Defamation Claim Against No-Fault Insurer Dismissed -- Conclusory Allegations of Malice Found Insufficient

NO-FAULT – DEFAMATION – QUALIFIED PRIVILEGE – MALICE – INSURANCE FRAUD
Hame v. Lawson
(2nd Dept., decided 2/2/2010)

Can an insurer be sued for defamation in relation to statements it makes about the insured or claimant while it is investigating whether or after it has concluded that the claim is fraudulent?  Of course it can.  Whether such a claim or cause of action will survive a dispositive motion, however, is another thing. 

In Horbul v. Mercury Ins. Group, 64 AD3d 682 (2d Dept. 2009), the Appellate Division, Second Department, dismissed plaintiff's complaint because it did not set forth the the particular words complained of, as required by CPLR Rule 3016.  Horbul had generally alleged in his complaint that Mercury Insurance committed slander per se when it reported to the police that the plaintiff had filed a fraudulent claim with it for no-fault medical benefits for his son.

Months earlier, in LeBaron v Erie Ins. Co., 59 AD3d 939 (4th Dept. 2009), the Fourth Department affirmed the dismissal of the plaintiff's slander claim against Erie Insurance Company's special investigator, which was based on discussions the special investigator allegedly had with police.  The lower court had concluded that the special investigator's qualified privilege was not overcome by the vague and conclusory allegations set forth in plaintiff's amended complaint that the statements to the police were made with ill will or with a high degree of awareness of their probable falsity.  See, also, East Point Collision Works, Inc. v. Liberty Mut. Ins. Co., 271 AD2d 471 (2d Dept. 2000)(statements Liberty Mutual's special investigator allegedly made to the insured suggesting the possibility that plaintiff collision shop had enhanced the collision damage to the insured vehicle were found to be qualifiedly privileged because they related to something -- the extent of the damage actually caused by the accident -- in which both Liberty's investigator and the insured had a common interest; there was nothing in the record to support a finding that the special investigator acted with malice in making the alleged statements). 

This decision marks the second time in less than eight months that a defamation claim against a no-fault insurer has reached the Second Department.  In AFFIRMING Kings Supreme's granting of Response Insurance Company's CPLR Rule 3211(a)(7) motion to dismiss plaintiff's complaint for failure to state a cause of action, the Second Department held that the plaintiff was required to allege that Response's statements were made solely with malice, but failed to allege any facts from which malice could be inferred and her conclusory allegations of malice were insufficient to overcome the qualified privilege that otherwise attached to the statements Response made in its no-fault denial of claim forms.

The plaintiff in this case allegedly was struck by an automobile driven by Igal Shaul.  Plaintiff filed a claim for no-fault benefits with Shaul's insurer, Response.  After conducting an investigation, including examinations under oath of the plaintiff and Shaul, Response denied plaintiff's no-fault claim, concluding that she had made "material misrepresentations and false statements" and that the incident was a "deliberate[ly] staged event." The denial of claim form was sent to three medical providers who had treated the plaintiff. After a referee determined that Shaul had been involved in the accident, the plaintiff brought this action alleging that she had been defamed when Response sent the denial to her medical providers.

In granting Response's CPLR Rule 3211(a)(7) motion to dismiss, the Second Department found that Response's statements made in the no-fault denial of claim forms were subject to a qualified privilege as both Response and the medical providers treating the plaintiff had an interest in that communication.  The appellate court also held that plaintiff had failed to allege any facts from which malice could be inferred and her complaint's conclusory allegations of malice were insufficient to overcome the privilege:

Contrary to the plaintiff's contention, the Supreme Court properly granted the defendants' motion pursuant to CPLR 3211(a)(7) to dismiss the complaint for failure to state a cause of action. The statements made in the denial of claim form were subject to a qualified privilege as both RIC and the medical providers treating the plaintiff had an interest in that communication (see Golden v Stiso, 279 AD2d 607, 608). In order to overcome the privilege, the plaintiff was required to allege that RIC's statements were made solely with malice, either under the constitutional or common-law standard (see Liberman v Geldstein, 80 NY2d 429, 438; Rohrlich v Consolidated Bus Tr., Inc., 15 AD3d 561, 562). "The plaintiff failed to allege any facts from which malice could be inferred and [her] conclusory allegations of malice were insufficient to overcome the privilege" (Red Cap Valet v Hotel Nikko [USA], 273 AD2d 289, 290; see Rohrlich v Consolidated Bus Tr., Inc., 15 AD3d at 562; Serratore v American Port Servs., 293 AD2d 464; Freidman v Ergin, 110 AD2d 620, affd 66 NY2d 645; see also Breytman v Olinville Realty, LLC, 54 AD3d 703, 704; Baker v City of New York, 44 AD3d 977, 981).

In the seminal case of Liberman v. Gelstein,  the New York Court of Appeals noted:

Under the [New York] Times [Co. v Sullivan (376 US 254)] malice standard, the plaintiff must demonstrate that the “statements [were] made with [a] high degree of awareness of their probable falsity” (Garrison v Louisiana, 379 US 64, 74). In other words, there “must be sufficient evidence to permit the conclusion that the defendant in fact entertained serious doubts as to the truth of [the] publication” (St. Amant v Thompson, 390 US 727, 731; see also, Restatement § 600, comment b).

* * * [T]here is a critical difference between not knowing whether something is true and being highly aware that it is probably false. Only the latter establishes reckless disregard in a defamation action.

Although these decisions reflect New York's high standard for pleading defamation claims, insurers denying coverage based on fraud grounds may wish to choose carefully both the wording of their denials as well as the distribution list of the fraud-based declination letters or forms.  In no-fault claim matters, New York case law requires that denial of claim forms (NF-10s) be specific, creating a inherent tension in a fraud-based denial situation between stating enough and avoiding an allegation of defamation.   Claimant attorneys will no doubt study these decisions and attempt to fashion complaints that meet the New York courts' allegational threshold for pleading a defamation cause of action against insurers.  Something more than merely alleging that the insurer was highly aware its statements were probably false or that it acted with "ill will" or malice, however, is needed to  overcome the qualified privilege that ordinarily attaches to communications made during and as the result of the investigation of suspected insurance fraud.

H/t to David Gottlieb and his No-Fault Paradise for bringing this case to my attention.   Without "insurance" or "mutual" or "casualty" in the case name, I may have missed this one.