It is not Defamation to Report a Suspected Fraud to the State
Insurer’s Report to Insurance Fraud Authorities is Privileged
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Cholla Bay Hotel Group LLC; CBHG Management S.A. DE C.V.; Desert Springs Equestrian Center LLC (“DSEC”); and Lorilei Peters (collectively “CBHG”) appealed from the trial court’s grant of summary judgment in favor of Farm Bureau Financial Services, its “affiliate,” Western Agricultural Insurance Company, and Paul Cully (collectively “Farm Bureau”), and the ultimate dismissal of its claims. In CBHG Management, S.A. de C.V., a foreign corporation; Cholla Bay Hotel Group, an Arizona corporation; Desert Springs Equestrian Center, LLC, an Arizona limited liability company; and Lorilei Peters, in her individual capacity v. Farm Bureau Financial Services, a foreign corporation, and Paul Cully, No. 2 CA-CV 2020-0111, Court of Appeals of Arizona, Second Division (August 6, 2021) the Court of Appeals was asked to reverse the trial court’s judgment.
FACTUAL BACKGROUND
CBHG sued Farm Bureau and Cully for tortious interference in business expectancy, contract, and defamation. In its complaint, CBHG alleged that a Mexican government agency had approved it to hold and use a gaming license within Mexico. It further alleged that it had received approval for a fifteen-million-dollar loan to construct a hotel and casino in Puerto Penasco, a coastal town in the state of Sonora. That development loan was, according to the complaint, guaranteed by the Mexican government and funded by a group of commercial banks, Grupo Financiero IMBURSA (“GFI”), each of which had hired private investigators to conduct background investigations of CBHG.
CBHG claimed that the investigators contacted Farm Bureau and its agent Cully regarding an insurance claim made by DSEC, through its principal, Peters, who was also a principal of CBHG. CBHG’s complaint asserted that once contacted, Farm Bureau and Cully provided a letter to the investigators that “recklessly made false allegations of criminal conduct on behalf of Ms. Peters in connection with an allegedly fraudulent theft claim” made on behalf of DSEC. CBHG alleged that Farm Bureau and Cully filed a criminal referral with the National Insurance Crime Bureau (“NICB”) and the Arizona Department of Insurance (“DOI”), allegedly “making false criminal allegations against Lorilei Peters and DSEC among others” amounting to defamation. CBHG claimed the development loan was denied due to negative information provided by Farm Bureau. Farm Bureau filed a motion for summary judgment seeking dismissal of CBHG’s claims.
The trial court entered final judgment in favor of Farm Bureau as to all claims.
ANALYSIS
On appeal, CBHG claims that the trial court erred in rejecting admissible evidence and finding that CBHG’s business-expectancy claim was too attenuated and speculative. CBHG further claims that the court erred in not addressing its defamation claim.
Dismissal of Intentional Interference Claims
To prove the tort of intentional interference with business expectancy and contract, CBHG principally must show the existence of a valid contractual relationship or business expectancy. In its ruling, the trial court stated that the documents CBHG relied on “lack[ed] authenticity and foundation to be admitted into evidence so as to allow a reasonable jury to rely on them to decide in Plaintiffs’ favor on their defamation and business-expectancy claims.
THE INSURANCE FRAUD CLAIMS
In 2010, DSEC claimed a theft of over $250, 000 in personal property, which Farm Bureau denied. During that litigation, a sixty-five-page packet of documents, which included Farm Bureau’s denial of DSEC’s claim, was produced (the “Mexico Documents”). In the current litigation, CBHG claims that Cully provided this sixty-five-page packet to the Mexican government investigators. The defamatory document within this packet, CBHG claims, caused its expected loan to be denied.
Simply stating that the documents have a government stamp on the first of sixty-five pages is not sufficient. Absent competent evidence that the Mexican government had received the offered documents, the trial court did not abuse its discretion in deeming them inadmissible. The trial court’s grant of summary judgment to Farm Bureau as to CBHG’s claim of intentional interference with a business expectancy or contract was found to be proper.
DEFAMATION
A private person suing for defamation must prove a defendant (1) published a false and defamatory statement concerning the person, (2) knew the statement was false and defamed the other, and (3) acted in reckless authorities and references to portions of record on which appellant relies); disregard of these matters or negligently failed to ascertain them.
Farm Bureau’s motion claimed that its referral to the Insurance Fraud Unit of the DOI was privileged pursuant to A.R.S. § 20-466(G). Insurance companies have a statutory duty to refer claims they believe to be fraudulent. The statute further provides that any person acting within the scope of employment that, in good faith, files a report pursuant to this section shall not be subject to civil liability for reporting that information.
Because Farm Bureau asserted a statutory privilege predicated on its good-faith reporting, CBHG could not simply remain silent as to any evidence of bad faith. CBHG did not cite to any evidence in the record that raises a factual question as to whether Farm Bureau, and Cully, acted in good faith. As a result of its failure the trial court’s judgment was affirmed.
ZALMA OPINION
Insurance fraud prevention acts require insurers to report to the DOI suspicion of insurance fraud and protects the insurer, by creating a statutory privilege, for any claim made against the insurer for making the report in good faith. Since Farm Bureau, acting fairly and in good faith when it reported the suspected fraud to the DOI, obtained the privilege and the defamation claim could not be asserted or proved.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
He is available at
and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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