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Claims Practices

Legitimate Loss becomes a Crime When Insured Lies

Barry Zalma | February 1, 2010

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Damaged car from collision

Running a car into the side of a hill—drunk or sober—is a covered collision loss under almost every policy of automobile collision insurance. Similarly, every policy of automobile insurance declares the policy void if an insured lies to the insurer, submits a false claim, or swears falsely. Every claims handler must enter into investigations with a modicum of skepticism, as illustrated by a recent criminal conviction that was affirmed on appeal.

The California Court of Appeal proves the danger of falsely reporting a theft. The ignorance of insurance practices by an insured who, while drunk, crashed her vehicle lost both the right to recover the indemnity promised by the policy and found herself convicted of a felony.

Every insurer, and Special Investigator should be aware that a single lie to an insurer is a violation of California Penal Code § 550. Reporting a theft that did not occur is a crime that voids the policy. The following case is proof that it does not pay to lie to the police, and it pays even less to lie to an insurer. Attempting to avoid the stigma of a drunk driving incident made a felon of a person who could have simply reported the accident truthfully.

In People v. Murphy, No. E046742 (Cal. App. 4th Dist., Div. 2, Dec. 28, 2009), the California Court of Appeal affirmed a guilty verdict against Melissa Kay Murphy for procuring or offering false information for filing (count 1—Pen. Code, § 115, subd. (a)), insurance fraud (false claim) (count 2—Pen. Code, § 550, subd. (a)(4)), and insurance fraud (false statement) (Pen. Code, § 550, subd. (b)(1)).

The Alleged Theft

The trial established the fact that San Bernardino Deputy Sheriff Jay Staviski was on patrol in the mountainous region of San Bernardino County on March 5, 2006, when, at 2:47 a.m., he came across a gold 2001 Chevrolet Malibu on Highway 18 that was "smashed into the side of the hill." The vehicle had sustained extensive damage, with both airbags deployed. Deputy Staviski checked the car and surrounding area to see if anyone was hurt, but could not find anyone. There was no key in the ignition. Deputy Staviski provided dispatch with the license plate number on the vehicle and dispatch provided him with the name and address of the registered owner of the car. Deputy Staviski drove to the address provided.

Murphy, the registered owner of the vehicle answered the door. Upon contact, Murphy had a phone in her hand, and reported to Deputy Staviski that she had been attempting to obtain the number for the California Highway Patrol (CHP) to report her vehicle as stolen. Murphy had blood on her face, a small laceration on her nose, and blood on her right hand. Murphy informed Deputy Staviski that she had injured herself at work. Deputy Staviski drove Murphy and her mother to the vehicle.

Murphy informed Deputy Staviski that she had met a friend at a bar in Running Springs around 11:00 p.m. the preceding evening. They left the bar around 2:00 a.m. and found the vehicle missing. Murphy reported that she attempted to go back into the bar to call the CHP to report the vehicle as stolen; however, the bar was already closed. Murphy's cell phone had a low battery and poor reception, so she was also unable to report the vehicle stolen using her cell phone. Murphy and her friend left the bar for Murphy's residence and, on the way, discovered her vehicle on the side of the road. They did not stop, however, but continued on. Murphy reported that all her vehicle keys were accounted for.

Deputy Staviski took a stolen vehicle report from Murphy on CHP form No. 180. After filling out and filing the form, the data contained therein was entered into a nationwide stolen vehicle system, which allowed law enforcement across the country to run a vehicle's license plate number or Vehicle Identification Number (VIN) to determine whether a vehicle had been stolen. After Deputy Staviski completed the form, Murphy signed it under penalty of perjury.

The Discrepancies

Deputy Staviski noticed a few things regarding the vehicle and Murphy's story which struck him as odd. Deputy Staviski noted, "that the driver's seat was moved all the way forward, which would indicate somebody small was driving the vehicle" [Slip Op. Page 4]. Murphy appeared to be 5 feet 1 inch tall and 120 pounds.

The ashtray of the vehicle was open and in plain view. It contained cash including a $10 bill and other denominations, which Deputy Staviski believed was strange because "if somebody is going to take the time to steal a car, they're going to steal the cash that's in view."

Deputy Staviski noted that there was no damage to the ignition or loose wires beneath the dashboard. In many recovered stolen vehicles, the ignition has been "punched," i.e., "some foreign object [has been used] to punch the ignition out, remove a section of it so [the thief] can stick some form of object in there to start the vehicle."

A CHP station was located on Highway 18 between the bar and Murphy's home; Murphy had not stopped at that station to report the vehicle as stolen on her way home.

Murphy informed Deputy Staviski that she had imbibed alcohol while at the bar; however, she did not exhibit any objective symptoms of intoxication. He did not perform any field sobriety tests, chemical tests, or investigate the accident as the result of driving under the influence.

The Witness

Investigator Smith testified that when he initially interviewed Barbato, Murphy's friend, she gave a version of events consistent with her testimony and that which she had reported to Deputy Collins. However, after Smith explained the evidence in the case, Barbato changed her story. She relayed that, around closing time, she observed Murphy in her car arguing with a man. The man exited the car, and Murphy drove off, upset, at around 70 miles an hour. Barbato followed. The roads were wet and icy. She came around a corner and found that Murphy had crashed.

Murphy incurred a cut to her hand and had blood smeared on her face. Barbato told Murphy to go home and report the accident the next morning so that she would not face a driving while under the influence (DUI) charge. Smith testified that he never told Barbato she could not leave nor prevented her from leaving during questioning.

The Insurance Fraud

On the day of the accident, Murphy held a policy with Western General Insurance covering her vehicle. She made a claim on that policy regarding the accident. The vehicle was reported as "a total theft recovered."

A recorded statement was taken from Murphy on March 9, 2006. In that statement, Murphy reported that her car was stolen. She alleged that she came out of the bar and found that her car was missing, but she could not get back into the bar to report it missing. On the way home, she and her friend found the vehicle on the side of the road. They pulled over, checked it out, and left. She reported that her keys were missing, and she never found them. She ended the recording by affirming under penalty of perjury that all her statements were true.

The California Court of Appeal noted that Murphy procured or offered the fraudulent CHP form No. 180 for filing by the deputy; she did not file the document herself. Thus, Murphy's offense arguably involved more egregious conduct because it necessarily involved another individual. Moreover, the whole purpose for filing of the CHP form No. 180 was to report a stolen vehicle; hence, the instrument itself was entirely fraudulent, rather than a valid document that merely contained false statements.

The jury was given the standard jury instruction on Insurance Fraud (Fraudulent Claims) (Penal Code § 550, subd. (a)(4)) as set forth in CALCRIM No. 2000:

The defendant is charged in Count Two with insurance fraud committed by fraudulent claim. [¶] To prove that the defendant is guilty of this crime, the People must prove that: [¶] 1. The defendant falsely or fraudulently claimed payment for a loss due to theft of a motor vehicle; [¶] 2. The defendant knew that the claim was false or fraudulent; [¶] AND [¶] 3. When the defendant did that act, she intended to defraud. Someone intends to defraud if he or she intends to deceive another person either to cause a loss of money, or to cause damage to, a legal, financial, or property right. [¶] For the purpose of this instruction, a person includes a corporation. [¶] A person claims, makes, or presents a claim for payment by requesting payment under a contract of insurance for a loss.

[Slip Op. Page 14]

Murphy claims that she was entitled to receive payment on her insurance claim, despite her fraudulent statements made therein, so long as the jury did not find that she was under the influence of alcohol while she was driving the vehicle. The People, showing complete knowledge of insurance issues, contended that a provision of Murphy's insurance policy invalidated Murphy's claim because she falsely reported that the vehicle had been stolen. The provision provided that:

The company will not provide coverage under this policy to any person who has knowingly concealed or misrepresented any material fact or circumstance or engaged in fraudulent conduct in connection with the presentation or settlement of a claim.

Thus, the jury's determination of whether she was intoxicated at the time of the collision was irrelevant to her conviction under Count 2. The court agreed.

The Decision

Where Murphy's fraudulent statements bore on the material facts and circumstances regarding the claim, her filing of the claim was invalid. Thus, convictions would be proper in both counts because Murphy made false statements in connection with an insurance claim and made material misrepresentations regarding the facts of that claim such that her claim was invalid. Moreover, even if the court agreed with Murphy's interpretation of the requisite findings for a conviction on Count 2, it found that her contention was subsumed within the elements as presented in the instructions as given. CALCRIM No. 2000 more than adequately conveyed to the jury that it was required to find that Murphy made a fraudulent insurance claim, payment of which she was not entitled to receive.


In this case, an intoxicated Murphy crashed her car. The loss would have been covered had she honestly reported the claim. However, not wanting to admit she was drunk when the car crashed, Murphy lied—claimed the car was stolen and crashed by the thief—only to be caught, prosecuted, and convicted. She was lucky that she was only sentenced to probation rather than the 5 years in jail that was available to the court. The fraud was detected by an intelligent, thorough police officer and claims adjuster.

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