Insurance Claim Not Necessarily Privileged Pre-litigation Conduct

People ex rel. Fire Insurance Exchange v. Anapol
(Cal. Ct. of App., 2d Dist.), filed December 6, 2012

KEY FACTS

Fire Insurance Exchange and Mid-Century Insurance Company uncovered what they believed to be a massive insurance fraud ring engaged in the submission of false and/or inflated claims for smoke and ash damage arising from several Southern California wildfires. Fire and Mid-Century brought an action on behalf of the People of the State of California against several members of the alleged ring, including two attorneys who submitted the purportedly false insurance claims on behalf of policyholders. Fire and Mid-Century alleged both the submission of false claims and the use of cappers to obtain insureds willing to pursue such claims.

The attorneys brought motions to strike the complaint under California Code of Civil Procedure section 425.16, the “anti-SLAPP” statute. They argued that their pursuit of insurance claims and acts in obtaining clients constituted pre-litigation conduct protected by their First Amendment right to petition. The trial court denied the motions.

HOLDING & REASONING

The Court of Appeal affirmed. It ruled that the acts of seeking clients and of submitting insurance claims were not necessarily pre-litigation conduct and therefore not necessarily protected. It also ruled that under proper circumstances, submission of an insurance claim could constitute protected pre-litigation conduct.

To help illustrate its ruling, the court addressed the defendant attorneys’ argument that submission of an insurance claim is a necessary prerequisite to litigation. Although the court agreed that this was true, it also noted that “submission of an insurance claim is a necessary prerequisite to obtaining performance under the insurance contract.”

As a result, “it cannot be determined, by the mere fact of submission of a claim, that the claim has been submitted merely for adjusting or if it has been submitted in anticipation of litigation contemplated in good faith and under serious consideration.” The court helped to clarify, saying:

We can certainly envision circumstances in which an insurance claim is submitted in anticipation of litigation contemplated in good faith and under serious consideration. For example, a claim may be submitted after informal negotiations with the insurance company have proven unfruitful, and the insured has already decided to bring suit on the policy. In those circumstances, submission of the claim would be nothing more than the satisfaction of the statutory prerequisite for a suit. Similarly, an insured who has already been informed that its claim will be denied may submit the claim in the language of a demand letter, threatening suit if the claim is not paid in full. There, too, submission of the claim would qualify as a protected prelitigation statement in furtherance of the right of petition.

We hasten to add, however, that such circumstances are the exception, rather than the rule.

The court then turned to the evidence the defendant attorneys submitted in support of their assertion that the claims they presented were in anticipation of litigation. It found the evidence lacking. There was no evidence that any claim was submitted after informal negotiations with the insurance company had proven unfruitful or the insurance company had said it would not pay such a claim.

ANALYSIS

This case is the most recent among a line of cases suggesting that conduct is not a protected “right to petition” merely because the person making a demand for performance under a contract anticipates filing a subsequent lawsuit if the other person rejects the demand for performance under a contract. Two earlier cases had concluded that an insurer was not entitled to file an “anti-SLAPP” motion in an action alleging improper claims handling, even though the insurer anticipated that it would be sued if it did not pay the claim. Those cases include Gallimore v. State Farm Fire & Cas. Co., 102 Cal.App.4th 1388 (2002); Beach v. Harco Nat. Ins. Co., 110 Cal.App.4th 82 (2003).

This case applies this same principle to insureds and their representatives. The insured and/or his/her representatives may not avoid liability for allegedly fraudulent conduct by arguing that the insured’s contractual obligation to submit a claim before suing on the policy is “protected” as pre-litigation conduct, any more than the insurer can avoid liability for improper claims handling by anticipating a subsequent suit on the policy.