Misrepresentation of Material Facts to Insurer about a Loss Justifies Denial of Coverage


by Michael Papuc

Attorney at Law

44 Montgomery St., Suite 2405

San Francisco, CA 94104

415-773-1755



San Francisco Attorney Michael Papuc has been practicing Insurance litigation in California since 1987. Attorney Michael Papuc represents policy holders ("insureds") in lawsuits against their insurance companies for bad faith claims handling.

A recent decision by the Second Appellate District, Hodjat v. State Farm Mutual Auto. Ins. Co., Case No. B233996 (October 29, 2012), confirms that a material misrepresentation made by the policy holder during the investigation of a claim justifies denial of coverage, and defeats any claim for bad faith claims handling.

In Hodjat, the insured purchase a damaged 2006 BMW M5 in 2007, which the insured intended to repair and sell. The car was insured with State Farm. The State Farm policy provided: "[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."

The car was reported stolen in March, 2009. Numerous inconsistent statements were made by the insured to the insurer during the course of the investigation, which led to the insurer ultimately denying the claim. The appellate court stated:

"Hodjat first told State Farm that he purchased the BMW for $65,000 when he reported the loss. In the 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, Allen Hodjat claimed they 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 condition of the car when he bought it also changed dramatically during the course of the investigation. In the recorded statement, he told State Farm that the car was drivable at the time he purchased it, but later he stated that it was not drivable and had to be towed to his business. Hodjat also made inconsistent statements regarding how much it cost to repair the BMW, providing estimates ranging from $1,800 to $5,040 to $8,000 during the course of the investigation. 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 and the police. Every detail of the Hodjats' claim--from the condition of the car to the cost of the repairs to the discovery of the theft--was riddled with inconsistencies."


The appellate court affirmed summary judgment in favor of State Farm, stating:

"there is no coverage if the policyholder gives false statements regarding the claim. No reasonable jury could find in favor of the Hodjats on State Farm's defense of material misrepresentations. The Hodjats have failed to raise a triable issue of material fact about whether the denial of their claim was justified under the terms of the policy. They have also failed to raise a triable issue about whether State Farm's investigation and denial of the claim was made in bad faith."

Policy holders need to be very careful about what they say about a claim to an insurance company. The insurer will ultimately have an adjuster take a statement from the policyholder, a recorded statement from the policyholder, require the policyholder to produce documents, sometimes require the policyholder to submit to examination under oath, and give the insurer authority to obtain documents from different sources. The policy holder must be as consistent as possible about the facts of the claim. Any inconsistencies can be construed as misrepresentation, which would defeat the claim, and sometimes subject the policy holder to criminal charges for insurance fraud.