No Cause of Action for Libel, Slander or any Other Relevant Tort

Barry Zalma
Mar 25, 2024

Transcript

This is Barry Zalma speaking for Claim School Incorporated's blog, Zalma on Insurance.
Today we're going to explain why the California Supreme Court has concluded as early as the 1980s that an insurer by statute must report suspected fraud and when an insurer does so,
and reports fraud to the state without malice, it is immune from suits claiming defamation or other relevant torts, and there's no cause of action available for libel or slander just because they complied with the law and reported suspicion to the Department of Insurance.
Justice Broussard, writing for the California Supreme Court, dealt with a case where the plaintiff obtained a judgment for $15,271 in general damages, $250,000 for emotional distress, $1.25 million for punitive damages, and an action for misconduct of an insurer in dealing with a claim for stolen property.
The principal issue raised is whether the insurer's report to the Bureau of Fraudulent Claims was privileged so as to preclude recovery for insurance and injuries sustained as a result of a criminal proceeding.
In Clydehoe from a Thalido versus fire insurance exchange at all, the Supreme Court of California in Bank on July 24, 1986, resolved the dispute in favor of the insurer and the law.
The Supreme Court concluded that the report was privileged and that while it affirmed the judgment to the extent of the value of the stolen property, $8,871 less $100 deductible, the judgment should be reversed and was reversed as to any additional damages.
In August of 1978, plaintiff's home was burglarized and he submitted a claim for $17,185.
The insurer ultimately paid $10,784.
In late June of 1979, the house was burglarized again.
Plaintiff claimed a loss of $8,871, including $3,000 for a stereo and video equipment he claimed was bought from Matthews TV and Stereo.
Plaintiff attached a pink copy of a bill of sale to his sworn proof of loss.
The copy was one page of a five-page form.
The date 1-03-79 appeared in handwriting in the upper left-hand corner, but the cash register printout date on the right-hand side had been erased and obliterated.
The other four copies of the bill of sale had a cash register printout date of 7-19-79, which was after the second burglary.
The Bureau determined...
to investigate after receiving a report from the insurer and assigned one of its senior investigators who concluded that it appeared that insurance fraud had occurred in violation of what was then insurance code section five five six
Plaintiff was arrested at the fire station where he worked in March of 1980 by the investigator.
Plaintiff's attorney subsequently convinced the deputy district attorney that the latter could not prove beyond a reasonable doubt that the claim as opposed to the receipt was false.
The Deputy District Attorney dismissed the criminal charges on September 8, 1980, the morning of the trial, although there had been a pretrial hearing that determined that there was sufficient probable cause to take charge.
Mr. Frum with the light owed a trial.
Plaintiff's attorney subsequently convinced the deputy district attorney that the latter could not prove beyond reasonable doubt that the claim as opposed to the receipt was false.
The deputy district attorney dismissed the criminal charges on September 8, 1980, the morning of the trial.
The insurer was not advised of the existence of the witnesses that the prosecutor and the defense spoke about until after dismissal of the criminal charges.
The jury in the civil action found that plaintiff on the causes of action for breach of the duty of good faith and fair dealing, breach of fiduciary duty and violation of section 790.03.
a covenant of good faith and fair dealing is implied in every insurance contract in california insurance code section twelve nine nine two provides that an insurer which believes that a fraudulent claim is being made shall
Within 60 days after determination by the insurer that the claim appears to be a fraudulent claim, send to the Bureau of Fraudulent Claims on a form prescribed by the Department the information requested by the form.
Section 12993 provides that an insurer shall not be subject to civil liability for libel, slander, or any other relevant tort cause of action.
by virtue of the filing of reports without malice or furnishing other information without malice required by this article or required by the commissioner under the authority granted in this article.
Close quote.
The Supreme Court of California noted that when the insurer reported to the Bureau, the facts known to the insurer provided a reasonable inference of insurance fraud.
Compliance with a statutory duty to report and furnish does not provide a basis for tort liability so long as the information is accurate and complete.
A true and complete report to the Bureau is not actionable.
The malice necessary to defeat a qualified privilege is actual malice.
which is established by showing that the publication was motivated by hatred or ill will towards the plaintiff, or by a showing that the defendant lacked reasonable grounds for belief in the truth of the publication and therefore acted in reckless disregard of the plaintiff's rights.
This is from a case called Romer versus retail credit.
a 1975 decision of the California Court of Appeal.
In almost every case, if not in every case, where an insurer reports a claim believed to be fraudulent to the Bureau, the insurer stands to profit if the insured is successfully prosecuted.
However, if ability to profit warranted a finding of malice, the insurer would be required to guarantee the accuracy of information obtained and to act at its peril whenever reported information to the Bureau and the statutory privilege would then be meaningless.
The potential that the insurer may escape liability on the insured's claim is not sufficient to show malice.
Rather, the requirement of malice in the statute must be viewed as legislative determination that the insurer's pecuniary interest without more does not make the report actionable.
Once an insurer providing probable cause
to believe an insurance fraud has occurred and determines to make a report to the bureau it may properly make its report and the fact that the report is designed to secure prosecution does not show malice so long as the report does not contain known inaccuracies or is not incomplete
Application of the duty to investigate to actions based on a report by an insurer to the Bureau would be in conflict with the privilege established by Section 12993 for non-malicious reports.
The privilege applies unless the insurer acts out of hatred or ill will or in reckless disregard of the insured's right, the Supreme Court concluded.
that when an insured seeks damages on the basis of an insurer's report to the Bureau, the privilege of Section 12993 must take precedence over the ordinary duty to investigate.
In the instant case, plaintiff has failed to present evidence that the insurer acted maliciously in making its report to the Bureau.
By awarding damages for economic loss, the jury obviously determined the plaintiff suffered the loss.
The judgment was affirmed by the Supreme Court, but only insofar as it awarded plaintiff $8,771.
In all other respects, it was reversed.
Each side was required to bear their own costs, in my opinion.
This insurer, in good faith, complied with its statutory requirement to report to the state its suspicion that a fraud had been attempted.
The Fraud Bureau, now the Fraud Division, found sufficient evidence to arrest the insured, and at a preliminary hearing, a judge found there was sufficient probable cause to take Mr. Formitholito to trial.
That the prosecutor got cold feet and dismissed the case on the date of trial is not evidence of any malice on the part of the insurer, and the civil suit brought by the plaintiff failed because the insurer was protected by the privilege.
Although this case may seem to be hoary with age, it is the law of California while the statute numbers have changed.
and should provide an absolute protection to any insurer that in good faith reports a potential fraud to the fraud division of the California Department of Insurance.
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When an Insurer Reports Fraud to the State Without Malice It is Immune From Suits Claiming Defamation

No Cause of Action for Libel, Slander or any Other Relevant Tort

Post 4761

Read the full article at https://lnkd.in/gkAGjcRS, see the full video at https://lnkd.in/gFrctbzF and at https://lnkd.in/ggMBY2jU and https://zalma.com/blog plus more than 4750 posts.

This is not a new case but it is important to everyone in the insurance business in California and any other state that has similar statutes.

The principal issue raised is whether the insurer’s report to the Bureau of Fraudulent Claims (hereinafter Bureau) was privileged so as to preclude recovery for injuries sustained as a result of a criminal proceeding.

In Clydelho Frommoethelydo v. Fire Insurance Exchange et al., S.F. 24881, 228 Cal.Rptr. 160, 42 Cal.3d 208, 721 P.2d 41, Supreme Court of California, In Bank (July 24, 1986). The Supreme Court enforced the statutory privilege for reporting suspected fraud.

FACTS

In August 1978, plaintiff’s home was burglarized, and he submitted a claim for $17,185 based, in part on fraudulent documents.

DISCUSSION

The statute provides that an insurer shall not be subject to civil liability “for libel, slander or any other relevant tort cause of action by virtue of the filing of reports, without malice, or furnishing other information, without malice, required by this article or required by the commissioner under the authority granted in this article.”

The Supreme Court concluded that facts known to the insurer provided a reasonable inference of insurance fraud. A report to the Bureau is not actionable. The privilege applies unless the insurer acts out of hatred or ill will. The judgment was affirmed insofar as it awarded plaintiff $8,771. In all other respects it was reversed.

ZALMA OPINION

The insurer, in good faith, complied with its statutory requirement to report to the state its suspicion that a fraud had been attempted. The Fraud Bureau (now the Fraud Division) found sufficient evidence to arrest the insured and at a Preliminary hearing a judge found there was sufficient probable cause to take him to trial. That the prosecutor got cold feet and dismissed the case on the day of trial is not evidence of any malice on the part of the insurer and the civil suit brought by the plaintiff failed because the insurer was protected by the privilege. Although this case is hoary with age it is the law of California while the statute numbers have changed.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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