The California Court of Appeal has held that a bad faith and punitive damages award was proper where an insurer conducted a biased investigation of a car theft claim, where the trial judge excluded evidence of the insured’s prior dishonest and violent acts, and where the judge excluded tape-recorded statements as hearsay. ( McCoy v. Progressive West Insurance Company (2009) 171 Cal.App.4th 785)
Facts
Cedric McCoy submitted a claim to Progressive West Insurance Company for theft of and damage to McCoy’s vehicle. After conducting an extensive investigation, Progressive denied the claim on the grounds that McCoy had staged the theft and had intentionally damaged the car. McCoy sued Progressive and, after a jury trial, McCoy obtained an award for breach of contract and bad faith, as well as punitive damages.
McCoy claimed his car had been stolen from the parking lot of a Las Vegas casino. Authorities ultimately recovered the car, which had been set on fire and was a total loss. Progressive thought the claim was suspicious for many reasons. For example, videotape of the casino’s parking lot did not show any evidence that McCoy’s car had been in the parking lot prior to the alleged theft. In addition, there was no evidence that anyone had tampered with the ignition, suggesting that the last person who had driven the car had used a key. Further, McCoy and a female friend had driven from California to Las Vegas in separate cars, which Progressive believed suggested that McCoy had never expected to drive his car back to California.
When Progressive’s investigator interviewed McCoy’s ex-wife and McCoy’s brother, both stated that McCoy had been suggesting for some time that he wanted to dispose of the car and buy a nicer one. McCoy himself denied that he had ever made these statements, and his ex-wife ultimately recanted her statement. A Progressive claim supervisor ultimately wrote a claim log note which stated: “We can’t just rely on having two witnesses like this …. And if we don’t come up with something else, we are going to have to pay the claim.”
Although there certainly was some evidence suggesting the claim was fraudulent, there also was evidence suggesting the claim was not fraudulent. For example, the value of the car prior to the alleged theft was less than the amount that McCoy owed to the lender, which indicated that McCoy would not obtain a financial benefit from the destruction of the car. In addition, McCoy was steadily employed, and was current on all payments including the car payments. Further, Progressive could not rule out the possibility that the car had been stolen by means of a tow truck or duplicate key.
Although the evidence on the issue of fraud was conflicting, Progressive ultimately denied the claim. During trial, the judge refused Progressive’s request to admit the entire claim file (including the recorded statements of McCoy’s ex-wife and brother) into evidence at once, and instead ruled that Progressive needed to introduce evidence contained within the claim file on a “piece by piece” basis.
During the trial, Progressive sought to introduce evidence that McCoy had physically abused his ex-wife (which Progressive believed explained why McCoy’s ex-wife had recanted her statement that McCoy said he wanted to dispose of his car and buy a new one). Progressive also sought to introduce evidence that McCoy had submitted a prior claim against Zurich which, even though Zurich had paid, was actually fraudulent. The trial judge refused to allow Progressive to introduce evidence of the physical abuse and the prior claim against Zurich, ruling that this evidence was more prejudicial than probative, and was likely to confuse and mislead the jury.
McCoy’s evidence established that Progressive had conducted a one-sided investigation that was designed to uncover evidence that the claim was fraudulent. McCoy’s evidence also established that Progressive had violated various provisions of the Fair Claims Settlement Practices Regulations. The jury found that Progressive had breached the policy, and had acted in bad faith. The jury also assessed punitive damages of $100,000 against Progressive.
Holding
The Court of Appeal upheld the jury’s finding that Progressive had breached the policy and had acted in bad faith. The Court also upheld the jury’s award of punitive damages.
The Court of Appeal held that the trial judge properly refused to admit the entire claim file into evidence as one exhibit, and that Progressive was required to establish a foundation for individual pieces of evidence in the claim file (such as witness statements) on a “piece by piece” basis. The Court of Appeal also noted that the recorded statements were hearsay, and that Progressive’s alleged “reliance of its investigative or claim agents on these recorded statements in resolving the coverage issue does not satisfy the requisite foundation showing.”
Comment
In this case, Progressive certainly had some evidence that McCoy’s claim was fraudulent. However, there also was contrary evidence, which Progressive ultimately disregarded. This supported a finding that Progressive’s investigation was one-sided and biased.
It is important to remember that trial judges have wide discretion to admit or refuse certain types of evidence. An appellate court will not overturn a trial judge’s discretionary ruling unless the appellate court concludes that the trial court abused its discretion and acted in an “arbitrary, capricious or patently absurd manner that resulted in a manifest miscarriage of justice.” Here, the trial judge exercised his discretion to exclude evidence that would have cast McCoy as a dishonest and violent man. If the court had exercised its discretion to admit some or all of this evidence, the jury’s verdict might well have been different.
This case also highlights the fact that recorded statements are hearsay, and that the party offering the statement into evidence at trial must establish that the statement falls within one of the recognized exceptions to the rule against hearsay evidence. Here, Progressive probably could have avoided this problem if, after McCoy had filed suit, Progressive had obtained pre-trial deposition testimony from the witnesses who previously had given the recorded statements.