¶ 40.) In his interview with Bruce Newland,

Jackson asked various questions about the theft but repeatedly

implied that the Newlands themselves were the chief suspects. 

(See id.) For example, “[h]e state[d] to Newland that he was

struggling to figure out how the car was unlocked and how it was

driven to the place it was recovered without the keys.” (Id.) 

He also declared, “[A] lot of people who own vehicles that either

can’t get rid of them or, want to get rid of them, they have been

known to do things to their vehicles.” (Id.) And, in an

apparent attempt to trick Bruce Newland into confessing, Jackson

told him that the Volvo had a “black box” that would indicate

which key was used last. (Id.) Of course, there was no such

black box.

In his interview with Jenny Newland, Jackson made similar

accusations. He said, “I mean all the fingers are pointing to

you and your husband.” (Id. ¶ 41.) He told her that he

understood how frustrating it was to have to high car payments. 

(Id.) Furthermore, he explained that “people vandalize their

cars to get a new interior because it would be easier to sell.” 

(Id.)

From October to late December, Jackson and Dobbins continued

the investigation. Much of the focus of the investigation was on

the existence and whereabouts of the supposed valet key. The

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Newlands maintained that if there was a valet key, it would have

been inside the owner’s manual in the glove box. (Id. ¶ 54.) 

They did not remember receiving the key, but they told the

investigators that it was their understanding that the dealership

usually packaged the valet key inside the manual. (Id.) They

said they had never looked through the manual. (Id.) This was

important because if the key had still been in the manual, it was

a possible explanation for how the thief had taken the car

without damaging the ignition. 

On November 12, Jackson spoke to the service manager and

technician of Turner Volvo about the possibility that the

Newlands received a valet key. (Id. ¶ 56.) Progressive also

deposed Jorgen Eiremo, a salesman at Turner Volvo, who had turned

the car over to Bruce Newland. (Id. ¶ 57). Eiremo testified

that he usually handed all of the keys, including the valet key,

over to the purchaser, instead of placing it in the manual. (Id.

¶ 57.)

Jackson and Dobbins also spent considerable time

investigating a purported discrepancy regarding whether the

Newlands had ever replaced the car’s tires. (Id. ¶¶ 48, 49, 50,

51.) Bruce Newland had mentioned in his recorded interview with

Jackson that he thought he may have replaced the tires once

before but became more and more uncertain after further

questioning. (Id. ¶ 48.) After examining the tires, Jackson and

Dobbins determined that the Newlands likely never replaced the

tires. (Id. ¶ 50.)

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On December 18, Progressive’s managers, Jackson, Dobbins,

and others decided to deny the Newlands’ claim based on suspicion

of fraud because of “misrepresentations” and “financial motives.” 

(See id. ¶¶ 59, 60, 61.)

After the denial, the Newlands sent Progressive two letters

requesting reconsideration, which Progressive denied. (See id.

¶¶ 64, 65.) The February 3, 2005 letter from the Newlands argued

that an inexperienced thief might have stolen the Volvo after

finding the valet key in the glove compartment. (Id. ¶ 65.) The

Newlands submitted declarations from managers at Turner Volvo

that it was customary for the dealership to package the valet key

with the owners’ manual. (Id.) Progessive considered the

reconsideration request and denied it, concluding that “the

information provided by the salesman who actually sold the

vehicle to the Newlands as to how they received the valet key was

better information than the custom and practice declaration.” 

(Id. ¶ 67.)

II.

A. Breach of the Implied Covenant of Good Faith and Fair Dealing

The Newlands contend that Progressive breached the implied

covenant of good faith and fair dealing because it “unreasonably

failed” to pay the insurance claim on the car. (Opp’n at 4.) 

According to the Newlands, “There is no evidence whatsoever, 

that [they] had anything to do with its disappearance.” (Id. at

14.) While this may overstate the matter, there is no direct

evidence that the Newlands took or damaged their own car, and a

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jury could reasonably conclude that Progressive leapt to such a

conclusion from inadequate premises.

An insurer breaches the implied covenant of good faith and

fair dealing for denying coverage when “the refusal to pay policy

benefits was unreasonable.” Chateau Chamberay Homeowners Ass’n

v. Assoc. Int’l Ins. Co., 90 Cal. App. 4th 335, 346 (2001)

(quoting Opsal v. United Servs. Auto Ass’n, 2 Cal. App. 4th 1197,

1205 (1991). Refusing to pay is not “unreasonable” when the

insurer can demonstrate that a “genuine issue” regarding coverage

exists. Id. at 347; see also Guebara v. Allstate Ins. Co., 237

F.3d 987, 992 (9th Cir. 2001) (“Under California law, a bad faith

claim can be dismissed on summary judgment if the defendant can

show that there was a genuine dispute as to coverage.”) One way

an insurer can establish a “genuine issue” is by showing that it

denied coverage based on expert opinions. Fraley v. Allstate

Ins. Co., 81 Cal. App. 4th 1282, 1293 (2000).

While most “genuine issues” involve questions of law

regarding coverage, courts have found a “genuine issue” created

by questions of fact. See Chateau Chamberay, 90 Cal. App. 4th at

350; see also Phelps v. Provident Life & Acc. Ins. Co., 60 F.

Supp. 2d 1014, 1022-24 (C.D. Cal. 1999). But in such cases, the

insurer relied on expert opinions, Chateau Chamberay, 90 Cal.

App. 4th at 340; Phelps, 60. F. Supp. 2d at 1018, and 

independently discovered evidence that strongly suggested that

coverage was not called for. See Chateau Chamberay, 90 Cal. App.

4th at 349 (finding a “genuine issue” where the insurer relied on

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expert opinions and other evidence that disputed the insured’s

valuation of the claim); see also Phelps, 60 F. Supp. 2d at 1022-

24 (finding a “genuine issue” where the insurer ceased paying

benefits on a disability claim based on consultations with

experts and surveillance video showing the insured participating

in activities inconsistent with the claim).

Here, a jury could find that Progressive’s refusal to pay

the Newlands’ claim was unreasonable because Progressive neither

relied on expert opinions nor found clear evidence that the

Newlands vandalized their own car. Instead, they relied on

inconsistent statements by the Newlands to draw an inference of

their guilt when other inferences were also possible, such as

innocent failures of recollection. A jury could find that

Progressive unreasonably seized on several inconsistent

statements by the Newlands to spin them into a patchwork theory

that lacks persuasive power.

 Progressive argues that the Newlands had the financial

motive to commit insurance fraud because they were “upside down”

on their car; they had received only one offer for the car that

was for less than the outstanding balance. But for there to be a

financial motive, the Newlands must have believed that the

insurance company would pay more than the market price to

compensate for a stolen car. Progressive does not explain why it

was justified in ascribing such a belief to the Newlands. 

 Moreover, Progressive focused much of its investigation on

the whereabouts of the valet key. It never explains, however,

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 Section 3294(a) states, “In an action for the breach of an 3

obligation not arising from contract, where it is proven by clear

and convincing evidence that the defendant has been guilty of

oppression, fraud, or malice, the plaintiff, in addition to the

actual damages, may recover damages for the sake of example and

by way of punishing the defendant.” Cal. Civ. Code § 3294(a)

(2006).

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how this purportedly missing key fits into its theory that the

Newlands vandalized their own car. Rather, the valet key is more

consistent with Newlands’ explanation.

Finally, Progressive cites inconsistent statements that

Bruce Newland made about possibly having replaced the tires

before the car was stolen. Presumably, this discrepancy is

tangentially relevant because it raises questions about the

Newlands’ trustworthiness. But a person who makes inconsistent

statements is not always lying, and the inconsistency here is not

so powerful that the court can decide the good faith claim as a

matter of law given the absence of direct evidence and the

arguable tenuousness of Progressive’s circumstantial evidence. 

The question of reasonableness remains a disputed issue that

cannot be resolved on summary judgment. 

B. Punitive Damages

Plaintiffs may recover punitive damages in tort actions when

they establish, by clear and convincing evidence, “oppression,

fraud, or malice.” Cal. Civ. Code § 3294. The primary purpose 3

of § 3294 is “to deter acts deemed socially unacceptable and,

consequently, to discourage the perpetuation of objectionable

corporate policies.” Egan v. Mut. of Omaha Ins. Co., 24 Cal. 3d

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809, 820 (1979). The availability of punitive damages is deemed

particularly important in the insurance context because the

“special relationship between the insurer and the insured.” Id.

(noting that punitive damages help ensure that insurers fulfill

the special responsibilities to the public that come with

providing a “public service” and holding themselves out as

“fiduciaries.”)

For example, punitive damages may be proper when an insurer

badgers and mocks the insured. See Egan, 24 Cal. 3d at 821. In

Egan, the insured tried to make a claim under his disability

insurance after he injured his back. Id. at 815. The claims

manager, however, suspected fraud and accused the insured of

pursuing the claim “only because he did not want to return to

work.” Id. at 821. There were other such accusations. See id.

at 821-22. The California Supreme Court found that a punitive

damage award was supported by the evidence. Id. at 821.

Here, a reasonable jury may similarly conclude that

Progressive’s conduct justifies an award of punitive damages. 

Progressive’s special investigator, Jackson, arguably badgered

the Newlands. As in Egan, where the claims manager accused the

insured of fraud, Jackson repeatedly accused the Newlands of

stealing and vandalizing their own car. 

C. The CLRA

The Newlands also argue that they are entitled to damages

under the CLRA because of Progressive’s purportedly

“unreasonable” denial of benefits. (Compl. ¶ 64-65.) In

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 One court has applied the CLRA to an insurance case. 4

Mass. Mut. Life Ins. Co. v. Super. Ct., 97 Cal. App. 4th 1282,

1286 (2002). But, as Progressive points out, the issue of

whether the CLRA should apply was not before that court. (Mot.

at 16.) 

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response, Progressive contends that the CLRA does not apply to

insurance. (Mot. at 16.) 

“The CLRA bars certain specified ‘acts or practices

undertaken by any person in a transaction intended to result or

which results in the sale or lease of goods or services to any

consumer.’” Bacon v. Am. Int’l Group, 415 F. Supp. 2d 1027, 1035

(2006) (quoting Cal. Civ. Code § 1770 (2006)). Although no

California court has ruled specifically on the issue, the

California Supreme Court has said in dicta that “insurance is

technically neither a ‘good’ nor a ‘service’ within the meaning

of the act.” Civil Serv. Employees Ins. Co. v. Super. Ct., 22 4

Cal. 3d 362, 376 (1978). Moreover, one federal district court

interpreting California law has found that the CLRA does not

apply to insurance cases, noting that the California Supreme

Court case “represents the best indication of how the California

Supreme Court would rule on the issue were the issue to come

squarely before it.” Bacon, 415 F. Supp. 2d at 1036. The court

concurs with this assessment and finds that the CLRA does not

apply here.

III.

For the reasons stated above, the court DENIES Progressive’s

motion as to the Newlands’ breach of the implied covenant of good

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faith and fair dealing and punitive damages claims but GRANTS its

motion as to the CLRA claim.

IT IS SO ORDERED.

Dated: August 30, 2006

DAVID F. LEVI

United States District Judge

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