Employer’s False Statements Opposing Workers' Compensation Claim Not Privileged Against Liability Under the Insurance Frauds Prevention Act

by Haight Brown & Bonesteel LLP
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In People ex rel. etc. v. Hebb (No. E066471, filed 12/19/17), a California appeals court held that false or fraudulent statements given in opposition to a workers’ compensation claim are not privileged from liability under the Insurance Frauds Prevention Act (IFPA) (Ins. Code, § 1871 et seq.), on the principle that the litigation privilege of Civil Code section 47(b), like any statute, is subject to the rule that a particular statutory provision prevails over a general one.

In Hebb, the plaintiff was the employee of a transit agency in Riverside County injured on the job. When his workers’ compensation claim was denied he brought a qui tam action against the transit agency and his supervisor for violations of the IFPA, alleging that the supervisor made false and fraudulent statements that caused his claim to be rejected. The supervisor had denied witnessing the incident or having ordered the plaintiff to lift heavy sacks of concrete mix while knowing of a prior injury, and despite the plaintiff’s protests.

Under the IFPA, any person who makes a false claim for workers’ compensation benefits, or who presents a false or fraudulent statement in support of or in opposition to such a claim, is guilty of a felony wobbler. (Ins. Code, § 1871.4(b).) In addition, the IFPA provides for civil liability, including a civil penalty of not less than five thousand dollars nor more than ten thousand dollars, plus an assessment of not more than three times the amount of each claim for compensation. (Ins. Code, § 1871.7(b).)

Among other things, the employee alleged that the supervisor’s misrepresentations were “in violation of Penal Code § 550, which is a predicate offense for an action under the Insurance Frauds Prevention Act.” Penal Code section 550 provides that it is unlawful to “[p]resent or cause to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy.”

The transit agency and the supervisor responded with a motion for judgment on the pleadings, arguing that the allegedly false and fraudulent statements were made in connection with a workers’ compensation proceeding and, therefore, protected by the litigation privilege under Civil Code section 47. The trial court agreed, and dismissed the case.

But the appeals court reversed, citing the principle that “the litigation privilege does not bar an action filed under a more specific statute when application of the privilege would render the specific provision ‘significantly or wholly inoperable.’” According to the Hebb court, “The IFPA is a more specific statute than the litigation privilege, and application of the litigation privilege to claims under the IFPA—which in many cases will be based on communications that are otherwise privileged under Civil Code section 47(b)—would in large measure nullify the Act.”

The trial court had acknowledged that the general litigation privilege must yield when immunity would render a more specific statute to be significantly or wholly inoperable, but had concluded that application of the privilege in this case would not frustrate enforcement of the IFPA, saying that Penal Code section 550, which lists the predicate offenses for liability under the IFPA, “prohibits a wide array of conduct related to the false submission of insurance claims, most of which could arise before litigation is ever contemplated,” and citing as examples: causing a vehicular accident for the purpose of filing a false insurance claim, and misrepresenting an insured’s state of domicile when obtaining motor vehicle insurance.

The appeals court rejected that conclusion, stating that although the IFPA was drafted primarily to address fraudulent claims for workers’ compensation benefits filed by employees, it is not only concerned with fraudulent claims, but also specifically addresses employers who fraudulently fail to comply with their obligations under the Workers Compensation Act. In addition, the appeals court pointed out that Penal Code sections 550(b)(1) and (b)(2), also “extend liability to persons other than those who actually file the suspect claim” for workers’ compensation benefits. “These provisions might apply, for example, to a doctor who submits false documentation in support of an employee’s claim for benefits under a workers’ compensation policy, or an employer who makes a false statement in opposition to such a claim, or to a person who files a false statement in support of an insured’s claim under a disability policy, and extends as well to anyone who knowingly assists or conspires to do any of these things.” (Citing State of California ex rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442, 450.)

The Hebb court held that although the litigation privilege bars tort liability for communications that are made in judicial and quasi-judicial proceedings, such as workers’ compensation proceedings, the IFPA is an exception to the litigation privilege. The court cited as other examples of exceptions to the litigation privilege also based on statutory liability cases involving reports of child abuse; tenant harassment; and illegal debt collection practices. For balance, the Hebb court also cited a contrary example where a violation of the statutory Confidentiality of Medical Information Act was deemed not an exception to the litigation privilege, because applying the privilege would advance rather than frustrate the purpose of the more specific statute.

But the Hebb court found it instructive that the Legislature had provided civil liability for fraudulent communications related to claims for insurance benefits, including liability for communications that would otherwise be at the core of the privilege. According to the court, “This strongly suggests the Legislature balanced the public interest in preventing insurance fraud with the interest in encouraging free and unfettered communications in litigation, and ‘struck that balance’ in favor of preventing insurance fraud.” Thus, the Hebb court ultimately held that the litigation privilege does not bar a claim under the IFPA:

“[W]e conclude application of the litigation privilege would render the IFPA significantly inoperable.... We agree there may be various ways of violating Penal Code section 550, and incurring liability under the IFPA, that do not involve actual or contemplated litigation. But we need not conclude that the litigation privilege would render the IFPA wholly inoperable before finding an exception to the privilege. A significant amount of fraud governed by the IFPA will occur during or in contemplation of litigation. Relevant here, false statements made by an employer, witness, or physician, casting doubt on the validity of a legitimate claim for workers’ compensation benefits, are made in the context of a quasi-judicial proceeding and absent an exception would be subject to the litigation privilege. [] It is not difficult to imagine other types of insurance fraud that would potentially trigger the protections of the litigation privilege. Applying the privilege to such acts of fraud, in a remedial action under the IFPA, ‘would effectively render the protections afforded by [the Act] meaningless.’ [] Therefore, we conclude [the employee’s] claims under the IFPA are not barred by the litigation privilege, and the trial court erred by granting judgment for defendants based on the privilege.”

Having disposed of the privilege claim, the Hebb court also ruled that the employee’s IFPA claim was not subject to the exclusivity of workers compensation because, “[l]ike any qui tam lawsuit, [the employee’s] claim under the IFPA is based on an injury suffered by the People, not based on any injury he himself suffered. Therefore, the exclusivity rule is inapplicable.”

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