Expert Report Not Part of Claims Handling

No Bad Faith

When it took more than 20 months to resolve a claim for the theft and burning of a vehicle, Rocky Walker and Kristi Walker (“Walkers”) sued their insurer for bad faith even though the claim was eventually paid. The trial court granted summary judgment for the insurer because there was no evidence of bad faith, Progressive Direct Insurance Company and the Walkers appealed. The Tenth Circuit, in Rocky Walker; Kristi Walker v. Progressive Direct Insurance Company, Tenth Circuit, No. 11-5122, March 23, 2012 [] was called upon to resolve the dispute.


Plaintiffs Rocky and Kristi Walker appealed from the district court’s decisions granting summary judgment in favor of defendant Progressive Direct Insurance Company and denying the Walkers’ motion to alter or amend the judgment.

The Walkers were covered by a Progressive insurance policy for their 2003 Chevrolet Tahoe. On July 29, 2008, Ms. Walker called Progressive to report that their vehicle had been stolen while they were out of town on vacation. The vehicle was recovered, but it had been burned and suffered damage.

On August 22, Progressive decided to refer the claim to its Special Investigations Unit (“SIU”) because:

(1)     the vehicle was for sale at the time of the loss,
(2)     the column was not compromised,
(3)     the vehicle was a “gas guzzler”; and
(4)     both sets of keys were in the Walkers’ possession at the time of loss.

An expert for Progressive testified by affidavit that these factors are “generally recognized indicators of insurance fraud.”

On August 25, Progressive notified the Walkers that there were certain coverage issues with their claim and that it was being investigated by the SIU.

On September 9, Progressive requested that the Walkers provide them with a key for inspection and copies of vacation photographs to prove that they were out of town when the theft occurred. As of September 16, Progressive had not received the requested items so it again asked the Walkers to provide them. On September 25, Progressive received copies of the vacation photos and a key. Upon review of the photos, it appeared as though the photos had been altered.

On October 7, Progressive’s claim file notes that a “possible issue surfaced with the keys.” The Walkers’ stated that they had only two keys to the vehicle and had both keys in their possession at the time of the theft, but a Progressive employee discovered the existence of a third key. On that same day, a Progressive employee left a voicemail message for Ms. Walker asking for a call back, requesting receipts and further documentation from their vacation, advising her that the vacation photos did not seem to be original photos, and informing her that Progressive would like to speak with the other parties who accompanied the Walkers on vacation. Progressive did not hear back from Ms. Walker. On October 16, Progressive sent a letter to the Walkers by regular and certified mail following up on its request for receipts from the Walkers’ vacation.

Progressive’s claim file notes that the origin of the third key remained unresolved as of November 3. The next day, however, the claim file notes that Progressive had authorized coverage for the loss and that the documentation had shown the Walkers were not in town on the date of loss. On November 17, Progressive notified the Walkers that it had completed its coverage review, had resolved the coverage issue, and would be providing coverage for their loss.

On June 12, 2009, the Walkers brought suit in state court asserting that Progressive acted in bad faith in the handling of their insurance claim. Progressive removed the action to federal court and then moved for summary judgment. The district court granted summary judgment in Progressive’s favor.


To establish a bad-faith claim, the Walkers must show, among other things, that Progressive’s actions were unreasonable under the circumstances and that Progressive failed to deal fairly and act in good faith in the handling of the Walkers’ claim. When considering a motion for summary judgment on a bad-faith claim under Oklahoma law, a district court must first determine, under the facts of the particular case and as a matter of law, whether insurer’s conduct may be reasonably perceived as tortious.

In Progressive’s motion for summary judgment, it argued that the Walkers’ had failed to offer any evidence showing that its actions were unreasonable or taken in bad faith. The Walkers alleged that Progressive conducted an untimely and improper investigation based on Progressive’s handling of two issues—the existence of the third key to their car and the authenticity of the vacation photos. Specifically, the Walkers argued that Progressive’s actions were unreasonable because the insurance company could have discovered easily that the pictures were valid and that the third key was created after the loss. The Walkers also complained that Progressive allowed the “key” issue to be presented to its expert, Barry Zalma, who used that to accuse the Walkers of fraud in his expert report.

With respect to the third-key issue, the district court stated that the Walkers’ “reliance on Zalma’s use of the third key in his expert report is misplaced, as this report was prepared in the course of this litigation and was not part of Progressive’s investigation, making it inapplicable to [the Walkers’] bad faith claim.”  Finally, the court explained that an insurer’s investigation need only be reasonable, not perfect.


Although not detailed in the opinion the affidavit of the expert stated:

A red flag or fraud indicator means facts, circumstances or events which, singly or combination, support an inference that insurance fraud may have been committed and a thorough investigation is required.

In this case SIU investigators were assigned after the insurer discovered the following generally recognized indicators of insurance fraud: (1) the subject vehicle is “for sale” at the time of loss; (2) the steering column is not compromised; (3) the subject vehicle is a gas guzzler; (4) all keys are in the insured’s possession after the reported loss; (5) an auto theft where the allegedly stolen vehicle was also burned; (6) the vehicle was reportedly stolen from a location not the place where the vehicle is normally garaged; and (7) when the vehicle was recovered there were no parts missing.

The affidavit presented in support of the Motion for Summary Judgment did not accuse the Walkers of fraud and was written to explain to the court the reasons for an SIU investigation.

The Tenth Circuit noted that the Walkers’ brief contained a meager five pages of argument; there were no citations to the district court record in any of the argument sections and many of the assertions are conclusory and fail to sufficiently explain how the district court erred. For example, the Walkers offer no legal authority for their argument and no citations to the record to demonstrate how Progressive failed to address their undisputed material facts.

The Walkers’ bad-faith claim was based on Progressive’s handling of the existence of the third key and its position that the vacation photos were not originals. Finally, the Walkers present a mere two sentences in support of their claim that the district court abused its discretion.

The Walkers also argued that it was twenty months before Progressive determined the origin of the third key and that Progressive’s expert accused them of felony insurance fraud in his expert report. This argument has no relevance to the Walkers’ bad-faith claim. The fact that the origin of the key was not determined until March 2010 did not impact the timeliness or the reasonableness of the investigation into the Walkers’ claim.

Once Progressive verified that the Walkers were out of town during the date of loss, it authorized coverage for the claim, even though the origin of the third key remained unresolved.

The Tenth Circuit agreed with Progressive that “it was irrelevant when Progressive determined the origin of the third key because Progressive agreed to pay for the repairs to the vehicle in November 2008. Likewise, the Tenth Circuit agreed with the district court that the expert report prepared for the litigation in February 2010 is inapplicable to the Walkers’ bad-faith claim, which was based on Progressive’s investigation from the date the claim was submitted on July 29, 2008, until coverage was authorized on November 17, 2008.


Because of the extent of insurance fraud in the United States insurance companies have been forced by state statutes to create Special Investigation Units (SIU) to thoroughly investigate suspicious claims in an effort to reduce the effect of insurance fraud. In this case the SIU did a complete investigation and decided to pay the claim although there were multiple red flags of fraud.

The insurer, having done what the law required, completing a thorough investigation finding the claim was a covered loss. Progressive paid the claim and was sued for bad faith. The court rightly looked at what was done and saw no bad faith because it cannot be an act of bad faith to conduct a complete investigation. I am pleased that I was able to assist the court in understanding the issues and why, when multiple red flags exist, an insurer is justified in doing a thorough investigation.

(c) 2012 – Barry Zalma

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.

He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant.

Mr. Zalma recently published the e-books, “Zalma on Insurance Fraud – 2012”; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Arson for Profit”  and others that are available at

Mr. Zalma can also be seen on World Risk and Insurance News’ web based television program “Who Got Caught” with copies available at his website at


About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.

One Response to Expert Report Not Part of Claims Handling

  1. Pingback: Insurance » Expert Report Not Part of Claims Handling | Zalma on Insurance

Comments are closed.