Fraud is a Defense & a Crime

False Material Statement in EUO Sufficient to Deny Claim

In the last 50 years of my work in insurance the inadequacy of insurance fraud perpetrators seems to grow. That, as inadequate and incompetent they are in committing fraud the latest group of fraudsters have the unmitigated chutzpah to file suit for breach of contract and bad faith when their criminal conduct is established.

In John Cordell Young, Jr. v. Progressive Casualty Insurance Company, Case: 1:16-CV-01198-DWM, United States District Court for the Eastern District of California, (June 6, 2017) the USDC was faced with a motion for summary judgment filed by the insurer seeking a judgment that it owed nothing because of the fraud attempted by the insureds.


On Monday, November 10, 2014, Young provided notice to Progressive of the theft of his 1961 GMC “diesel pusher” motor home. Law enforcement recovered the motor home from a canal where it had been submerged that same day. The motor home was missing its license plates and its Vehicle Identification Number tag. The steering wheel had been tied to keep the motor home driving straight, and a pole had been wedged against the accelerator. The motor home was insured under a Progressive California Motor Home Policy (the “Policy”). The Policy included comprehensive coverage with agreed value of $63,000 and a zero deductible.

Progressive assigned the investigation of the claim to its Special Investigation Unit (SIU) and, as part of its investigation, Progressive obtained cell phone records from phones belonging to Young, his wife, Anna Young, and his son, John Young III (“Young III”). These records showed that on November 10, 2014, at 4:03 a.m., the cell phone belonging to Young III was used near the cell phone tower that was the closest to the canal where the motor home was recovered.

Both Young and Young III participated in Examinations Under Oath (EUO) administered by Progressive as part of its investigation into Young’s theft claim. Young stated he believed his son’s cell phone was in the vicinity of the canal because it had been inadvertently left for the weekend in a truck belonging Young’s customer, Ed Amaral. However, Young III testified that he did not have any reason to believe he did not have his phone during that time, and also that he could not think of anyone else who would have made calls from his cell phone during that time. Subsequent analysis of cell phone records revealed that John Young III’s cell phone was being used on November 7, 8, 9, and 10 in Modesto California, and near Plaintiff’s home in Ceres, California.

On July 9, 2015, Progressive denied coverage for the claim on the grounds that Young made material misrepresentations during the investigation of the reported theft claim. Young filed suit against Progressive on July 13, 2016, alleging breach of contract and of the covenant of good faith and fair dealing, and requesting declaratory relief.


Progressive argues summary judgment is appropriate because (1) Young made a material misrepresentation regarding the theft claim, voiding coverage under the Policy and negating Young’s breach of contract claim; and (2) under California law, where there is no breach of the insurance contract there can be no claim for insurance bad faith.

Breach of Contract Claim

Young claims Progressive breached the insurance contract by failing to pay him for a loss covered under the Policy. Progressive argued that Young cannot prove his breach of contract claim because he knowingly misrepresented a material fact in the course of presenting his theft claim to Progressive, namely that he lied to Progressive about his son’s cell phone being in Ed Amaral’s truck during the time the motor home was sunk in the canal.

Under California law, if, during an insurance claim, an insured knowingly misrepresents material facts intending to deceive the insurer, coverage is voided. Cummings v. Fire Ins. Exchange, 202 Cal. App. 3d 1407, 1418-19 (1988). A misrepresentation is material if it “concerns a subject reasonably relevant to the insured’s investigation, and if a reasonable insurer would attach importance to the fact misrepresented.”(emphasis omitted). “[T]he intent to defraud the insurer is necessarily implied when the misrepresentation is material and the insured willfuly makes it with knowledge of its falsity.”

The undisputed facts showed that Young knowingly made a false statement. Additionally, the false statement was material. Whether Young III was in the vicinity of the sunken motor home at the time of its theft is directly relevant to establishing that the motor home had indeed been stolen or if it had been intentionally sunk by its owner. A reasonable insurer would attach significant importance to that fact in evaluating whether coverage was appropriate.

Because the undisputed facts show Young misrepresented a material fact during his insurance claim, coverage under the Policy was voided, and because coverage was voided, Young cannot succeed on a claim for breach of contract. The Policy explicitly provided for this possibility:

“We may deny coverage for an accident or loss if you or a person seeking coverage has concealed or misrepresented any material fact or circumstance or engaged in fraudulent conduct, in connection with the presentation or settlement of a claim.”

Summary judgment is therefore appropriate on the breach of contract claim.


Under California law, a covenant of good faith and fair dealing is implied in every contract, including insurance policies. Maslo v. Ameriprise Auto & Home Ins., 227 Cal. App. 4th 626, 633 (2014).

To establish a breach of the implied covenant of good faith and fair dealing under California law, a plaintiff must show that (1) benefits due under the policy were withheld, and (2) the reason for withholding those benefits was unreasonable or without proper cause. An insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith even though it might be liable for breach of contract.

Young’s material misrepresentation of the location of the cell phone voided coverage. Because no coverage was due under the Policy, Young’s bad faith claim cannot succeed. In addition, even assuming coverage was triggered, Progressive did not act in bad faith in denying it. Progressive initiated an investigation into the claim on being contacted by law enforcement. The circumstances of the motor home’s disappearance and subsequent recovery indicated it may have been sunk in the canal in attempt to commit insurance fraud.

Declaratory Judgment Claim

Even were coverage due, Progressive acted reasonably in thoroughly and promptly investigating the claim. Finally, Progressive’s request for oral argument is mooted by Young’s failure to oppose the motion.


Either father or son Young lied to their insurer at an examination under oath about the location of Young III at the time the motorhome was intentionally driven into a canal. Progressive, by its SIU, conducted a thorough investigation and determined that one or both members of the Young family lied and rightfully denied the claim for misrepresentation, concealment or fraud. Since the USDC judge found they acted fraudulently I can only wonder why he did not refer the Youngs to the Department of Justice for prosecution.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at

Mr. Zalma’s three new e-books  were recently added and are available at

Mr. Zalma’s reports can be found on Tumbler at,  on Facebook at and you can follow him on Twitter at

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.



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.