Insurer Must Report Suspected Fraud

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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

Insurer Must Report Suspected Fraud

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. 

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

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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