Stupid Plea Bargain Destroys Insurer’s Right to Restitution

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Intentionally burning a dwelling and the concomitant presentation of an insurance claims is an arson for profit and a two serious felonies. However, in The People v. Damon Lawrence George, C095325, California Court of Appeals, Third District, Placer (September 12, 2022) Damon Lawrence George was allowed by the prosecution to plead guilty only to the unlawful burning of his house. The People, failing to understand the implications upon an insurer, allowed the insurance fraud to succeed by dismissing several related charges against defendant, including insurance fraud, without obtaining a People v. Harvey (1979) 25 Cal.3d 754 (Harvey). waiver, and allowing the defendant to keep the money paid.

The trial court imposed $122,377.91 in victim restitution to defendant’s insurer and as a condition of probation. Defendant appealed, arguing: (1) his insurer did not incur economic losses as a result of his convicted crime; and (2) the restitution imposed as a condition of probation serves no rehabilitative purpose and must be stricken. Of course, Farmers suffered damages due to the arson-for-profit and the fraudulent insurance claim but the prosecution dismissed those charges.

The People charged defendant with arson of an inhabited structure; attempted arson of an inhabited structure; insurance fraud; and misdemeanor unlawful burning of an inhabited structure. Defendant pleaded no contest to count six, and the People dismissed the remaining charges without obtaining a Harvey waiver. The trial court then placed defendant on one year of informal probation and imposed fines and fees. As a condition of probation, defendant was ordered to serve 66 days in county jail with credit for time served.

In a written ruling issued after the hearing, the trial court ordered defendant to pay victim restitution to Farmers and as a condition of probation. It further concluded the payments Farmers made to defendant and the fire investigation expenses Farmers incurred constituted economic losses directly caused by the defendant’s criminal activity within the meaning of California Constitution. The restitution amount totaled $122,377.91, consisting of $81,297.66 for alternate living expenses Farmers paid to defendant, and $41,080.25 for fire investigation services.


Defendant contends: (1) Farmers did not suffer economic losses as a result of his crime of conviction and is therefore not entitled to victim restitution; and (2) the restitution as a probation condition serves no rehabilitative purpose and must be stricken.

Although a court has a constitutionally mandated duty to order restitution to a victim who “has suffered economic loss as a result of the defendant’s conduct. A business entity is a” ‘victim'” under section 1202.4 when the entity is “a direct victim of a crime.”

Direct Victim

Generally, “an insurer d[oes] not become a ‘direct victim’ of crime . . . by paying the crime-related losses of its insured under the terms of an insurance policy.” An insurance company does not become a victim of a crime simply because it “made good on its obligation”. An insurer may still have to provide coverage for reckless crimes committed by its policyholders. Insurance companies are entitled to restitution where they are the object of insurance fraud. The elements generally necessary to find a violation of insurance fraud are the defendant’s knowing presentation of a false claim, with the intent to defraud.

Unlike insurance fraud, unlawfully burning a house does not require willful conduct, but only recklessness. A violator of section 452 must not intend to cause the burning of property.

Defendant’s crime of conviction was unlawful burning, not insurance fraud. Defendant admitted only to the elements of section 452, which does not include the intent to cause the burning of his house. Also absent was evidence of defendant’s intent to defraud Farmers because the People dismissed the insurance fraud count.

While the People cited facts established in the preliminary hearing relating to the insurance fraud claim the trial court cannot order defendant to pay restitution for crimes of which he was not convicted.

The Harvey Rule And Section 1192.3

In Harvey, the California Supreme Court held “it would be improper and unfair to permit the sentencing court to consider any of the facts underlying” a count dismissed pursuant to a plea bargain “for purposes of aggravating or enhancing defendant’s sentence.”

Defendant’s admitted unlawful burning count did not result in any damage for which restitution may be ordered. Farmers’ claim for restitution rests entirely upon the dismissed insurance fraud claim, not the reckless burning.

Restitution as a Condition of Probation

A trial court is prohibited from imposing a condition of probation based on facts underlying a dismissed count absent a Harvey waiver unless those facts are “transactionally related to” the admitted offense. Since the defendant admitted only to the elements of the unlawful burning, which does not include any intent to burn his house, much less the intent to defraud Farmers the burning and the filing of the claim were, at most, temporally related. And as anomalous as the result might be in this case, defendant is entitled to coverage from Farmers for his reckless conduct since accidentally setting fire to a house is an insured against peril.

By basing the probation condition on the facts underlying the dismissed insurance fraud claim by concluding Farmers incurred economic losses “directly caused by defendant’s criminal activity,” the trial court violated the Harvey rule.

The restitution order was reversed. The judgment was modified by striking the $122,377.91 in direct victim restitution awarded to Farmers and as a condition of probation. As modified, the judgment was affirmed.

Much to the surprise of lay people – including the prosecutors in this case – arson is not an excluded peril. Arson is covered. Setting fire to your house without intent and without intent to defraud, are insured against perils. By failing to get a Harvey waiver and accepting the unlawful burning conviction and dismissing the insurance fraud and arson charges the prosecutors allowed the defendant to succeed in his fraud and only serve a few days in jail and pay small fines. Farmers, of course, can sue Mr. George for fraud in civil court and may find it impossible to collect a judgment while making restitution as a condition of probation would incentivize George to pay rather than spend years in jail. The Prosecutors blew their obligation to protect the true victim of the crime, Farmers.

(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and [email protected] and receive videos limited to subscribers of Excellence in Claims Handling at to Excellence in Claims Handling at available Barry Zalma’s newest book, The Tort of Bad Faith, available here. The new book is available as a Kindle book, a paperback or as a hard cover.

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