• Where Evidence Established That an Insured Willfully Lied To His Insurer during a Claim Investigation With Respect To Facts Material to the Investigation, the Insurer Properly Disclaimed Coverage
  • May 16, 2008
  • Law Firm: McCormick, Barstow, Sheppard, Wayte & Carruth LLP - Fresno Office
  • Herbert v. State Farm Mut. Auto. Ins. Co., ___ F.Supp ___ (N.D.Cal. 2008)

    Roderick Herbert purchased a motorcycle insurance policy from State Farm for his 2002 Harley Davidson. The policy included a concealment or fraud clause providing that there would be no coverage if the insured misrepresented facts in connection with a claim under the policy. Herbert subsequently reported the theft of his motorcycle to State Farm. State Farm took Herbert’s recorded statement over the phone. He was asked if he had ever been charged with or convicted of a misdemeanor or felony. Herbert led State Farm to believe that his criminal record consisted only of juvenile adjudications. When asked if he had ever had a vehicle stolen before, Herbert indicated that he had a Navigator which had been stolen but was later recovered.

    When State Farm conducted a claim search, it found that Herbert had three prior auto theft claims. State Farm also obtained Herbert’s criminal record and learned he had pled nolo contendre to three counts of motor vehicle theft eight years ago and had received a 16 month prison sentence. State Farm conducted another examination of Herbert and again asked him about whether he had ever been arrested for a crime. Herbert indicated he had been arrested twice, once for drug possession and once for conspiracy or possession of stolen property. He claimed that he had been buying and selling cars and, when he tried to register one of them with the DMV, it turned out to have been stolen. He claimed that he did not remember his specific plea but that he did ten months in jail. When asked about the discrepancy between his testimony that day and prior communications with State Farm, Herbert simply said there had been a miscommunication. When asked about discrepancies regarding his vehicle theft history, Herbert stated that he and the claims adjuster were in disagreement and that he probably had just failed to go into sufficient detail.

    Based on the foregoing information, State Farm’s counsel recommended that State Farm deny Herbert’s claim based on the policy’s concealment or fraud clause. State Farm did so and Herbert filed suit alleging breach of contract and breach of the implied covenant of good faith and fair dealing. State Farm moved for summary judgment.
    The court determined that there was no question of fact with respect to Herbert making false statements that were material to State Farm’s claim investigation. In addition, the court concluded there was no question of fact with respect to Herbert’s knowledge that he was lying under oath when he failed to disclose his prior felony convictions and subsequent prison stay when questioned about his criminal history. The court concluded that no reasonable jury would believe that a mere eight years after conviction, Herbert had forgotten his period of imprisonment. As such, the court granted State Farm’s motion for summary judgment on the breach of contract claim.

    With respect to Herbert’s claim for breach of the implied covenant of good faith and fair dealing, the court concluded there was nothing in the record to suggest that State Farm’s conduct with respect to its investigation was unreasonable and in bad faith.

    A carrier’s denial of coverage is reasonable where the insured intentionally misrepresents facts relevant to a claim investigation and the policy includes a concealment or fraud clause.