Court Opinion

ID: 6331406
Source: CourtListenerOpinion
Date Created: 2022-04-14 00:01:59.332066+00
Date Added: 2024-06-11T09:23:10.531145
License: Public Domain

Filed 3/18/22; Certified for Publication 4/11/22 (order attached)

           IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                 FOURTH APPELLATE DISTRICT

                                               DIVISION TWO

 THE PEOPLE ex rel. GILBERT
 ELLINGER,
                                                                    E076378
          Plaintiff and Appellant,
                                                                    (Super.Ct.No. PSC1908114)
 v.
                                                                    OPINION
 STEPHANIE ANN MAGILL et al.,

          Defendants and Respondents.

         APPEAL from the Superior Court of Riverside County. Kira L. Klatchko, Judge.

Affirmed.

         English Lloyd & Armenta and Juan M. Armenta for Plaintiff and Appellant.

         London Fischer, Richard S. Endres and Patrick G. Bollig for Defendants and

Respondents Stefanie Ann Magill and ESIS, Inc.

         Cozen O’Connor, Maria Louise Cousineau and Mark A. Talise for Defendant and

Respondent Zurich American Insurance Company.

                                                          1
       In this qui tam action, relator Gilbert Ellinger brought suit on behalf of the People

of the State of California against Zurich American Insurance Company (Zurich), ESIS,

Inc. (ESIS), and Stephanie Ann Magill under Insurance Code section 1871.7, a provision

of the Insurance Frauds Prevention Act (IFPA). (Undesignated statutory references are to

the Insurance Code.) The trial court sustained defendants’ demurrers without leave to

amend. Ellinger appeals from the judgment. We affirm.

                                     BACKGROUND

       The following factual summary is drawn from the allegations of the qui tam action

that Ellinger filed in November 2019 against Zurich, ESIS, and Magill. In January 2016,

Ellinger injured his back while working, and he immediately informed his supervisor.

The following month, Ellinger reported to his employer’s human resources manager that

he had sustained a work-related injury and had told his supervisor about it. The human

resources manager created a “time line memorandum” summarizing the conversations

she had with Ellinger about the injury. She placed the memorandum in Ellinger’s

personnel file.

       Ellinger filed a workers’ compensation claim based on the injury. Zurich was the

workers’ compensation insurance carrier for Ellinger’s employer, and ESIS was Zurich’s

claims administrator. Magill worked as a senior claims examiner for ESIS and was the

adjuster assigned to investigate Ellinger’s claim.

       ESIS denied Ellinger’s claim on an unspecified date. Magill later testified that she

denied the claim because of an April 2016 written statement from Ellinger’s supervisor in

which the supervisor claimed that Ellinger had not reported the injury to him.

                                             2
       When the human resources manager was deposed in November 2016, she

produced the time line memorandum, which Ellinger’s counsel in the workers’

compensation action did not know about until then. Nearly eight months after that

disclosure, in July 2017, ESIS reversed its denial of the claim and stipulated that Ellinger

was injured while working, as he had alleged.

       When Magill was deposed in September 2018 in an unspecified proceeding, she

testified that she was unaware of the time line memorandum. Magill believed that the

memorandum would have been useful in her investigation of Ellinger’s claim because it

tended to corroborate his claim and to discredit his supervisor’s denial that he had been

told about the injury. Contrary to Magill’s testimony, her email messages show that the

human resources manager had emailed Magill the time line memorandum in March and

April 2016, and Magill thanked the manager for sending it.

       Ellinger alleged that Magill’s concealment of or failure to disclose the time line

memorandum violated Penal Code section 550, subdivision (b)(1) to (3). On the basis of

those alleged violations, Ellinger alleged that defendants were liable under section

1871.7. Against each defendant, Ellington sought a civil penalty and an assessment of no

greater than three times the amount of his workers’ compensation claim.

       Defendants filed demurrers. They argued that insurers and their agents, such as a

claims administration company and a claims adjuster, could not be held liable in a qui

tam action under section 1871.7.

       The trial court sustained defendants’ demurrers without leave to amend. It

concluded that defendants could not be held liable under section 1871.7 for any failures

                                             3
of Magill in the claims handling or review process. The court found persuasive State of

California ex rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442, 450 (Nee)

and State of California ex rel. Metz v. Farmers Group, Inc. (2007) 156 Cal.App.4th 1063,

1066 (Metz) and concluded that insurance carriers are not subject to liability under the

IFPA for claims handling practices.

                                          DISCUSSION

          “We independently review the ruling on a demurrer and determine de novo

whether the complaint alleges facts sufficient to state a cause of action.” (Fremont

Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.) “We assume

the truth of the properly pleaded factual allegations, facts that reasonably can be inferred

from those expressly pleaded, and matters of which judicial notice has been taken.”

(Ibid.)

          Ellinger argues that the trial court erred by concluding that insurers and their

agents cannot be liable under the IFPA for claims handling practices. He contends that

strong policy considerations support holding insurers liable under the IFPA and that he

has properly alleged a cause of action under the IFPA. We are not persuaded.

I.        Legal Background

          The legislative findings and declarations concerning the IFPA begin as follows:

“The business of insurance involves many transactions that have the potential for abuse

and illegal activities. . . . This chapter is intended to permit the full utilization of the

expertise of the commissioner and the department so that they may more effectively

investigate and discover insurance frauds, halt fraudulent activities, and assist and receive

                                                 4
assistance from federal, state, local, and administrative law enforcement agencies in the

prosecution of persons who are parties in insurance frauds.” (§ 1871, subd. (a).) The

findings and declarations go on to describe various types of insurance fraud, including

automobile insurance fraud, workers’ compensation fraud, and health insurance fraud.

(Id., subds. (b)-(h); Nee, supra, 140 Cal.App.4th at p. 448.) Concerning workers’

compensation, the Legislature found: “Workers’ compensation fraud harms employers

by contributing to the increasingly high cost of workers’ compensation insurance and

self-insurance and harms employees by undermining the perceived legitimacy of all

workers’ compensation claims.” (§ 1871, subd. (d).)

       We agree with other courts’ interpretation of those legislative findings: “The clear

import of the legislation is to reduce fraud against insurers in order to benefit

policyholders.” (Nee, supra, 140 Cal.App.4th at p. 448; see also State ex rel. Aetna

Health of California, Inc. v. Pain Management Specialist Medical Group (2020) 58

Cal.App.5th 1064, 1069 (Aetna) [“The Legislature enacted the IFPA to combat insurance

fraud committed against insurers by individuals, organizations, and companies”].)

Notably, the IFPA’s legislative findings make “no mention of a problem with insurance

claims handling practices.” (Nee, at p. 448; § 1871.)

       Section 1871.7 of the IFPA provides that any interested person may bring a qui

tam action to recover penalties, damages, and other relief for certain deceptive acts

directed at insurers. (§ 1871.7, subd. (e)(1); Aetna, supra, 58 Cal.App.5th at p. 1069.)

The penalties are “assessed for each fraudulent claim presented to an insurance company

by a defendant and not for each violation.” (§ 1871.7, subd. (b).)

                                              5
       Prohibited conduct in support of or in opposition to an insurance claim is

actionable. (People ex rel. Alzayat v. Hebb (2017) 18 Cal.App.5th 801, 816; see also

Nee, supra, 140 Cal.App.4th at pp. 450-451.) Some kinds of actionable conduct are

described in section 1871.7 itself (§ 1871.7, subd. (a)), while other kinds are identified by

incorporation of separate statutes (id., subd. (b)).

       One such statute is Penal Code section 550, which criminalizes a broad range of

deceptive acts in connection with making, supporting, or opposing claims for payment,

including but not limited to insurance claims. (Pen. Code, § 550, subds. (a), (b).) Thus,

some but not all violations of Penal Code section 550 can serve as the basis for a section

1871.7 action, because section 1871.7 concerns only claims presented to insurance

companies and Penal Code section 550 is not so limited.

       Nee, supra,140 Cal.App.4th 442 and Metz, supra, 156 Cal.App.4th 1063 held that

liability under section 1871.7 does not extend to insurers and their agents based on claims

handling practices. (Nee, at p. 451; Metz, at pp. 1068-1070.) Nee explained that this

conclusion is consistent with the IFPA’s purpose of “preventing and punishing the

making of fraudulent claims to insurance companies”; the statute does not target the

conduct of insurance companies themselves. (Nee, at p. 449.)

II.    Ellinger’s Arguments

       Ellinger argues that the trial court erred by concluding that defendants could not

be held liable under section 1871.7 for Magill’s alleged mishandling of his claim.

Ellinger contends that the trial court erred by relying on Nee, supra,140 Cal.App.4th 442

and Metz, supra, 156 Cal.App.4th 1063 in concluding that the IFPA does not impose

                                               6
liability on insurers based on such practices. He contends that Nee and Metz involved

only general claims handling practices and not allegations related to the mishandling of a

specific claim. The argument lacks merit. Contrary to Ellinger’s characterization, Metz

involved a specific automobile insurance claim in which the relator alleged that several

named insurance companies and their agents had made false or misleading statements

about the settlement of the relator’s claim. (Metz, at pp. 1065, fn. 1, & 1067.) Metz

followed Nee and concluded that the insurers’ alleged misconduct in handling a specific

claim was not subject to liability under the IFPA because insurers and their agents are not

proper defendants under section 1871.7. (Metz, at pp. 1068-1070.)

       Ellinger next argues that People v. Butler (2011) 195 Cal.App.4th 535 (Butler),

supports his position because it explains that Nee and Metz did not hold that “only those

who make claims can be liable under the IFPA.” The argument fails because Ellinger’s

description of Butler is incorrect.

       In Butler, the defendant was convicted of making false claims to manufacturers,

not to insurers. (Butler, supra, 195 Cal.App.4th at pp. 537-538.) Butler held that

violations of Penal Code section 550 are not limited to claims made to insurers. (Butler,

at p. 538.)

       Butler thus provides no support for Ellinger’s contention that insurers and their

agents can be sued under the IFPA. Butler does not say anything about that issue.

Rather, Butler merely confirms that a violation of Penal Code section 550 need not

involve an insurance claim at all. (Butler, supra, 195 Cal.App.4th at p. 538.)

                                             7
       Moreover, contrary to Ellinger’s argument, Butler supra, 195 Cal.App.4th 535 did

not undermine the holdings in Nee, supra,140 Cal.App.4th 442 and Metz, supra, 156

Cal.App.4th 1063 that insurers and their agents are not proper defendants under the IFPA.

Butler involved criminal violations of Penal Code section 550 and not liability under the

IFPA. Butler correctly explained that Nee did not stand for the proposition that “the only

class of persons who can violate Penal Code section 550 are those who submit fraudulent

claims to insurers.” (Butler, at pp. 540-541.) That does not cast any doubt on Nee’s

holding that insurers and their agents are not proper defendants under the IFPA. (Nee, at

p. 451.)

       Ellinger next argues that he properly pleaded violations of Penal Code section 550,

subdivision (b)(1) to (3), based on Magill’s alleged conduct in handling his claim, so he

therefore properly seeks relief under section 1871.7. The argument fails for two reasons.

First, as we have explained, not every violation of Penal Code section 550 is actionable

under section 1871.7. Second, Ellinger’s contention that he has properly pleaded a

violation of Penal Code section 550 is based on a mischaracterization of the record. In

his opening brief, he asserts that “[t]he denial [of his workers’ compensation claim] was

reversed after Magill’s deposition,” in which Magill claimed not to have known about the

time line memorandum before the human resources’ manager’s deposition. Ellinger in

fact alleged that ESIS reversed the denial of his claim in July 2017—more than one year

before Magill’s deposition. Ellinger does not explain how Magill’s alleged lie at her

deposition in September 2018 could have affected the handling of his claim, given that

the denial of his claim had already been reversed in July 2017.

                                             8
       Finally, Ellinger argues that affirming the trial court order sustaining the

demurrers is against public policy, as it “would tacitly approve of insurance company

fraud.” We disagree. First, Ellinger has not sufficiently alleged a violation of Penal

Code section 550 and thus has not properly alleged that defendants committed any kind

of fraud. Second, excluding insurers and their agents from liability under section 1871.7

does not “tacitly approve of insurance company fraud” or otherwise entail that insurers

and their agents can commit fraud with impunity. It means only that insurers and their

agents cannot be sued under the IFPA. That holding is not surprising, because the IFPA

expressly targets only deceptive conduct directed at insurers, not improper conduct by

insurers. (See § 1871.)

       For all of these reasons, we conclude that the trial court did not err by sustaining

defendants’ demurrers without leave to amend.

                                      DISPOSITION

       The judgment is affirmed. Defendants shall recover their costs of appeal.

                                                                 MENETREZ
                                                                                              J.

We concur:

McKINSTER
                Acting P. J.
RAPHAEL
                           J.

                                              9
Filed 4/11/22
                             CERTIFIED FOR PUBLICATION

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            FOURTH APPELLATE DISTRICT

                                       DIVISION TWO

 THE PEOPLE ex rel. GILBERT
 ELLINGER,
                                                          E076378
          Plaintiff and Appellant,
                                                          (Super.Ct.No. PSC1908114)
 v.
                                                          ORDER CERTIFYING OPINION
 STEPHANIE ANN MAGILL et al.,                             FOR PUBLICATION

          Defendants and Respondents.

THE COURT:

        We have received two requests pursuant to California Rules of Court, rule 8.1120(a), to
publish the nonpublished opinion in this matter that was filed on March 18, 2022. Having
reviewed those requests, we conclude that the opinion meets the standards for publication set
forth in California Rules of Court, rule 8.1105(c).

        We therefore grant the requests and order that this opinion be certified for publication
pursuant to California Rules of Court, rule 8.1105(b). We consequently certify for publication
the opinion filed in this matter on March 18, 2022.

        CERTIFIED FOR PUBLICATION
                                                                    MENETREZ
                                                                                                   J.

We concur:

McKINSTER
                   Acting P. J.
RAPHAEL
                             J.

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