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December 2012

Summary Judgment Affirmed Based on Insureds' Material Misrepresentations During Claim Investigation

Insureds’ material misrepresentations during the claim investigation process regarding an allegedly stolen auto supported dismissal of their breach of contract and bad faith action on summary judgment.  The bottom line: There is no coverage if the insured gives false statements regarding the claim.

In Hodjat v. State Farm Mutual Automobile Co., the California Court of Appeal, Second Appellate District, affirmed the trial court’s grant of summary judgment in favor of State Farm on Allen and Helle Hodjat’s claims for breach of contract and bad faith.  The Court of Appeal held the insurance policy clearly precludes coverage if the policyholder gives false statements regarding the claim, and no reasonable jury could find in favor of the Hodjats on State Farm’s defense of material misrepresentations.  (Nov. 15, 2012) ___ Cal. App. 4th; 12 C.D.O.S. 12796.  The Hodjats, owners of a used car business, purchased a damaged 2006 BMW M5 intending to repair and sell it.  They insured the car with State Farm.  Their policy required them to cooperate with State Farm in any claim and provided that “[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.” 

Allen Hodjat (“Hodjat”) reported the BMW stolen on March 31, 2009, and State Farm conducted an investigation into the theft.  Hodjat and his wife submitted several statements regarding the theft and condition of the car, many of which were contradictory.  In addition, the Hodjats provided some, but not all, of the documents requested by State Farm during the course of its investigation. 

When he reported the loss, Hodjat told State Farm that he purchased the BMW for $65,000 at an auction.  In an affidavit of loss, however, the Hodjats stated they purchased the BMW for $28,000 from Manheim Riverside.  In a recorded statement less than a month later, Hodjat claimed he paid between $26,000 and $27,000.  Meanwhile, the title documents for the car showed a sale price of $25,000 to $25,199. 

Hodjat’s description of the car’s condition when he purchased it also changed during the course of State Farm’s investigation.  In his initial statement and his recorded statement, he told State Farm the BMW had front-end damage when he bought it, but the car was drivable.  In his Examination Under Oath, he testified the damage to the car was extensive and he had to tow it to his business. 

Hodjat also made inconsistent statements regarding how much it cost to repair the BMW after he purchased it.  In his initial statement, he said he took the car to Mexico to get the body damage repaired for $1,800.  In his recorded statement, he paid someone named “Juan” in Mexico $8,000 for repairs.  In his Examination Under Oath, he paid Juan $1,800 to bring the BMW to Mexico to be repaired and ultimately paid Juan $5,040 for the repairs. 

Finally, Hodjat’s description of when he last saw the BMW and when he discovered it missing also changed each time he spoke with State Farm.  In his recorded statement, Hodjat told State Farm that he last saw his car at his office on March 27, 2009; his affidavit of service stated he last saw the BMW on March 28, 2009; and his Examination Under Oath stated he last saw the BMW on March 30, 2009.

State Farm notified Hodjat that it was evaluating the claim under a reservation of rights.  State Farm then retained an attorney who opined the claim should be denied.  State Farm denied the claim based upon its conclusion that the Hodjats had failed to cooperate in the investigation and had made material misrepresentations regarding the claim. 

The Hodjats sued State Farm alleging breach of contract and bad faith.  State Farm moved for summary judgment on the grounds the Hodjats made material misrepresentations regarding their theft claim and failed to cooperate in the investigation.  State Farm also moved for summary adjudication on the bad faith claim because it reasonably relied on the advice of counsel.  The trial court granted summary judgment in State Farm’s favor, concluding the Hodjats made material misrepresentations during the claim investigation process; State Farm’s denial of the claim was justified; and there were no genuine issues as to whether State Farm was liable on the claim.

The appellate court affirmed, noting that under the express terms of the State Farm policy, there is no coverage if the policyholder gives false statements regarding the claim or fails to cooperate in the investigation.  The court found State Farm presented evidence demonstrating numerous instances of misrepresentations and inconsistencies by the Hodjats, including the price of the car, the extent of the damage to the car, the amount of money paid to fix the car, and the last time Allen Hodjat saw the BMW before it was stolen.  The court further found the Hodjats did not cooperate with State Farm in the investigation because they failed to provide requested documentary evidence to support their claims.  State Farm presented evidence that the denial of the claim was made in good faith and was based on a genuine dispute about liability. 

The Hodjats failed to establish that they had information demonstrating the validity of their claim.  Rather, their statements illustrated how fraudulent their claim was.  The appellate court found the Hodjats failed to raise triable issues of material fact about whether the claim denial was justified under the policy and whether State Farm’s investigation and denial of the claim was made in bad faith.  Therefore, summary judgment was warranted on the breach of contract and bad faith claims.

Click here for the opinion. 

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court.  These events would render the opinion unavailable for use as legal authority in California state courts.

Insurance

David L. Jones



Insurance

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