MAXWELL V. AIG Prepared for: New England Association of Insurance Fraud Investigators September 9, 2011 Materials Prepared By: David O. Brink, Esq. Andrew T. Apjohn, Esq. Smith & Brink, P.C. 350 Granite Street Suite 2303 Braintree, MA 02184 Office: (617) 657-0120 Mobile: (617) 593-4180 firstname.lastname@example.org email@example.com
St.1996 c.427, § 13(i) “[A]ny person engaged in the business of insurance in the commonwealth… having reason to believe that an insurance transaction may be fraudulent, or having knowledge that a fraudulent insurance transaction is about to take place, or has taken place, shall within thirty days after determination that the transaction may be fraudulent, send to said insurance fraud bureau, on a form prescribed by the executive director, the information requested by the form and such additional information relative to the transaction and the parties involved as to the executive director may require.”
St.1996 c.427, § 13(i)(continued) “In the absence of malice or bad faith, no insurer, member of said insurance fraud bureau, member of said governing board, or an employee or agent of said insurance fraud bureau or other person subject to the provisions of this section, or an employee or agent of such insurer or person, shall be subject to civil liability for damages by reason of any statement, report, or investigation.”
G.L. c. 148, §32 (The Arson Immunity Statute) “If an insurance company has reason to suspect that a fire loss to its insured’s real or personal property was caused by incendiary means, the company shall furnish the marshal or any of the aforementioned departments or agencies with all relevant materials acquired during its investigation of the fire loss, cooperate with the marshal or any of the aforementioned department or agencies, and take such action as the marshal or any of the aforementioned departments or agencies may reasonably request.”
G.L. c. 148, §32 (The Arson Immunity Statute) “In the absence of fraud, malice or criminal act, no insurance company, or person who furnished information on its behalf, or any duly licensed insurance agent or broker, or any employee of such agent or broker, through whom the policy was issued nor any member of the local municipal arson squad of the fire or police department shall be liable for damages in a civil action or subject to criminal prosecution for anyconduct reasonablyundertaken pursuant to the provisions of this section.”
G.L. c. 175, § 113H (The S.I.U. Immunity Statute) “No insurer acting as servicing carrier of the plan, or their employees or agents, no member company, employee or agent, or any employee of the plan or any official or officer of any law enforcement agency, shall be subject to civil or criminal liability in a cause of action of any kind for furnishing any evidence or information to any specific investigative unit created pursuant to this section, its employees or any law enforcement agency or any other insurer relating to an investigation conducted involving losses under liability or physical damage coverages for motor vehicles.”
G.L. c. 152, § 14(2) “If it is determined that in any proceeding within the division of dispute resolution, a party, including an attorney or expert medical witness acting on behalf of an employee or insurer, concealed or knowingly failed to disclose that which is required by law to be revealed, knowingly used perjured testimony or false evidence, knowingly made a false statement of fact or law, participated in the creation or presentation of evidence which he knows to be false, or otherwise engaged in conduct that such party knew to be illegal or fraudulent, the party’s conduct shall be reported to the general counsel of the insurance fraud bureau. Notwithstanding any action the insurance fraud bureau may take, the party shall be assessed, in addition to the whole costs of such proceedings and attorneys’ fees, a penalty payable to the aggrieved insurer or employee, in an amount not less than the average weekly wage in the commonwealth multiplied by six.
G.L. c. 152, § 14(2)(continued) “A copy of any order or decision requiring the payment of penalties by an attorney under this section shall be referred to the board of bar overseers. Any expert medical witness who knowingly makes false statements in any medical report or deposition or who provides testimony of any kind in a proceeding under this chapter on behalf of a party he knows to be engaging in a fraudulent claim or defense, shall be subject to the same penalties applicable to attorneys herein. A copy of any order or decision requiring the payment of penalties by a physician under this section shall be reported to the appropriate board of registration.”
Maxwell v. AIG Maxwell, a workers' compensation claimant, filed suit against Defendant insurer, alleging claims of malicious prosecution, infliction of emotional distress, abuse of process, and violations of Mass. Gen. Laws Ann. ch. 93A and 176D. The claims of malicious prosecution, infliction of emotional distress, and abuse of process all stemmed from the claimant's prosecution for larceny over $250 and workers' compensation fraud after the insurer filed a report with the Insurance Fraud Bureau (IFB). The claimant argued the insurer encouraged the criminal proceeding and contacted the probation department, seeking to revoke his probation, in order to avoid paying benefits. The insurer argued that it was entitled to summary judgment because reports to the IFB were subject to immunity under 1996 Mass. Acts 427, § 13(i). However, the insurer was not entitled to summary judgment on grounds of § 13(i) immunity because the fraud reporting statute did not envision that, following a report to the IFB, the insurer would take an active role in pressing any ensuing criminal prosecution. The insurer acted outside § 13 by inserting itself into the prosecutorial process and was not entitled to immunity. Further, the action was not barred by the exclusivity provision of the Workers' Compensation Act, Mass. Gen. Laws Ann. ch. 152, § 24, because the insurer's conduct had nothing to do with its claims handing.
Duty of Reasonable Investigation Under G.L. c. 427, §13, any insurer with a reason to believe that an insurance transaction may be fraudulent has a mandatory obligation to report the transaction to the insurance fraud bureau. The standard for insurer reporting, where there is a “reason to believe” that a transaction “may be fraudulent” establishes a low threshold of suspicion before the insurer’s duty to report is triggered. The statute contains a broad grant of immunity regarding communication with the IFB to minimize insurer hesitation and maximize reporting. By providing immunity from civil liability for damage by reason of any statement, report, or investigation, the statute clearly intends to ensure that where there are any questions, insurers will err on the side of over reporting suspicious activity to the IFB.
Duty of Reasonable Investigation(continued) Erring on the side of over reporting to the IFB ensures prompt reporting and a removal of disincentives to reporting potentially fraudulent activity. Placing a duty of reasonable investigation to support the reason to believe that a transaction may be fraudulent would force insurers to delay reporting to the IFB until investigations were completed and would deter insurers from reporting in the absence of solid evidence. In addition to deterring insurers from reporting to the IFB, placing a duty of reasonable investigation on the insurers would change the obligations laid out in the statute. Under the statute, the duty to investigate potentially fraudulent transactions and dismiss erroneous reports is a duty for the IFB.
Duty of Reasonable Investigation(continued) While an insurer must report when they have reason to believe there is a fraudulent transaction, it is the IFB’s obligation to investigate these transactions and when satisfied that there is a material fraud, refer to the matter to the attorney general. The duty to reasonably investigate and either refer for prosecution or to close without action is thus a duty for the IFB. This allows the insurer to be shielded by the immunity statute for reporting, in good faith, a potentially fraudulent transaction so that it may be investigated.
In the Absence of Malice or Bad Faith – Burden of Proof Immunity is clearly available in “the absence of malice or bad faith”. The statute, however, does not explicitly detail which party has the burden of proof that the act was done in the absence of malice or bad faith. Massachusetts decisions have all held that once immunity has been invoked, the burden of overcoming immunity rests exclusively with the plaintiff. It is not the insurance company’s obligation to show that it undertook a reasonable investigation and therefore acted without malice, but rather the burden is on the plaintiff to demonstrate the reporting or investigation was done with malice or in bad faith. Attempting to make the insurance company prove that they complied with the statute as a defense goes against the terms of the statute.
In the Absence of Malice or Bad Faith – Burden of Proof(continued) Proving compliance with the statute would place an undue burden and restraint on the insurance companies’ responsibility to report possible fraudulent transactions. Accordingly, insurers, upon having reason to believe a transaction is fraudulent, do not need to defend their investigation when reporting potentially fraudulent conduct to the IFB. Where a claimant alleges that an insurer has acted in furtherance of its private interest and has abused the qualified privileges available under St. 1996, c. 427, §13 (i), the court will refuse to shield the insurer from tort liability, but only after the plaintiff has met their burden of showing that the insurer acted maliciously or in bad faith.
Qualifications for Immunity Pursuant to St. 1996, c. 427, §13 (i), immunity applies to “any statement, report or investigation” made in compliance with the statute. The statute indicates this immunity will therefore exist during the reporting of any potentially suspicious activity or transaction to the IFB. The statute, however, will not provide immunity for actions that are outside the scope of reporting or investigation potentially fraudulent transactions. The reporting statute no longer takes into account or envision an insurer taking actions past the point of reporting or investigating a matter. St. 1996, c. 427, §13 is “designed to keep insurers at a healthy remove from the prosecutorial process so that their financial interests in securing a fraud conviction does not result in overbearing or oppressive conduct.” When an insurer acts outside St. 1996, c. 427, §13, inserts itself into the prosecutorial process, or acts in bad faith, the insurer is seen not to be acting within the terms of the statute and is thus not entitled to statutory immunity.
Qualifications for Immunity (continued) The Court held that an insurer who is lobbying to secure incarceration to avoid paying benefits is not qualified immunity under St. 1996, c. 427, §13. There is no provision under St. 1996, c. 427, §13 that protects insurers for contacting the probation department or appealing to prosecutors to have a claimant’s probation revoked. The Court held that such conduct is collateral to the reporting process and claims brought as a result of such action cannot be barred by St. 1996, c. 427, §13. Communication with prosecutors and the probation department, when not done in cooperation of an investigation or to provide requested information, is not conduct to which the insurer can claim immunity under St. 1996, c. 427, §13.
Commonwealth v. Ellis The Defendants, who were a partner, of counsel, employee, or client of the former Worcester law firm Ellis & Ellis, were charged with insurance fraud and other related offenses. The Defendant, James N. Ellis, Jr., moved to dismiss the indictment against him, in a motion which the other named Defendants joined, disputing the partiality of the prosecuting attorneys. Ellis claimed that the Attorney General’s office was nota disinterested prosecutor, as the statutorily prescribed funding scheme for insurance company underwriting of the costs of investigations and prosecutions conducted by the insurance fraud division of the Attorney General’s office was unconstitutional and violated due process. On review, the Court determined that a possibility of improper influence of private interests on the exercise of prosecutorial discretion did exist due to the funding of the Attorney General’s office by the private insurance companies.
Commonwealth v. Ellis(continued) The Court, in citing the holding from Commonwealth v. Tabor, demonstrated that the prosecuting attorney’s obligation is to secure a fair and impartial trial for the public and Defendant. Due to this obligation, a district attorney may not compromise his impartiality. The Court further reasoned that routine cooperation from a victim of a crime is often necessary and encouraged. Allowing insurance companies to assist financially or otherwise, in the investigation and prosecution of crimes, is thus in the public’s interest. Having failed to demonstrate that the Attorney General’s office breached its obligation to remain impartial or that the insurance companies’ assistance in the investigation and prosecution of crimes violated anyconstitutional rights, the Court affirmed the order denying the Defendants’ motion to dismiss.
Commonwealth v. Sbordone The Defendant, Gary Sbordone, was a chiropractor who had been indicted on fifty-eight indictments, twelve charging larceny, nine charging attempted larceny, thirty six charging insurance fraud, and one charging presentation of a false claim to the Commonwealth. Sbordone filed a motion to suppress the evidence seized from his office, which formed the basis of the criminal indictment. Sbordone alleged that because the search warrant had been executed with the active participation of a civilian (an investigator for the Insurance Fraud Bureau), it was in violation of Article 14 of the Massachusetts Declaration of Rights and G.L.c. 276, §2. The Superior Court judge allowed Sbordone’s motion and ordered the records suppressed. On appeal, the Supreme Judicial Court of Massachusetts vacated the judge’s order of suppression. The SJC held that while the Superior Court judge had correctly ruled that civilian participation in the execution of search warrants was permissible in certain circumstances, the civilian exceeded the scope of his permissive participation in the search.
Commonwealth v. Sbordone(continued) The SJC further held that while the officers executing the warrant should have limited the civilian’s role (to remaining present to assist the officers with any technical questions) the evidence seized in this situation was not automatically excludable, as the evidence would have still been discovered. Under the Inevitable Discovery Doctrine, if the Commonwealth can demonstrate that discovery of the evidence by lawful means was certain as a practical matter, the evidence may be admitted on the condition that the officers did not act in bad faith to accelerate the discovery of the evidence. The Court concluded that the civilian participation in this case was not so severe as to require exclusion, because the civilian involved was an investigator in the Commonwealth. The SJC ruled that the evidence was admissible under the Inevitable Discovery Doctrine and vacated the order of suppression.
Daniels v. Liberty Mut. Ins. Co. After having been acquitted of criminal charges stemming from alleged insurance fraud, Rick and Anna Daniels sued their insurance company, Liberty Mutual, and the NICB for malicious prosecution. The Daniels alleged that the NICB and their investigator, Joseph Jaskolski, maliciously prosecuted them by intentionally causing the federal criminal prosecution to be instituted again them. Jaskolski and the NICB notified the United States Attorney of the suit under 28 U.S.C. section 2679(c), and asked the United States Attorney to certify that Jaskolski was acting as an "employee of the government". The United States Attorney sent the request to the Department of Justice in Washington, D.C., who declined to issue the section 2679 certification. The Defendants filed a petition seeking an order that Jaskolski was an “employee of the government” and thus immune to suit under the Federal Employee Litigation Reform and Tort Compensation Act.
Daniels v. Liberty Mut. Ins. Co.(continued) The Court held that the facts established that the government did not have the authority to control and direct Jaskolski’s actions in the investigation and prosecution. The NICB and Jaskolski offered evidence revealing that Jaskolski was the primary moving force behind the Daniels’ investigation and prosecution as he not only referred the case to the FBI but assisted the FBI agents in conducting the investigation. Although it was clear that the Jaskolski and the FBI were working together, there was no evidence on record to show that the government had the authority to control Jaskolski’s day-to-day activities. The Court further held that while Jaskolski may have done everything the FBI agents asked him to do, it did not mean that the FBI agents had the power to coerce Jaskolski into doing things at their will. Accordingly, the Court ruled that Jaskolski could not be found to be an “employee of the government”, and as such, was not immune to suit under the Federal Employee Litigation Reform and Tort Compensation Act.
State Farm Fire & Casualty Company v. Joseph Martin Radcliff State Farm alleged that Radcliff defrauded the company out of $1.75 million after hail storms in 2006. The allegations contended that Radcliff intentionally damaged roofs to increase the insurance payouts. In addition to the claims of insurance of insurance fraud, State Farm instigated the filing of felony charges. As a result, Radcliff was arrested in September 2008 and was charged with 14 counts of fraud, corruption, and criminal mischief. The criminal charges were eventually dismissed by the Marion County Prosecutor. Radcliff, however, alleged that as a result of State Farm’s unfounded claims of fraud, his reputation and business were destroyed by the negative publicity. This negative publicity spread online, where internet search results of Radcliff’s name resulted in reports of his arrest and consumer sites warning homeowners about Radcliff’s construction company. After a six week civil suit, a jury awarded Radcliff and CPM Construction with a $14.5 million verdict, finding that State Farm’s claims were not only baseless but as a result of State Farm’s actions, the allegations of defamation were true.
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