Opinion
Case No. 3:20-cv-00615-YY
04-16-2021
STEVEN SCHALK, Plaintiff, v. INFINITY INSURANCE COMPANY, Defendant.
FINDINGS AND RECOMMENDATIONS
FINDINGS
Plaintiff Steven Schalk has brought suit against defendant Infinity Insurance Company ("Infinity"), alleging claims for (1) declaratory relief, (2) breach of contract, and (3) breach of the implied covenant of good faith and fair dealing. Compl. ¶¶ 42-70, ECF 1-1. The dispute arises out of an insurance policy that plaintiff purchased from defendant for coverage of plaintiff's vintage 1966 Chevy Nova ("Nova"). Defendant removed the case from Clackamas County Circuit Court. This court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).
Defendant has filed a Motion for Summary Judgment (ECF 8) and plaintiff has filed a Motion for Partial Summary Judgment (ECF 11). For the reasons set forth below, defendant's motion for summary judgment should be GRANTED, plaintiff's motion should be DENIED, and judgment should be entered in defendant's favor.
I. Summary Judgment Standard
Under Federal Rule of Civil Procedure 56(a), "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The substantive law governing a claim or defense determines whether a fact is material. Moreland v. Las Vegas Metro. Police Dep't, 159 F.3d 365, 369 (9th Cir. 1998).
The party moving for summary judgment bears the initial responsibility of informing the court of the basis for the motion and identifying portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party does so, the nonmoving party must "go beyond the pleadings" and "designate 'specific facts showing that there is a genuine issue for trial.'" Id. at 324 (citing FED. R. CIV. P. 56(e)).
The court "does not weigh the evidence or determine the truth of the matter, but only determines whether there is a genuine issue for trial." Balint v. Carson City, Nev., 180 F.3d 1047, 1054 (9th Cir. 1999). "Reasonable doubts as to the existence of material factual issue are resolved against the moving parties and inferences are drawn in the light most favorable to the non-moving party." Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000).
II. Discussion
On August 6, 2016, plaintiff purchased Infinity's "Classic Collectors" insurance policy for the Nova. Maloney Decl., Ex. A, ECF 9-1. The policy states that the agreed value of the Nova was $357,750. Id.
On June 23, 2017, plaintiff was transporting the Nova in a trailer from his home in Milwaukee to a car show at the Portland International Raceway Center ("PIR"). Pl.'s Examination Under Oath ("EUO") 52, ECF 10-7. Plaintiff did not strap the Nova into the trailer, and the car was damaged during the drive to the car show. Id.
Page numbering refers to the pages of the briefing and exhibits, not ECF pagination.
Plaintiff submitted an insurance claim to Infinity, and the parties engaged in various actions that are described in more detail below. At one point, Infinity asked plaintiff to provide his bank statements. Plaintiff refused and filed this suit.
The parties' motions for summary judgment center around whether, in failing to provide his bank statements, plaintiff breached the "duties" clause of the policy, which provides:
We have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us:
. . .
B. A person seeking coverage must:
1. Cooperate with us in the investigation, settlement or defense of any claim or suit.
. . .
4. Authorize us to obtain:
. . .
Maloney Decl., Ex. A, at 13, ECF 9-1. Relevant here too is the policy's provision against fraud, which states:b. Other pertinent records.
We do not provide coverage for any "insured" who has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under this policy.Id.
A. Relevant Law Regarding Insurance Policy Cooperation Clauses
"Cooperation is essential to the insurance relationship because that relationship involves a continuous exchange of information between the insurer and the insured interspersed with activities that affect the rights of both, and the relationship can function only if both sides cooperate." 14 Couch on Insurance § 199:1 n.2 (3d ed. 2009) (citing Staples v. Allstate Ins. Co., 176 Wash. 2d 404 (2013)).
Some degree of cooperation between the insurer and insured is . . . necessary in the first-party insurance context. . . . [T]he insurer needs information pertaining to the circumstances and amount of loss, and the insured needs information as to the status of its claim. . . . [W]hat each of the direct parties to the insurance contract needs is in the hands of the other[.]Id. "Cooperation clauses also guard against collusion and fraud." Staples, 176 Wash. 2d at 411 (2013) (citing Eakle v. Hayes, 185 Wash. 520, 524-25 (1936)).
A cooperation clause "is a material condition of the policy, and a breach of the provision by the insured, constitutes a defense to liability on the policy and relieves the insurer of its obligations under the contract in the absence of a waiver by, or estoppel of, the insurer or statutory enactments to the contrary." 14 Couch on Insurance § 199:6 (3d ed. 2009).
A federal court, sitting in diversity, applies state law in interpreting an insurance policy. Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546 F.3d 1142, 1145 (9th Cir. 2008). Under Oregon law, if the duty to cooperate "is breached, the insurer may have a complete defense to coverage." Mosley v. Allstate Insurance Co., 165 Or. App. 304, 312 (2000), abrogated on other grounds, Scott v. State Farm Mut. Auto. Ins. Co., 345 Or. 146, 154-56 (2008); see also Stumpf v. Cont'l Cas. Co., 102 Or. App. 302, 309 (1990) ("An insured's breach of the policy's cooperation clause, if proved, would provide a complete bar to recovery.").
The court will enforce the cooperation clause if:
(1) the insurer diligently sought the insured's cooperation;
(2) the insured willfully failed to cooperate; and
(3) the insured's failure to cooperate prejudiced the insurer. Assurance Co. of Am. v. MDF Framing, Inc., No. CV 06-169-MO, 2008 WL 361289, at *3 (D. Or. Feb. 7, 2008), aff'd, 338 F. App'x 625 (9th Cir. 2009) (citing Rosalez v. Unigard Ins. Co., 283 Or. 63 (1978) (discussing diligence and willful failure to cooperate); Bailey v. Universal Underwriters Ins. Co., 258 Or. 201 (1970) (discussing diligence and prejudice)). "The defense of noncooperation is one that must be proven by the insurer." Johnson v. Doughty, 236 Or. 78, 83 (1963).
The three factors are addressed in turn below.
B. Diligence By Infinity
Plaintiff does not appear to dispute that defendant diligently sought his cooperation. At oral argument, Infinity's counsel observed that, with respect to diligence, "there's no dispute there," and plaintiff did not disagree. Nevertheless, a review of the evidence shows no factual dispute that defendant acted diligently.
"An insurer must act with 'reasonable diligence and good faith' to secure an insured's cooperation." Assurance, 2008 WL 361289, at *3 (quoting Bailey, 258 Or. at 221). "[A]n insurer cannot be relieved of liability because of an alleged breach of cooperation clause by the insured in a situation where it has not itself exercised diligence and good faith." Bailey, 258 Or. at 221 (quoting Imperiali v. Pica, 338 Mass. 494, 498 (1959)). "Elementary principles of justice and fair dealing require such a rule. The obligations under a cooperation clause are reciprocal." Id. (quoting Imperali, 338 Mass. at 498).
"To prove reasonable diligence and good faith, an insurer must establish the company used the same degree of diligence to secure the insured's cooperation that would have been exercised by a reasonable and prudent person where the cooperation of the insured would be to its advantage in protecting it against liability, rather than to relieve it therefrom." Assurance, 2008 WL 361289, at *3 (quoting Bailey, 258 Or. at 224) (quotation marks omitted). "Whether or not an insurer exercised reasonable diligence and good faith should be determined 'in light of the particular facts and circumstances of each case.'" Id. (quoting Bailey, 258 Or. at 225).
In Assurance the court found the insurer acted with diligence when it sent a certified letter to the insured, and when that letter was never claimed, personally served the insured with the letter. 2008 WL 361289, at *4. The insurer also retained counsel who sent letters to the insured and attempted to contact the insured by telephone. Id. The court held that these efforts did not fall below the "reasonable diligence and good faith requirement." Id.
Here, too, Infinity made reasonably diligent and good faith attempts to secure plaintiff's cooperation. On June 20, 2019, Infinity's counsel sent plaintiff's counsel a letter by United States mail and email requesting an examination under oath ("EUO"), inspection of the vehicle, and "[a]ll bank statements for one year prior to loss and six months after loss," as well as other documentation. Pearce Decl., Ex. 6, ECF 10-6. This request was "confirmed in later correspondence on July 26, 2019 and September 2019." Id., Ex. 9, at 2, ECF 10-9. On October 15, 2019, Infinity explained in detail why its request for financial documentation was reasonable, and even included case law in support. Id., Ex. 8, ECF 10-8.
On December 6, 2019, Infinity sent plaintiff's counsel a letter by United States mail and an email, advising that it was denying the claim because "investigation into this claim could not be completed due to your lack of communication." Id., Ex. 9, at 1, ECF 10-9. The letter cited the cooperation clause of the policy and the fact that Infinity "had received no response to its request for bank statements for one year prior to the loss and up until the time of the EUO on August 1, 2019." Id., at 2. However, Infinity gave plaintiff one more opportunity to comply with its request, and said it would reconsider the denial if plaintiff provided the requested documents within two weeks. Id.
These facts show Infinity exercised reasonable diligence and good faith to secure plaintiff's cooperation.
C. Willfulness Of Plaintiff
1. Applicable Law Regarding Willfulness
"[T]he word 'willful' does not necessarily cast blame or implicate malice; it merely indicates that the act or omission was purposeful and not the product of inadvertence." Assurance, 2008 WL 361289, at *5 (quoting Young v. State, 340 Or. 401, 409 (2006)). "An insured acts willfully if it knows what it is doing, intends to do it, and is a free agent." Id. (citing State ex rel Nilsen v. Johnston, 233 Or. 103, 108 (1962)).
State and federal courts across the country have recognized that "[t]o deny liability coverage under" a cooperation clause, "an insurer must prove . . . a material breach." Heubel Materials Handling Co. v. Universal Underwriters Ins. Co., 704 F.3d 558, 563 (8th Cir. 2013); see, e.g., Tran v. State Farm Fire & Cas. Co., 136 Wash. 2d 214, 232 (1998) ("[A]n insurance company should not have license to burden an insured with demands for items that are immaterial."); Wood v. Allstate Ins. Co., 21 F.3d 741, 745 (7th Cir. 1994) (holding cooperation clauses are designed to "'enable the [insurance] company to possess itself of all knowledge, and all information as to other sources of knowledge, in regard to facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims'") (emphasis added); Barbian v. Cooper, 32 Ohio Misc. 59, 62 (1972) ("Generally speaking, to constitute a breach of the cooperation provision of the insurance contract, there must be a lack of cooperation by the assured in some material and substantial respect."); Juvland v. Plaisance, 255 Minn. 262, 268 (1959) ("[T]he breach of a cooperation clause in a liability insurance policy must be in some material or substantial respect. It is not sufficient for the defendant to allege that plaintiff failed to cooperate without . . . showing that the assured failed in some substantial or material particular or particulars to cooperate with and to assist the insurer in the defense of the action for damages covered by the policy."); Bradford v. Com. Cas. Co., 10 N.J. Misc. 301, 306-07 (1932) ("Failure to co-operate in some inconsequential or immaterial matter cannot be set up as a defense, nor can it hardly be a ground for a defense where an insured makes an honest mistake.").
Information is material when it "pertain[s] to a subject that was 'relevant and germane to the insurer's investigation as it was then proceeding.'" Callaway v. Sublimity Ins. Co., 123 Or. App. 18, 23 (1993) (quoting Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir. 1984)); see also Tran, 136 Wash. 2d at 224 (same). "An insured's income and financial condition are undoubtedly relevant to an investigation of whether they filed a fraudulent claim." Pilgrim v. State Farm Fire & Cas. Ins. Co., 89 Wash. App. 712, 721 (1997). "Financial records of the insured are 'relevant and material' once the insurance company has reason to broaden its investigation into the insured's possible financial motive for overvaluing or misrepresenting his claim." Keith v. Allstate Indem. Co., 105 Wash. App. 251, 255 (2001).
Courts also have considered whether the insurer had reasonable or legitimate reasons for broadening the investigation to include fraud. See Fla. Gaming Corp. v. Affiliated FM Ins. Co., 502 F. Supp. 2d 1257, 1261 (S.D. Fla. 2007) ("[W]hen evaluating an insurer's rights to investigation of a claim, the insurer's rights tend to be measured by 'reasonableness,' with the courts attempting to balance the insurer's legitimate interest in ascertaining the validity and extent of the claim against the insured's . . . rights to both privacy and prompt payment of sums due under the terms of the contract.") (internal quotation marks omitted) (quoting 8A G. Couch, Couch on Insurance 3d § 196:2); Tran, 136 Wash. 2d at 226 (finding the insurer "had legitimate reasons for broadening its investigation to include a motive for fraud").
An outright refusal to submit to an examination is the easy case. Courts have also found a failure of cooperation, however, when the insured refused to answer material questions during the examination. Robinson v. National Auto & Casualty Ins. Co., 132 Cal.App.2d 709, 282 P.2d 930 (1955). This is so because an insurer has a right to examine as to any matter material to its liability. Gipps Brewing Corp. v. Central Manufacturers Mutual Ins. Co., 147 F.2d 6 (7th Cir.1945). Of course, the insurer is limited by a rule of reasonableness and specificity. It may not "roam at will through all of the insured's financial records." Chavis v. State Farm Fire & Casualty Co., 317 N.E. 683, 346 S.E.2d 496 (1986).Stover v. Aetna Cas. & Sur. Co., 658 F. Supp. 156, 160 (S.D.W. Va. 1987).
"Generally, whether a breach is material is a question of fact to be decided by the jury, unless the facts are undisputed; then it is a question of law for the court." McKeon v. Williams, 104 Or. App. 106, 109 (1990), aff'd, 312 Or. 322 (1991). Summary judgment has been denied, for example, where there was a factual dispute about whether the insured's explanation for failing to comply with the insurer's request for documents was believable. See Wood, 21 F.3d at 746 (finding questions of fact precluded summary judgment for breach of the cooperation clause where insurer claimed she could not remember and that the requested documents had been destroyed in a fire).
However, courts have granted summary judgment in favor of the insurer when undisputed facts show the insured committed a willful and material breach of the cooperation clause, including the failure to produce financial records. See, e.g., Martinez v. Infinity Ins. Co., 714 F. Supp. 2d 1057, 1063 (C.D. Cal. 2010) (granting summary judgment where "undisputed facts demonstrate indicia of fraud, which Martinez's financial records and car payment records could have rebutted); Keith, 105 Wash. App. at 256 (upholding summary judgment for failure to produce financial records where they would have demonstrated that insured "was in a prosperous and healthy financial condition" and "helped to rule out a financial motive for making a false claim about his ownership of the car"); Herman v. Safeco Ins. Co. of Am., 104 Wash. App. 783, 789 (2001) (finding "no reasonable trier of fact could conclude that Herman cooperated in the investigation or settlement of the claim" where it was uncontroverted that insurer never received financial data, including tax returns and proof of income); Tran, 136 Wash. 2d at 232 (holding that where insurer had legitimate reasons for broadening its investigation to include a motive for fraud, insured's failure to turn over the relevant documents constituted a breach); Pedone v. State Farm Fire & Cas. Co., 95 F.3d 1158 (9th Cir. 1996) ("The Pedones materially breached this obligation by, among other ways, refusing to grant State Farm access to bank records which would show their financial condition."); Gabor v. State Farm Mut. Auto. Ins. Co., 66 Ohio App. 3d 141, 145 (1990) (granting summary judgment where insured refused to produce his income tax returns for the year before he purchased his car, finding it was "substantial and material breach of his contractual duty to cooperate which clearly prejudiced the insurer's investigation into possible motives for arson").
2. Analysis
On June 20, 2019, Infinity invoked its rights under the policy to obtain an EUO, a vehicle inspection, and documents to support the claim investigation, including "[a]ll bank statements for one year prior to loss and six months after loss." Pearce Decl., Ex. 6, ECF 10-6. Infinity later modified the request to the time period of one year prior to the loss and up until the time of the EUO. Id., Ex. 8, at 5, ECF 10-8. Plaintiff submitted to the EUO on August 1, 2019, and allowed the vehicle to be inspected. However, while plaintiff provided over 1400 pages of invoices, estimates, repair records, purchase records, pictures, and magazine articles related to the Nova, see Schalk Decl. ¶ 19, ECF 11-2, he refused to provide the bank statements requested by defendant.
Tom Pearce, a special investigator who works for Infinity's affiliate, has provided three non-exhaustive reasons why the missing bank statements were a "substantial, material and key component of Infinity's investigation" of plaintiff's claim: (1) because plaintiff may have fraudulently staged the accident (Pearce Decl. ¶ 25(a)); (2) because plaintiff may have intended to improperly obtain advanced payment for exaggerated repair costs with no intention of conducting repairs (Pearce Decl. ¶ 25(b)); and (3) because plaintiff may have been motivated to fraudulently obtain insurance proceeds to spend on other financial needs (Pearce Decl. ¶ 25(c)). See Def.'s Opp. Mot. Suppl. Record 5, ECF 20.
Additionally, Infinity's attorney explained in an October 15, 2019 letter sent to plaintiff's attorney that the request for plaintiff's bank statements "is relevant and reasonable for numerous reasons, including the timeline of the claim and information submitted by [plaintiff]." Pearce Decl., Ex. 8, at 4, ECF 10-8. Infinity cited plaintiff's seven-month delay in submitting an additional, higher estimate, which the repair shop characterized was merely a "guesstimate" based on the personal labor that plaintiff reported he had put into the car. Id. at 3, 4. Infinity also did not learn until later that a 75 percent deposit was required to begin repairs. Id. at 5. Infinity further cited plaintiff's testimony that he had spent some of his insurance proceeds on "entertainment" and to fix another vehicle, and that plaintiff referred to his bank statements during his testimony. Id. Finally, Infinity observed that plaintiff had threatened it was his "objective . . . to cost [Infinity] 10 times the amount that would cost [Infinity] to settle my claim." Id.
In a follow-up letter on December 6, 2019, Infinity's attorney again explained that the bank statements were "relevant and reasonable for numerous reasons," and re-cited them. Id., Ex. 9, at 2, ECF 10-9.
The multiple reasons that Infinity has provided are examined in detail below.
a. Prior Insurance Claim
In his declaration, Pearce attests this was plaintiff's second claim involving the failure to strap the car in the trailer in the preceding three years. Pearce Decl. ¶ 3, ECF 10. Plaintiff has offered evidence that the prior claim, which was for an incident on August 9, 2014, involved $3,576.40 for repairs to a bumper and paint incurred when he was backing the car out of the trailer and the bumper caught a guard wire. Schalk Decl. ¶ 6, ECF 13; see also Pl.'s EUO 29, ECF 10-7 (describing how plaintiff turned the wheels in the car while it was in a trailer, and caught the front bumper on a wire and scratched it, causing $3,000 in damage and requiring a replacement bumper); Schalk Suppl. Decl., Ex. 1, at 4, ECF 18-1 ("prior claims: . . . 8/9/14 iv damaged while being removed from trailer").
Even if the prior incident did not involve precisely the same act of failing to strap the car into a trailer, it reasonably heightened Infinity's suspicion regarding whether plaintiff was making a fraudulent claim. As Infinity explains, one would expect that someone who had previously "damaged such a valuable car while transporting it in a trailer would take particular and heightened care in future transportation of the car." Def.'s Opp. Mot. Suppl. Record 6, ECF 20. "This inference of extra care is inconsistent with someone who 'forgets' to strap down that valuable car—the most basic and rudimentary principal of transporting any object in a trailer, whether the trailer is open or enclosed." Id. (emphasis in original).
b. "Highly Questionable" Nature Of The Loss
Infinity also reasonably questioned, "How does a classic car owner, who displays his vehicle for show, forget to tie his vehicle down." Fry Suppl. Decl., Ex. 1, at 15, ECF 18-2; see also id. at 16 (October 2017 file notes reflecting Infinity had "concerns with this loss as presented" and that there were "questionable damages"). Indeed, Infinity's investigation revealed that Lonnie Thompson, the owner of a repair shop that provided an estimate for plaintiff, found it "hard to believe [plaintiff] had not secured the vehicle in the trailer, especially a vehicle of such high value," and said that "the norm amongst owners/shops associated with these kinds of vehicles" is to "check and re-check that a vehicle is secured." Id. at 47.
Both parties have submitted and rely on portions of Infinity's file notes. See Pearce Decl., Ex. 2, ECF 10-2; Fry Supp. Decl., Ex. 1, ECF 18-2. These notes do not constitute inadmissible hearsay because they are not considered for the truth of the matter asserted but rather for their effect on Infinity and its reasons for requesting plaintiff's financial records. See United States v. Lopez, 913 F.3d 807, 826 (9th Cir. 2019) ("[A]n out-of-court statement is not hearsay if offered for any purpose other than the truth of whatever the statement asserts . . . One common application of this principle is admitting a declarant's out-of-court statement for the purpose of establishing what effect it had on the listener.") (citing United States v. Payne, 944 F.2d 1458, 1472 (9th Cir. 1991); 2 McCormick on Evidence § 249 (7th ed. 2016) (providing examples)).
Infinity also argues that plaintiff's explanation of the events was inconsistent. Def. Opp. Mot. Suppl. Record 9, ECF 20. Infinity points to plaintiff's initial statement that he "forgot" to strap down the car (see Fry Suppl. Decl., Ex. 1, at 5, ECF 18-2), and contrasts that with the following testimony from plaintiff's EUO:
I drove the car in the trailer, as I always did, and I think I got interrupted or had to go to somewhere or something because I shut the trailer. . . . I don't really recall the whole chain of events of that day to be honest with you. I got distracted somehow, and that's all I know.Pl.'s EUO 52, ECF 10-7. Plaintiff argues that these statements are not actually conflicting. But, ultimately, whether they are or not does not affect the analysis. It was plaintiff's failure to tie down a $379,750 car before transporting it that reasonably heightened Infinity's suspicion of fraud. See Tran, 136 Wash. 2d at 226.
Plaintiff now claims he suffered a head injury and concussion in the boating incident and has since "learned that the concussion had a detrimental effect on my cognitive ability and affected my concentration and memory for an extended period of time." Schalk Decl. ¶ 9, ECF 11-1. However, plaintiff did not proffer this explanation to Infinity during the investigation. See Def.'s Resp. 2 n.2, ECF 14. This court must consider whether the requested bank records "pertained to a subject that was 'relevant and germane to the insurer's investigation as it was then proceeding.'" Callaway, 123 Or. App. at 23 (emphasis added).
Infinity also points to plaintiff's conflicting statements regarding the number of times he stopped on the way to the PIR—whether it was only once, or three or four times—and where he was when he discovered the damage—whether it was on the grass outside the car show or before he got there. Plaintiff again claims there is no conflict in his testimony. But whether there is a conflict or not, it is undisputed that the damages were the result of multiple impacts within the inside of the trailer. See Fry Suppl. Decl., Ex. 2, at 1, ECF 18-2 (describing damage to the front, rear, and both sides of the car). This led Infinity to reasonably question whether plaintiff was telling the truth when, in response to the question whether he had "any notice of what had happened inside the trailer" while he was driving it, he replied "None." Pl.'s EUO 56, ECF 10-7.
Compare Pl.'s EUO 57-58, ECF 10-7 (describing stopping once halfway to PIR to check damage to outside of trailer) with Maloney Decl., Ex. 1, at 6, ECF 21 ("I stopped obviously. . . I checked my trailer hitch, and I drove off. And I did that, like three or four times.").
Compare Pl.'s EUO 60, ECF 10-7 (describing that he parked the trailer "outside of PIR in the grass") with Maloney Decl., Ex. 1, at 7, ECF 21 ("I didn't unload it there. . . I didn't make it that far. Like I said, I figured it out.").
Infinity also initially questioned whether there was "enough space for the [vehicle] to bounce back and forth and cause the heavy damages to both sides and the right front end." Fry Supp. Decl., Ex. 1, at 15, ECF 18-2. Specifically, Infinity questioned "[i]f [the vehicle] was parked squarely in this trailer—and photos show very little room on either side of the [vehicle] between the bulkheads—how does the right front end sustain moderate type damage and the left front end does not." Id. However, Infinity's accident reconstructionist, Delta Analysis, concluded the "damages could have been caused while [the vehicle] was transported in the trailer while being unsecured and impacting the interior side panels as reported." Id. at 17, ECF 18-2; Id., Ex. 2, ECF 18-2 (Delta Analysis Report).
c. Plaintiff's Manslaughter Charge
In his declaration, Pearce attests that plaintiff was arrested and charged with manslaughter two weeks before the trailer incident. Pearce Decl. ¶ 4, ECF 10. Plaintiff contends he was not arrested until June 30, 2017, which was eight days after the loss, and not indicted until July 10, 2017, which was 19 days after the loss. Schalk Suppl. Decl. ¶ 4(b), ECF 18-1. However, plaintiff admits that the boating incident, for which he was ultimately charged with manslaughter, occurred approximately one month before the loss. Schalk Decl. ¶ 7, ECF 11-1.
Plaintiff was in a boat accident in which "[a] friend of [his] was killed." Pl.'s EUO 25, ECF 10-7. He was charged with manslaughter in the first degree, manslaughter in the second degree, and reckless endangerment, and pleaded to criminally negligent homicide. Id. at 25-26.
The recent manslaughter incident reasonably led Infinity to question whether plaintiff "unexpectedly needed a large sum of money to hire an attorney and/or settle civil claims." Pearce Decl. ¶ 25(a), ECF 10. At the EUO, plaintiff admitted he had to sell stock to pay for an attorney:
Q: Did you use some of the $85,000 to pay attorney's fees in a prior case?Pl.'s EUO 98, ECF 10-7. Plaintiff also admitted he had to pay the victim's family a civil settlement, although he could not disclose the amount due to a confidentiality clause. Id. at 26-27. Where there was evidence that plaintiff had unexpected and pressing financial obligations arising from an incident that occurred only one month before the trailer accident, Infinity had "legitimate reasons for broadening its investigation to include a motive for fraud." Tran, 136 Wash. 2d at 226.
A: Probably. I think it's irrelevant—no, I did not.
Q: Why did you initially think you did?
A: I was trying to think. I sold stock to pay my attorney.
Plaintiff contends that, "[w]hile the criminal and civil action related to the boating accident did result in unexpected expenses, [he] was not dependent upon the repairs checks issued by Infinity." Pl.'s Mot. Suppl. Record 14, ECF 18. In a supplemental declaration, plaintiff attests that he paid his attorney's fees and civil settlement before he cashed his checks from Infinity and "the monies paid by Infinity toward repairs were not used toward court costs and/or attorney fees as suggested." Schalk Suppl. Decl. ¶ 4(b), ECF 18-1. Plaintiff claims that he paid his attorney $120,000 from his investment account in July and August 2017, before he cashed checks from Infinity in November and December 2017. Id. He also claims that he used the cash bail of $36,200 that he posted in his criminal case to settle the civil case. Schalk Decl. ¶ 8, ECF 13.
However, these were not facts that Infinity was aware of at the time it requested plaintiff's bank records. See Callaway, 123 Or. App. at 23 (holding breach is material if the information was "relevant and germane to the insurer's investigation as it was then proceeding") (emphasis added). Nor do they ultimately help plaintiff's position. Even if plaintiff did not apply the checks he received from Infinity toward his manslaughter case, the fact remains that he had a high financial burden at around the same time he made his insurance claim—the manslaughter incident occurred in May 2017, only a month before the car was damaged in June 2017, and the insurance claim and manslaughter prosecution proceeded concurrently until plaintiff resolved the manslaughter case in 2018. See Pl.'s EUO 24, ECF 24 (testifying manslaughter case settled in 2018).
d. Unspecified Sources Of Income
Infinity points to plaintiff's "vague and unspecified sources of income" as another reason to reasonably investigate whether plaintiff was motivated to spend insurance benefits on other financial needs. Pearce Decl. ¶ 25(c), ECF 10.
When plaintiff was asked at the EUO about his income, he testified that he received veterans disability payments. Pl.'s EUO 17, ECF 10-7. However, he was unsure about the amount, testifying, "I don't know, $3,000." Id. Plaintiff further offered, "I could look at my bank statement." Id. Plaintiff also received social security disability benefits. Id. at 18. But, similarly, he was unsure about the amount, testifying it was $2,400 or $2,900, and said, "I don't pay attention. It just goes into my bank account." Id. at 18.
Plaintiff admitted he had "probably" over $20,000 in consumer debt. Id. at 20. When asked how much was remaining of the $84,328.16 he had received from Infinity, plaintiff responded "there's probably 70 to $75,000 still" remaining in the safe where he kept it. Id. at 100. He said he "spent it on some things," id. at 97, including "entertainment," which he defined to include gambling, going to the movies, the beach, and car shows, and taking women out to dinner. Id. at 21-22. He also fixed his other car, id. at 97, and spent $6,500 "on a Harley to flip it." Id. at 99. Plaintiff described that he "hit" the insurance proceeds for "$100 now and then" or $500 for a weekend if he "needed some cash." Id. at 100. He also withdrew $1,000 one time "for something I wanted, something stupid," but put it back. Id. at 100. He volunteered that "somewhere in my bank statements, it would show that I have done that." Id.
As Infinity contends, plaintiff's refusal to produce his bank statements prevented Infinity from confirming plaintiff's income and "discern[ing] whether [p]laintiff had sufficient enough income to meet his financial needs without attempting to supplement his income through a fraudulent insurance claim." Def.'s Opp. Mot. Suppl. Record 14, ECF 20. Even plaintiff recognized during his testimony that his bank statements would contain proof of his income and activities, but he refused to provide them.
Plaintiff also appeared to be less than forthcoming with other information. For instance, plaintiff could not say how much money he made when he was last employed, although he recalled other details such as it was a "good-paying" job, the date on which he was last employed (June 30, 2011), his job title, and his job responsibilities. Pl.'s EUO 14, 69-70, ECF 10-7. Additionally, plaintiff claimed he could not remember the last name of his former girlfriend, a potential witness, who had previously lived with him and was "in and out" of his house during the time at issue. Id. at 12.
Plaintiff argues that the bank statements would not disclose any meaningful information because he placed the money he received from Infinity in a safe and did not commingle it with his financial accounts. Schalk Suppl. Decl. ¶ 4(i), ECF 18-1. But plaintiff's bank statements would show whether his spending was greater than his income, which was pertinent to Infinity's reasonable investigation into whether plaintiff was fraudulently seeking a higher insurance pay-out to fund his financial needs.
e. Increasing Estimates And Requests For Advances
Infinity also sought plaintiff's bank records because it had concerns plaintiff was "extract[ing] advances for ever-increasing repair payments and purported deposits," but had not yet started any repairs. Pearce Decl. ¶ 25(b), ECF 10. This "raise[d] the possibility that plaintiff may have intended to improperly obtain advance benefits for exaggerated repair costs and non-existent deposits with no intent of conducting repairs." Id.
After plaintiff rejected the original estimate of $14,021.80, Infinity agreed to use an appraisal company of plaintiff's choice. Pearce Decl. ¶ 6, ECF 10. A second appraisal was done on September 25, 2017, and a new estimate of $84,328.16 was obtained from Schroeder Speed and Customs ("Schroeder"). Id.; id., Ex. 8, at 2, ECF 10-8. Infinity presented plaintiff with checks for $84,328.16, which plaintiff cashed in November and December 2017. Pl.'s EUO 96, ECF 10-7; Schalk Suppl. Decl. ¶ 4(b), ECF 18-1.
Seven months later, in early June 2018, plaintiff submitted a supplemental estimate of $51,108.10 from Schroeder, including an additional 485.6 hours of labor at $85 per hour, bringing the total estimate to $135,436.26. Pearce Decl. ¶ 7, ECF 10; Fry Decl., Ex. 3, ECF 11-2. The estimate included 50 hours of labor to remove the engine. Fry Decl., Ex. 3, ECF 11-2 (letter with estimates attached); Pl.'s EUO 88, ECF 10-7. Plaintiff claimed it took him several months to obtain estimates from qualified shops because of the custom nature of the repairs and because his driver's license was suspended following the boating incident. Schalk Decl. ¶ 13, ECF 11-1. He also claimed, "My engine is very unique," and that it took him over 50 hours to get the engine out of the car because there were so many components. Pl.'s EUO 88-89, ECF 10-7.
Schroeder told Infinity that the car had "not been touched as of yet" and the supplement was a "guesstimate based on what [plaintiff] had said concerning his personal labor into the project." Fry Suppl. Decl., Ex. 1, at 20, ECF 18-2; Pearce Decl. ¶ 7, ECF 10. At the EUO, plaintiff testified that he "[n]ever calculated" how much it cost him to build the car, but estimated that it took him ten years to build it, at a cost of $300,000 plus labor, and he performed 90 percent of the labor himself. Pl.'s EUO 30, 38, ECF 10-7.
At the time of the inspection, the vehicle had been partially dissembled, with parts in various locations, including plaintiff's attic. Pearce ¶ 18, ECF 10.
On June 15, 2018, plaintiff contacted his insurance agent to inquire what would happen if he wanted to take the money and not repair the vehicle. Fry Suppl. Decl., Ex. 1, at 21, ECF 18-2. Plaintiff was advised that if he did not wish to have the vehicle repaired, he could keep what had been paid to date, i.e., $84,328.16, "with no other monies coming." Id. at 23-24. File notes also show that plaintiff expressed an interest in selling the car "as is" and wanted Infinity to pay him $135,000 and $150,000. See id. at 28 ("ni wants to sale iv as is but wants IF to pay 150k"); id. at 29 ("Insd wants to sell the veh as is but wants us to pay him 50k more.").
Shortly thereafter, on June 19, 2018, plaintiff informed Infinity that another repair shop, Carolina Kustoms, had provided a $200,000 to $250,000 estimate with a required $150,000 deposit. Pearce Decl. ¶ 9, ECF 10; Fry Decl., Ex. 3, ECF 11-2 (letter with estimates attached); Fry Suppl. Decl., Ex. 1, at 22, ECF 18-2. Plaintiff explained that, because Schroeder would not do all of the work, including painting, he looked for shop that could. Pl.'s EUO 74, ECF 10-7.
Plaintiff also obtained a supplemental estimate from Fat Wallet Customs for painting only. See Fry Decl., Ex. 3, ECF 11-2 (letter with estimates attached). While that estimate included application of 24 coats of paint, plaintiff believed "it's still missing stuff." Pl.'s EUO 75-76, 89, ECF 10-7. Specifically, plaintiff explained:
[T]he car needs to be dipped, so the entire inside of car, inside of the doors, the top of the roof would need to be Rhino lined -- oh, not Rhino lined, need to be lizard skinned with sound deadener and then ceramic coding, and then the entire inside of the car would need to be Dynamatted. And then, he didn't include braising the brake line along the front fenders, he didn't include any of that. Didn't include any of the potential motor work that needs to be done because the motor does not run now. It shoots out fuel. And Darryl Schroeder will contest to that. So there are things that are missing there. He doesn't do motor work. . . .Id. at 76. Ultimately, plaintiff obtained an estimate from Finn's Auto Restoration for $154,731.45, and offered to settle for that amount. Fry Decl., Ex. 3, ECF 11-2.
Thus, it appears that plaintiff and Infinity were at a crossroads because Infinity would not authorize repairs for over $84,328.16 without proof that additional repairs were needed, and plaintiff claimed that body shops would not begin work and tear down the car until they had a 75 percent deposit. Plaintiff explained that"[e]verybody said they want 75 percent down because a job like this can potentially break them." Pl.'s EUO 80, ECF 10-7. Indeed, Infinity's file notes indicate that Carolina Kustoms, Schroeder, Fat Wallet, and Finns confirmed that when dealing with custom car repair, it was not unusual to request a specific amount of money up front, especially given the possibility that unknown damages might be uncovered as they began tearing the car apart. Fry Suppl. Decl., Ex. 1, at 47, ECF 18-2.
At one point, plaintiff insisted that he should not have to pay out-of-pocket expenses to get his car repaired and asked, "Do I need to go back to the Department of Justice and the Oregon Insurance Commissioners Office and let them know that Infinity Insurance Company is requiring me to pay the deposition to get my car fixed?" See Fry Supp. Decl., Ex. 1, at 38, ECF 18-2. Plaintiff had previously filed a complaint with the Oregon Department of Consumer and Business Services, which concluded Infinity had committed no violation of the Oregon Insurance Code or the terms of plaintiff's policy. Maloney Decl., Ex. 2, ECF 21-2.
In Infinity's view, plaintiff was "attempting to leverage a windfall by claiming ever-increasing up-front repair payments without actually repairing the vehicle." Opp Mot. Suppl. Record 11, ECF 20. The fact that plaintiff obtained higher estimates, in and of itself, does not necessarily constitute a reasonable basis to seek plaintiff's bank statements. It is expected that an insured will seek accurate estimates that reflect the true nature of the loss, and there is nothing in this record to suggest that the estimates were not legitimate. Moreover, plaintiff explained that the several-month delay in obtaining the additional estimates was because of the custom nature of the work and the fact his license was suspended. Also, the mere fact that plaintiff sought to cash out the policy rather than repair the car does not necessarily constitute evidence of fraud. It is not uncommon for people to cut their losses and move on.
However, Infinity did not view these events in a vacuum, and neither can the court. These actions, when combined with the timing of the loss, the timing of the manslaughter charge and its unexpected financial expenses, and the fact that plaintiff had a prior claim that also involved a trailer, reasonably elevated Infinity's suspicions regarding fraud.
f. Plaintiff's Threat, Flyers, And Phishing Emails
In July 2018, Infinity offered to pay plaintiff a total of $135,000 with a full claim release or, alternatively, to participate in an impartial appraisal of the loss pursuant to the terms of the policy. Pearce Decl. ¶ 10, ECF 10; see Fry Suppl. Decl., Ex. 1, at 28, ECF 18-2 ("He can opt for the appraisal clause of the policy or we pay the shop estimate with a release," and indicating a certified letter was mailed to plaintiff). Plaintiff declined this offer.
According to the terms of the policy, if the parties did not agree on the loss, "either may demand an appraisal of the loss." Maloney Decl., Ex. A, at 13, ECF 9-1. "In this event, each party will select a competent and impartial appraiser" and the "two appraisers will select an umpire." Id. If the two appraisers failed to agree, they would submit their differences to the umpire. Id. Each party was obligated to pay its chosen appraiser and bear the expenses of the appraisal and umpire equally. Id.
In August 2018, plaintiff distributed flyers at auto shows, alleging Infinity "tries to wear you out by paying below the bear [sic] minimum" and suggesting "more reputable" insurance companies. Pearce Decl. ¶ 11, ECF 10; id., Ex. 1, ECF 10-2. Plaintiff also emailed Infinity that he wanted "$135,000 plus damages to [his] car" and his "objective was to cost [Infinity] 10 times the amount" it would cost to settle his claim:
When would . . . Infinity like to settle my insurance claim? What I mean by settle my insurance claim is that Infinity pays the $1640 invoice to Schroeder speed and custom, Infinity pays to have the car trailer that I borrowed, damaged
and subsequently forced to purchase repaired AND infinity pays the $135k plus damages to my car.Pearce Decl., Ex. 2, ECF 10-3 (emphasis added).
Sometime in the very near future you should be receiving the complaint that I filed with the Oregon department of justice, Oregon insurance commission, the better Business Bureau and all of the reviews that I've been posting online.
At some point in time it will be considerably cheaper for Infinity to just settle with me then [sic] lose customers. I know for a fact that you've already lost about a dozen customers and will continue to lose them each and every day that I hand out flyers and post reviews and complaints. My objective is to cost you 10 times the amount that would cost you to settle my claim.
On September 6, 2018, defendant's counsel sent plaintiff a cease-and-desist letter. Pearce Decl., Ex. 3, ECF 10-4. The letter also proposed three options to resolve the claim: (1) settle for $135,436 with a claim release, (2) participate in an appraisal of the loss pursuant to the terms of the policy, or (3) repair the vehicle and Infinity would pay the reasonable supplemental costs of repair. Id. Plaintiff did not respond to this letter, and on October 5, 2018, Infinity's counsel sent plaintiff another letter proposing the same three options. Id.
On February 15, 2019, plaintiff sent an Infinity employee an email stating, "Hope you are well. When I found this I thought of you," and included what appeared to be a phishing link. Fry Suppl. Decl., Ex. 1, at 38-39, ECF 18-2. On April 24, 2019, Infinity's counsel emailed plaintiff that "Infinity has received multiple cryptic emails from you containing links," and requested all of plaintiff's future communication be directed to counsel. Pearce Decl., Ex. 5, ECF 10-5. Infinity again offered plaintiff the same three options it had extended in the past. Id.
Clearly, plaintiff's actions demonstrate an animus to hurt Infinity beyond making it pay for the claim under the terms of policy. This was yet another reason for Infinity to question plaintiff's motives and seek his bank statements to rule out fraud.
In sum, Infinity "had legitimate reasons for broadening its investigation to include a motive for fraud." Tran, 136 Wash. 2d at 226. There is no factual dispute that, approximately one month before the trailer incident, plaintiff was involved in a boating incident from which manslaughter charges were brought against him. As a result, plaintiff incurred unexpected costs for attorney's fees and a civil settlement in amounts that he did not disclose to Infinity until after this litigation began. Given that the two incidents occurred close in time and the fact plaintiff had a prior insurance claim involving damage to his car while using a trailer, Infinity had reasonable doubts whether plaintiff's story that he had forgotten to strap down his $357,750 car was truthful and reasonably requested more information regarding his financial condition.
Infinity's suspicions were again reasonably heightened when plaintiff produced higher estimates, inquired whether he could cash out the insurance policy rather than repair the car, and admitted he spent a portion of the insurance proceeds on gambling and other "entertainment." During his EUO, plaintiff testified that his monthly income and some of the activity related to his use of the insurance proceeds could be corroborated through his bank statements, yet he refused to provide them. Finally, plaintiff expressed a motive to make Infinity pay "10 times the amount" it would cost to settle the claim and took actions, such as distributing flyers and sending suspicious links, that appeared intended to harm Infinity beyond getting it to pay the terms of the policy.
While the parties may dispute certain facts, there are no factual disputes as to whether plaintiff willfully refused to disclose his bank statements. This is not a situation where plaintiff claimed that he lost the documents or could not find them. Plaintiff simply does not believe they were pertinent to Infinity's investigation. However, Infinity had legitimate reasons to seek them, and plaintiff's failure to disclose them constitutes a willful, material breach of the cooperation clause.
Plaintiff contends that the bank statements are "immaterial to the circumstances and insubstantial to the true issue, which is establishing the cost of repair." Pl.'s Mot. Summ. J. 12, ECF 11. To the contrary, the cooperation clause exists not just to determine the cost of repair but also to "guard against collusion and fraud." Staples, 176 Wash. 2d at 411 (citing Eakle, 185 Wash. at 524-25). In this respect, the bank records were certainly "pertinent" to Infinity's investigation. See Keith, 105 Wash. App. at 256 (upholding summary judgment for failure to produce financial records there they would have demonstrated that insured "was in a prosperous and healthy financial condition" and "helped to rule out a financial motive for making a false claim about his ownership of the car"); Pertinent, Merriam-Webster, https://www.merriam-webster.com/dictionary/pertinent (last visited April 12, 2021) ("having a clear decisive relevance to the matter in hand"); see also, supra, pp. 9-10 (citing cases granting summary judgment when undisputed facts showed insured committed a willful and material breach of the cooperation clause, including the failure to produce financial records).
Plaintiff argues that his compliance was substantial because he submitted to the EUO and an inspection of the vehicle, and produced over 1400 documents. "However, compliance with some conditions is not the same as compliance with all conditions." Bolton v. State Farm Fire & Cas. Co., No. 3:16 CV 220, 2017 WL 5132732, at *13 (N.D. Ohio Nov. 6, 2017). Under the terms of the policy, plaintiff's duty to produce "pertinent records" is distinct from his duty to submit to an examination under oath and distinct from his duty to cooperate in the investigation. See Maloney Decl., Ex. A, at 13, ECF 9-1 (policy).
Plaintiff also claims there can be no willful failure to cooperate because his bank statements do not "provide any meaningful information." Schalk Suppl. Decl. ¶ 4(i), ECF 18-1. He contends, "[m]y bank statements will only show that I withdrew some monies to replace the amount borrowed from the safe" and the "[b]anks statements will not show how much of the original monies were spent or are still available." Id. Plaintiff has produced heavily redacted copies of his bank records to show the insurance deposits and withdrawals. Schalk Decl., Ex. 2, ECF 13. In response, Infinity argues, "[i]f [the bank records] are material enough for Plaintiff to now come forward to rely upon them so as to try and defeat Infinity's motion for summary judgment, then as a matter of law they are material to Infinity's claim investigation and the withholding of them prejudiced Infinity." Def.'s Opp. Mot. Suppl. Record 15, ECF 20; see also Def.'s Reply 3, ECF 15. Infinity also argues that the records show plaintiff spent approximately "$24,000 of the $84,000 in benefits on personal expenditures other than car repairs." Id. at 4.
Nevertheless, this court must examine whether the requested information was "'relevant and germane to the insurer's investigation as it was then proceeding.'" Callaway, 123 Or. App. at 23 (emphasis added). At that time, Infinity had "legitimate reasons for broadening its investigation to include a motive for fraud." Tran, 136 Wash. 2d at 226. Plaintiff's untimely disclosure of his bank statements does not cure his prior breach.
D. Prejudice
Few Oregon cases have addressed what constitutes prejudice in the context of the breach of a cooperation clause. In Berry v. Truck Ins. Exch., the Oregon Supreme Court held that an insured's failure to appear at trial prejudiced the insurer. 265 Or. 130, 135 (1973). In Bailey, the Oregon Supreme Court found prejudice where the insured allowed a default judgment to be entered against the insurer in an action for damages arising out of an automobile accident. 258 Or. at 220-21. Citing these cases, Judge Mosman concluded in Assurance that "[p]rejudice includes a substantial detriment to the insurer's ability to litigate or adjust the case." 2008 WL 361289, at *5.
This standard comports with the Oregon Supreme Court's decision in Allegretto v. Oregon Automobile Ins. Co., 140 Or. 538 (1932), overruled in part by Bailey, 258 Or. 201. There, the Oregon Supreme Court found that the insured made a "willfully false statement" that "constituted a breach of the co-operation clause of the policy." Id. at 541. Regarding prejudice, the court held, "We think it is going too far to say that it must be shown that the misrepresentation affected the verdict." Id. at 542. However, the court held that "[w]hen the misrepresentation concerns a material matter and substantially affects the rights of the insurer, there is unquestionably a breach of the policy." Id. at 541.
Both parties cite to Washington cases that frame the analysis in terms of "actual prejudice." See Pl.'s Opp. 8, ECF 12 (citing Staples, 176 Wash. 2d at 410 ("Typically, an insured that 'substantially and materially' breaches a cooperation clause is contractually barred from bringing suit under the policy if the insurer can show it has been actually prejudiced."); see also Tran, 136 Wash. 2d at 228 ("An insured's breach of a cooperation clause releases the insurer from its responsibilities if the insurer was actually prejudiced by the insured's breach.");
Other jurisdictions similarly frame the issue as one of substantial or actual prejudice. See, e.g., Am. Access Cas. Co. v. Alassouli, 2015 IL App (1st) 141413, ¶ 39, 31 N.E.3d 803, 814 ("An insurer must demonstrate that 'it was actually hampered' in its investigation or defense by the insured's violation of the cooperation clause."); Med. Protective Co. v. Bubenik, 594 F.3d 1047, 1052 (8th Cir. 2010) (finding that under Missouri law, "[o]nce a material breach has been established, an insurer must prove that it was substantially prejudiced by the insured's breach in order to be excused from covering the loss"). --------
In Tran, the Washington Supreme Court found actual prejudice because the plaintiff's "failure to provide . . . information hampered [the insurer's] ability to determine the validity of [the plaintiff's] claim." 136 Wash. 2d at 231. There, the plaintiff had made a claim against his insurer for the burglary of his business. Id. at 218. Despite the insurer's "legitimate reasons for broadening its investigation to include a motive for fraud," plaintiff refused to provide the insurer with his business and personal financial information. Id. at 219-221, 226.
The Washington Supreme Court recognized that "prejudice is an issue of fact and will seldom be established as a matter of law." Id. at 228. However, the court found the insured's breach of the cooperation clause impeded the insurer's investigation, and thereby caused prejudice:
Tran's refusal to submit the requested financial information, an act which breached the cooperation clause and impeded State Farm's ability to investigate the claim, caused prejudice. . . Significantly, the failure to provide this information hampered State Farm's ability to determine the validity of Tran's claim. The business of insurance companies is, after all, to provide coverage for the legitimate claims of the parties it insures. If insurers are inhibited in their effort to process claims due to the uncooperativeness of the insured, they suffer prejudice in the ways identified by State Farm and noted by the court in Pilgrim [v. State Farm Fire & Cas. Ins. Co., 89 Wash. App. 712 (1997)]. If we were to reach any other result, we would be encouraging insureds to not cooperate and to submit fraudulent claims.Id. at 231. The court observed that an insurer in such a situation is "faced with the 'Hobson's choice' of either paying a suspected fraudulent claim, or exposing itself to bad faith liability." Id. at 230.
Similarly, in Martinez, the Central District of California found "no genuine issue of material fact as to whether Martinez's omissions breached the contract's cooperation clause and substantially prejudiced Infinity's investigation of Martinez's claim." 714 F. Supp. 2d at 1063.
The undisputed facts demonstrate indicia of fraud, which Martinez's financial records and car payment records could have rebutted. . . . [T]he particular facts of this case support a finding of prejudice. Infinity required at least the car payment records, if not Martinez's financial records, to substantiate her claim, evaluate the bizarre inconsistencies in her testimony, and calculate the value of the vehicle.Id. at 1062-63 (emphasis in original).
Other jurisdictions have similarly held that an insured's willful failure to provide information as required by the terms of the policy constitutes prejudice as a matter of law. See Feingold v. State Farm Mut. Auto. Ins. Co., 629 F. App'x 374, 377 (3d Cir. 2015) (finding that under Pennsylvania law, "there has been a material breach and substantial prejudice as a matter of law" where "the cooperation clause of the policy clearly established [the insured's] duty to submit to reasonable requests for medical examination"); Interstate Underground v. Underwriters of Lloyds London Syndicate No. 5151, No. 12-01406-CV-W-GAF, 2013 WL 12137102, at *4 (W.D. Mo. Sept. 23, 2013) ("Prejudice results as a matter of law when a named insured refuses to conduct an EUO after multiple requests by the insurer."); Mosadegh v. State Farm Fire & Cas. Co., 330 F. App'x 65, 66 (5th Cir. 2009) (finding under Louisiana law that insurer "certainly demonstrated prejudice to its investigation and adjustment capacity through the [plaintiffs'] unwillingness to submit to the required examinations"); Wiles v. Capitol Indem. Corp., 215 F. Supp. 2d 1029, 1032 (E.D. Mo. 2001) (holding insurer established prejudice as a matter of law by commencing a law suit without submitting to an examination under oath and denying the insurer the opportunity to complete its investigation); Gabor, 66 Ohio App. 3d at 145 (holding "that the insured's refusal to produce his income tax returns for the year before he purchased the Oldsmobile was a substantial and material breach of his contractual duty to cooperate which clearly prejudiced the insurer's investigation into possible motives for arson").
Moreover, when an insurer is conducting an investigation into what it suspects is intentional property damage, the insured's failure to produce financial documents goes to the "heart" of the investigation. Abdelhamid v. Fire Ins. Exch., 182 Cal. App. 4th 990, 1007 (2010). In Abdelhamid, the California Court of Appeals found substantial prejudice where the insurer was unable to complete an arson investigation, but the analysis is applicable to any case involving intentional property damage:
The documentation FIE sought with respect to Abdelhamid's claimed losses was essential to a determination of the extent of her claim. FIE's requested documentation and queries regarding her financial status were, however, even more fundamental. The financial information FIE sought went to the heart of its investigation of whether there was circumstantial evidence of Abdelhamid's involvement in the arson of her home or whether there was a reasonable explanation for the many suspicious circumstances uncovered by FIE's investigation. This addressed the very validity of her claim.Id.
Here, like the numerous cases cited above, plaintiff refused to provide the documentation that Infinity was entitled to under the terms of the policy. "Without access to financial documents, [Infinity] could not evaluate the validity of [plaintiff's] claim. It could not decide whether the claim was covered, much less prepare a defense to the inevitable suit by [plaintiff] if it denied coverage." Pilgrim, 89 Wash. App. at 724-25. There is no genuine issue of material fact that Infinity could not complete its investigation as a result of plaintiff's willful refusal to provide his bank statements. Therefore, Infinity has been substantially prejudiced as a matter of law.
Plaintiff contends there is no prejudice because he "fully complied with reasonable requests to cooperate pursuant to the terms and conditions of the Policy" and argues that he had "no obligation to produce all bank and financial records as the materials are not pertinent records required to be produced under the Policy." Pl.'s Resp. 7, ECF 12 (emphasis in original). But these are arguments that go to plaintiff's willfulness, not to Infinity's prejudice.
Plaintiff also argues that Infinity had "sufficient information to make a coverage determination" and that the "only legitimate issue in dispute is the cost of repair to fix the damage." Pl.'s Opp. 7, ECF 12. But, again, Infinity's investigation reasonably pertained to fraud. See Staples, 176 Wash. 2d at 411 ("Cooperation clauses also guard against collusion and fraud.").
Finally, plaintiff argues that Infinity "fails to show how [his] financial records, if produced, would establish a possible financial motive for overvaluing the claim, as the factual details do not support this conclusion." Pl.'s Resp. 10, ECF 12. But the question is whether Infinity suffered prejudice "as a result" of plaintiff's breach of the cooperation clause. Bailey, 258 Or. at 217. "[Infinity's] claimed prejudice here is not the present inability to accurately assess the extent of [plaintiff's] damages. It was the inability to investigate and assess the extent of [his] damages in a timely way prior to [his] filing suit." Cribari v. Allstate Fire & Cas. Ins. Co., 375 F. Supp. 3d 1189, 1196 (D. Colo. 2019).
Because there are no genuine issues of material fact that (1) Infinity made reasonably diligent and good faith attempts to secure plaintiff's cooperation, (2) plaintiff willfully and materially breached the terms of the policy, and (3) Infinity was substantially prejudiced, Infinity is entitled to summary judgment as a matter of law.
RECOMMENDATIONS
Defendant's motion for summary judgment (ECF 8) should be GRANTED, plaintiff's motion for partial summary judgment (ECF 11) should be DENIED, and judgment should be entered in defendant's favor.
SCHEDULING ORDER
These Findings and Recommendations will be referred to a district judge. Objections, if any, are due April 30, 2021. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within 14 days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
NOTICE
These Findings and Recommendations are not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any Notice of Appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of a judgment.
DATED April 16, 2021.
/s/ Youlee Yim You
Youlee Yim You
United States Magistrate Judge