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 Immunity Acts
Immunity reporting acts vary from state to state, but in general provide for two things. First, they require the insurer, upon request from a designated agency or official, to turn over reports, records, and other items produced in the course of or pertaining to the investigation of a loss in which the insurer suspects fraud. Second, they provide some form of immunity to the insurer from prosecution and civil liability for releasing such records. The immunity can be a powerful weapon to defend against civil suits brought by insureds for such things as libel, slander, and malicious prosecution.
In one case, the insureds accused the insurer of having “instigated and assisted a criminal prosecution” against the insureds for arson. Harris v. USAA Cas. Ins. Co., 37 Va. Cir. 553, 554 (Va. Cir. Ct. 1994). The insureds filed an action for malicious prosecution against the insurer. Id. at 560. The court noted that under Virginia law, when a defendant swears out an arrest warrant, the defendant’s “participation” is a requisite element for a malicious prosecution action to go forward. Id. at 563. When the defendant does not take an active role in the prosecution but merely cooperates with the investigation, the defendant’s actions are not sufficient to constitute actionable participation. Id. The insureds alleged the insurer “conducted a biased, result-oriented investigation; turned over the results of the investigation to law enforcement officials; eagerly supported and encouraged the prosecution of the charges; and then testified about the misleading results of their investigations at [the insured’s] criminal trial.” Harris, 37 Va. Cir. at 564. The court found these allegations were sufficient for a charge of malicious prosecution to go forward. Id. The insurer contended that Virginia’s Arson Reporting Immunity Act rendered the insurer immune from the malicious prosecution action. Id. at 565. The court noted that the state requested a copy of the adjuster’s report by letter dated June 18, 1992. Id. The court found that the immunity act did not protect any communications before that date. Id. at 566. Also, because the state only requested the adjuster’s report, the immunity afforded by the Act extended no further than to that report. Id. Finally, the court found that the act did not provide immunity for a release of information made with “actual malice”, and the court gave the insured leave to amend his complaint to allege actual malice. Id. Virginia is not alone in exempting the release of information made with “actual malice” from the general grant of immunity. E.g., Mosby v. Liberty Mut. Ins. Co., 2 Cal. Rptr. 3d 286, 292 (Cal. App. 4th 2003) (observing California statute requiring insurers to report workers’ compensation fraud limits insurer’s immunity to reports made in good faith and without malice). If the governing statute has no such limitation, then the immunity afforded by the statute may completely absolve insurers from malicious prosecution claims. See Pearce v. U. S. Fidelity & Guar. Co., 476 So. 2d 750, 753 (Fla. 4th DCA 1985) (holding Florida’s immunity reporting statute immunizes the insurer and its employees from malicious prosecution claims). The immunity granted by the Virginia act did not extend to all communications between the insurer and the state; rather, only those communications after the state’s request and specifically responsive to the state’s request will be protected. In many states, the act authorizes and protects disclosures made on the initiative of the insurer. See Pearce, 476 So. 2d at 753 (finding it “unsound” that only reports on the Florida Department of Insurance’s form are immune from civil prosecution while informally communicated information leaves an insurer open to suit). The result in Harris may have been different in that event. Note that simply because a statute provides immunity to insurers only to the extent that they act in good faith does not mean that an insured can automatically maintain a suit for malicious prosecution. For example, Maryland’s reporting statute provides for immunity from civil liability for insurance fraud where the person reporting the fraud acted in good faith. Bricker v. Warch, 831 A.2d 453, 460 (Md. Ct. Spec. App. 2003) (citing Md. Code, Insurance, § 27-802). The insurer suspected the insured made a fraudulent injury claim and reported its suspicions to the Maryland Insurance Administration. 831 A.2d at 456. The Administration ultimately declined to prosecute the insured, and the insurer took its suspicions to the police. Id. The insured was indicted, but the trial judge granted his motion for acquittal, id. at 457. Undaunted, the insurer took the evidence it collected of the insured’s fraud to the state attorney, and apparently contacted the insured’s employer, who fired the insured. Id. Another grand jury indicted the insured, but the court again granted a motion for acquittal. Id. The insured sued the insurer for, among other things, malicious prosecution. 831 A.2d at 457. The trial court granted the insurer’s motion for summary judgment on the malicious prosecution claim, concluding that the evidence proffered by the insured did not “show the lack of good faith necessary to maintain the action.” Id. at 461. The appellate court noted that the declination of the state insurance administration to press charges did not constitute a conclusion that there was no fraud. Id. at 462. The court also noted that the state attorney concluded there was sufficient evidence of fraud to present the case to the grand jury. Id. Finding “no evidence of ‘a dishonest purpose or some moral obliquity”, the appellate court affirmed summary judgment. Id.
Because a criminal investigation and an insurer’s investigation are often simultaneous, an insured may want to claim the Fifth Amendment privilege against self incrimination1 at an examination under oath. However, most courts will not permit the insured to both invoke the privilege at an EUO and seek to recover insurance benefits without fulfilling the obligation to submit to questioning under oath. Pervis v. State Farm Fire & Cas. Co., 901 F.2d 944, 947 (11th Cir. 1990), cert. denied, 498 U.S. 899 (1990); Mello v. Hingham Mut. Fire Ins. Co., 656 N.E.2d 1247, 1251 (Mass. 1995) (citations omitted). This is true even though generally one who invokes the privilege cannot be penalized for that invocation, as such a penalty would create an impermissible compulsion to testify. Mello, 656 N.E.2d at 1250. The most common reason for this distinction offered by the courts is that the state is not compelling the testimony, but rather the insured’s own contractual obligation. Id. at 1251; Hickman v. London Assurance Corp., 195 P.2d 45, 49 (Cal. 1920). State laws that require an insurer to disclose to the state what it learns in the course of its investigation add a new layer to this line of cases. In Weathers v. Am. Family Mut. Ins. Co., the insured invoked the Fifth Amendment during her examination under oath. 793 F. Supp. 1002, 1022 (D. Kan. 1992) [Weathers II]. At trial, the insurer asserted a lack-of-cooperation defense, and the trial judge instructed the jury that it could not find the insured breached the policy if, by doing so, she was exercising her Fifth Amendment privilege. Id. The insurer objected to this by citing a number of cases, including Pervis. Id. The court noted that the insurer was complying with the Kansas Arson Reporting Immunity Act. Weathers II, 793 F. Supp. at 1022. The court found that none of the cases the insurer cited, including Pervis2, involved an insurer “conducting itself pursuant to an arson reporting immunity act,” id. The court found there was “no doubt” that any information revealed to the insurer during the insured’s examination would have been disclosed to the state for use in the criminal proceedings. Id. Because of this, the insured’s dilemma became one of breaching her insurance contract or revealing information to state authorities, which could then be used against her in a criminal prosecution. Id. The court found the insurer’s position that the insured could not invoke the Fifth Amendment at her examination “absurd” and “simply unacceptable and offensive to constitutional sensibilities.” Id. Weathers II represents a striking departure from the generally accepted rule that insureds cannot invoke the Fifth Amendment at an EUO. In State Farm Indem. Co. v. Warrington, the court noted that it was the only decision cited that held an insured could invoke the Fifth Amendment in that context. 795 A.2d 324, 328 (N.J. Super. Ct. App. Div. 2002). The sole distinction between Weathers II and the contrary weight of authority is that, in the words of the Warrington decision, the insurer “was, in effect, a conduit for information for the state’s criminal investigation.” Id. Along these same lines, an insured argued that the entry of private insurance investigators on his property, without a warrant and without the insured’s consent, violated the insured’s Fourth Amendment3 rights. Conn. v. Smith, 673 A.2d 1149, 1151 (Conn. App. Ct. 1995). The trial court held In Florida, all public records are open for personal inspection 3.The Fourth Amendment provides in part: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated . . . .” U.S. Const. amend IV. that the insurer’s investigators were agents of the state and therefore violated the insured’s rights. Id. In support of its ruling, the trial court noted that the policy of turning over insurance reports to the state was required by Connecticut’s immunity reporting act; that the state police would sensibly want to see the reports; and that the state fire marshal typically requested fire scene investigation reports from insurance companies, incorporated those reports into the marshal’s file, and provided them to the prosecutor’s office. Id. at 1152. The state argued that the trial court found that the insurer was an agent of the state by virtue of Connecticut’s immunity reporting act. Smith, 673 A.2d at 1155. The appellate court found that the Act did not require insurance investigators to act for the state or to conduct an investigation in any particular way. Id. The court noted further that the statute did not require insurers to investigate every fire, nor did the statute indicate that insurers have accepted such an endeavor. Id. Finally, the statute did not provide that the state exercised any degree of control over insurers in conducting cause and origin investigations. Id. Accordingly, the court concluded that the immunity act did not create an agency relationship between the insurer and the state by operation of law4. Id. Because the immunity act did not create an agency relationship as a matter of law, the court turned its attention to whether the particular facts of the case supported an agency relationship. Smith, 673 A.2d at 1155. There is no bright line test for determining whether a private citizen or entity is acting as an agent of the state. Id. at 1156. Some factors include whether the action was initiated by the private citizen or entity; who decides whether “the fruit of the action” is given to the state; who determined the way in which the action was conducted; and whether the private citizen or entity receives some kind of inducement from the state. Id. at 1157. The court found no evidence that the state coerced, suggested, or initiated the insurer’s investigation. Id. Instead, the court found that the investigators acted at the behest of the private insurers. Id. The court also found that there was no evidence that the state maintained any control over the insurer’s investigation, noting that while the immunity reporting act required the insurer to turn over its investigative reports, the act did not require any investigation at all. Id. Finally, the court found that while the trial court’s factual findings were largely correct, they did not equate to a finding of agency. Id.
To state a claim under 42 U.S.C. § 1983, a plaintiff must allege (1) that he has been denied a right guaranteed by the Constitution and the laws of the United States, and (2) that the defendant(s) deprived him of that right while acting under color of state law. Cromley v. Ohio Casualty Ins. Co., 1987 U.S. Dist LEXIS 8731 (E.D. Penn. 1987) (citing Adickes v. S. H. Kress & Co., 398 U.S. 144, 150 (1970)). Corporate defendants are not vicariously liable under section 1983 for the acts of their employees. Weathers v. Am. Family Mut. Ins. Co., 1990 U.S. Dist. LEXIS 12159 (D. Kan. 1990) [Weathers I] (citations omitted). Rather, corporate defendants are liable only where the plaintiff shows that their employees acted pursuant to corporate policy or custom. Id. It is not enough to show that an insurance investigator acted pursuant to an insurer’s policies or customs in investigating a fire; rather, the inquiry is whether the alleged unconstitutional acts were performed pursuant to such policies or customs. Id. The upshot of this is that an insurer will generally not be liable under section 1983 for its investigator’s actions. However, an investigator could be so liable under certain circumstances. Cromley, 1987 U.S. Dist. LEXIS 8731 (holding that where insured alleged insurance investigator acted in concert with state law enforcement officer to maliciously prosecute insured, the insured presented a jury question on whether the investigator and officer conspired to maliciously prosecute insured. If the jury so found, the investigator was considered a state actor for section 1983 purposes). In Hatch v. State Farm Fire & Casualty Co., the insured argued the insurer “promoted” the arson prosecution of the insured and therefore violated the insured’s civil rights. 842 P.2d 1089, 1094 (Wyo. 1992). The insureds argued that the insurer “secretly provided” portions of their investigative findings to the state and withheld exculpatory evidence. Id. at 1095. In support of their argument that the insurer acted under color of state law, the insureds cited the Wyoming Arson Reporting Immunity Act. Id. at 1096. The Supreme Court of Wyoming found that the “[s]upplying of information concerning suspected arson to state authorities, standing alone, is not enough to amount to ‘joint activity.’”. Hatch, 842 P.2d at 1096. The court cited the “two-part approach” to determine whether a given action was done under color of state law. Id. First, the deprivation must be caused by the exercise of some right or privilege created by the state or by a rule of conduct imposed by the state. Id. Second, the party charged with the deprivation must be a person who may be fairly said to be a state actor. Id. The Court found that the insurer’s conduct did not satisfy either aspect of this test. Id. The insurer was not exercising a right or privilege created by the state, but was rather complying with a requirement of the state. Id. Second, the insured did not allege that the insurer acted together with or received aid from state officials. Id. Accordingly, the court affirmed the trial court’s grant of summary judgment for the insurer on the insureds’ section 1983 claim. Many states have very broad public records laws. Florida is a prime example; all public records in Florida are open for personal inspection by any person. § 119.01, Fla. Stat. (2003). Florida’s public records law “excludes any judicially created privilege of confidentiality and exempts from public disclosure only those public records that are provided by statutory law to be confidential or which are expressly exempted by general or special law.” Wait v. Fla. Power & Light Co., 372 So. 2d 420, 425 (Fla. 1979). In other words, unless the Florida statutes expressly exempt a given public record from disclosure, it must be disclosed. “Public record” means “all documents, papers, letters, maps, books, tapes, photographs, films, sound recordings, data processing software, or other material, regardless of the physical form, characteristics, or means of transmission, made or received pursuant to law or ordinance or in connection with the transaction of official business by any agency.” § 119.011, Fla. Stat. (2003) (emphasis added). The Florida State Fire Marshal or any law enforcement officer who is investigating a loss caused by fire “may request any insurance company or its agent, adjuster, employee, or attorney, investigating a claim under an insurance policy or contract with respect to a fire to release any information whatsoever in the possession of the insurance company or its agent, adjuster, employee, or attorney relative to a loss from that fire.” § 633.175, Fla. Stat. (2003). When this happens, the insurer “shall release the available information to and cooperate with any official authorized to request such information pursuant to this section.” Id. The information falling within the scope of this section includes, but is not limited to: 1. The policy; 2. The premium payment records; 3. Records of previous claims; 4. Material gathered in the course of the investigation, including witness statements and proof of loss; and 5. Memoranda, notes, and correspondence pertaining to the investigation of the loss in the possession of the insurance company or its agents, adjusters, employees, or attorneys. Id. To sum up, a public record includes anything “received” by an agency “pursuant to law or ordinance or in connection with the transaction of official business by any agency”. Upon its request, the State Fire Marshal or other state agent receives, pursuant to law or in connection with the transaction of official business, all documentation of an insurer’s investigation, including confidential memoranda authored by its lawyers. Thus, the information the State Fire Marshal receives from an insurer in the course of a fire investigation is a public record. As such, it must be disclosed to anyone who requests them, including the insured, unless a statute exempts it from disclosure. Wait, 372 So. 2d at 425. The Florida statutes provide for a limited exemption to the public records law for this information. § 633.111, Fla. Stat. (2003). Specifically, the records are exempt from the public records law “until the investigation is completed or ceases to be active.” Id. An investigation is “active” so long as it is being conducted by the department with a reasonable, good faith belief that it may lead to the filing of administrative, civil, or criminal proceedings. An investigation does not cease to be active if the department is proceeding with reasonable dispatch, and there is a good faith belief that action may be initiated by the department or other administrative or law enforcement agency. Id. The flip side is that if an investigation is no longer active, the items received are no longer exempt from the public records law. Id. While most of the material insurers disclose to the State Fire Marshal is subject to civil discovery anyway, some items, such as memoranda reflecting the insurer’s mental impressions, letters from the insurer to counsel seeking legal advice, or reports prepared in anticipation of litigation, would ordinarily not be discoverable. Understandably, insurers do not want insureds in an adversarial posture to have these items. Florida’s immunity law provides that an insurer’s compliance with its obligations does not waive or abandon any privilege, specifically including the work product doctrine and the lawyer-client privilege. § 633.175(6), Fla. Stat. (2003). However, in other contexts, the Supreme Court of Florida has found that the work product doctrine and the lawyer-client privilege are not exceptions to the public records law. Wait, 372 So. 2d at 424; see also SePRO Corp. v. Florida Dept. of Environmental Protection, 839 So. 2d 781, 784 (Fla. 1st DCA 2003) (“It is of no consequence that [a party furnishing information] wishes to maintain the privacy of particular materials filed with the department, unless such materials fall within a legislatively created exemption to Ch. 119, F.S.”.) An insurer could argue that the statutory provision preserving all privileges has to mean something, and allowing an insured to receive otherwise privileged documents as public records would effectively nullify that provision. In response, an insured could argue that a client generally waives a document’s privilege by disclosing the document to a stranger to the lawyer/client relationship. U.S. v. Ortland, 109 F.3d 539, 543 (9th Cir. 1997) (“[I]n order to waive the attorney-client privilege, the client must disclose the contents of a confidential communication.”). Under this provision, the insurer does not waive the privilege by virtue of disclosure to the State Fire Marshal. The practical effect attaches in litigation between the insurer and insured when the insured asks for privileged documents from the insurer. The insurer can legitimately claim privilege despite the disclosure of those documents to a third party. There are no reported decisions applying Florida law on this issue. Over time, insurers have developed several ways to deal with this problem. Some insurers simply refuse to cooperate with the State Fire Marshal’s request for information. This is against the law, § 633.175(8), Fla. Stat., and subjects anyone who refused to criminal prosecution, § 633.175(9), Fla. Stat. Moreover, courts have held that failure to comply with immunity reporting acts may be considered evidence of an insurer’s bad faith. Thomas v. Farm Bureau Ins. Co. of Arkansas, Inc., 698 S.W.2d 508, 510 (Ark. 1985). In Thomas, the court reasoned that if the insurer honestly believed the insured was guilty of arson, it should have complied with the immunity reporting act. Id. Failure to do so could be offered as evidence that the insurer’s affirmative defense of arson was just a ruse. See id. Other insurers ask the State Fire Marshal for the documents back when the investigation is complete, and the State Fire Marshal agrees to do so in many cases. This is almost as improper as refusing disclosure altogether. The State Fire Marshal is supposed to keep a record of all fires investigated and all facts and evidence concerning those fires. § 633.111, Fla. Stat. Simply turning over public records to the insurer violates the storage and disposal provisions of the public records law, §§ 119.031; 119.041, Fla. Stat., subjecting the State Fire Marshal to fines, § 119.10(1), Fla. Stat., criminal prosecution, § 119.10(2), (3), Fla. Stat.; attorney’s fees, § 119.12, Fla. Stat., and suspension or removal from office, § 119.02, Fla. Stat. Moreover, someone could simply demand the record from the insurer to whom the record was returned. § 119.06, Fla. Stat. The insurer must return the records to the State Fire Marshal within 10 days of the demand or be subject to fines and criminal prosecution. § 119.10, Fla. Stat. Other insurers have filed lawsuits to enjoin the State Fire Marshal from disclosing confidential materials. Insurers have had some success in getting the State Fire Marshal to agree to entry of an injunction5. These injunctions may not have any legal force at all, as courts cannot create exemptions to the public records law. Wait, 372 So. 2d at 425. So far, however, no insured has challenged them. The injunction route is effective (so long, at least, as nobody challenges it), but somewhat cumbersome and expensive. Probably the best solution is to attack the problem from the front end. When the insurer receives a request from the State Fire Marshal for investigative records, the requests are often quite broad. An insurer with a good relationship with the State Fire Marshal should contact the investigator’s office and ask what they really need and convey the insurer’s concerns over sensitive documents. These discussions are confidential and exempt from section 286.0116. § 633.175(5), Fla. Stat. Often, the insurer can convince the State Fire Marshal to narrow the request and can come up with creative ways to provide the State Fire Marshal with the information it needs and protect confidential records at the same time. While all state immunity reporting laws provide that an insurer must respond to a request for information from the state, some states provide for a reciprocal exchange by which the state must also share information with the insurer. In Front Royal Ins. Co. v. Gold Players, Inc., the insurer received information from various “authorized agencies” pursuant to Virginia’s Arson Reporting Immunity Act7. 187 F.R.D. 252, 254 (W.D. Va. 1999). The Act provided that any insurer who receives information under the Act “shall hold the information in confidence until such time as its release is required pursuant to a criminal or civil proceeding . . . .” Id. (citing Va. Code Ann. § 27-85.6). The insured requested, through civil discovery devices, information the insurer received from various state agencies. Front Royal Ins., 187 F.R.D. at 254. The insurer refused, arguing that the Act precluded it from voluntarily producing this information. Id. The court held that the Act did not require a party to obtain a court order before producing documents that it has received pursuant to the Act. Id. at 255. Immunity reporting acts keep the lines of communication open between public and private claim investigators through a combination of carrot and stick. The specific language of the particular immunity act at issue will determine the extent of the insurer’s immunity. Careful practice dictates that an insurer should assume that only those disclosures made in good faith will be immune from suit. Compliance with immunity acts in itself does not appear to convert an insurer’s actions into state action. This is crucial because the law constrains many aspects of state activity but does not infringe upon private actors undertaking the same activity. However, Weathers II may well portend further travel down this unwelcome road. This developing area of law should be monitored closely. 1 The amendment provides in part that “no person . . .shall be compelled in any criminal case to be a witness against himself . . . .” U.S. Const. amend. V.
2 Actually, the insured in Pervis argued that the insurer only sought an EUO after it became aware of a grand jury indictment, which the insurer assisted prosecutors in obtaining. 901 F.2d at 946 n.4. The insurer maintained that it did not know about the indictment before it requested the EUO, and at any rate was required to cooperate with law enforcement. Id. The court found that “[w]hether or not [the insurer] knew of and cooperated with the prosecution of [the insured], [the insurer] was entitled under the contract to seek a sworn statement and [the insured] is not excused for this reason.”
3 The Fourth Amendment provides in part: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated . . . .” U.S. Const. amend IV.
4 The reasoning of the court’s opinion on this point could be an effective counterweight to the Fifth Amendment ruling in Weathers II. In Smith, the court observed that “[s]tate action can exist by legislative fiat only when the legislation confers on private parties a power that traditionally belongs to the government and grants coercive power or provides significant overt or covert encouragement to private parties to engage in a particular act.” 673 A.2d at 1155 (citing San Francisco Arts & Athletics v. U.S.O.C., 483 U.S. 522 (1987)). An insurer could argue that a state immunity act does not confer upon them a power that traditionally belongs to the government, as the contractual right to question insureds under oath about their claim is long-standing and exists quite apart from the state. Moreover, the immunity acts do not grant coercive power to the insurers. (In Mello, the insured apparently argued that because Massachusetts prescribes policy terms by statute, by requiring a provision for questioning under oath, the state effectively mandated an EUO. Mello, 656 N.E.2d at 1247. The court rejected this argument, noting this statute “was but a statutory restatement and formalization . . . of the general obligation of insureds in many kinds of contracts of insurance to cooperate with the insurer in the investigation and verification of his claim.” Id. at 1247 n.6.) Finally, immunity acts do not overtly or covertly encourage the insurer to take EUO’s; insurers have plenty of incentive to do so without an immunity act. Accordingly, the insurer could argue that the immunity act does not convert taking an EUO into state action for Fifth Amendment purposes.
5 A lawyer with the State Fire Marshal’s office has stated that the public policy of Florida should be that the records of the insurance company must remain confidential.
6 This section provides that meetings of any state agency are generally open to the public.
7 This act allows insurers to receive “relevant information” regarding a fire loss from certain “authorized agencies”. Va. Code. Ann. § 27-85.5(D). |
