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A Better Partnership
August 30, 2013

COA borrows defamation standard for "malice" in the context of statutory immunity related to insurance fraud

An insurance fraud investigation is bound to drag skeletons out of its target's closet.  But the Michigan Court of Appeals held that those who conduct such investigations cannot be liable for publishing their conclusions unless they act with reckless disregard for the truth.  So the private investigator sued in Radu v. Herndon & Herndon Investigations, Inc. could take advantage of statutory immunity.  The court also held that the private investigation service was a "representative" of the insurance company, so it was covered by a prior settlement agreement.  

After the plaintiffs' car caught fire, they made an insurance claim.  But the insurance company hired a private investigation service that concluded the fire had been intentionally started because the main fuel line and fuel rail connection had been severed.  Shortly thereafter, an investigator from the Oakland County Sheriff's Office requested the private investigation company's file on the investigation.  The Sheriff's investigator continued his investigation over time, adding many reports and conclusions to those drawn by the private investigation service.  Ultimately, the Sheriff's investigator submitted his file to the prosecutor's office, which charged one of the plaintiffs with arson and insurance fraud, but the case ended in a motion for nolle prsequi, perhaps because the wires appeared shiny as though they may have been cut after the fire.  In a subsequent lawsuit against the insurance agency, the plaintiffs entered into a settlement agreement.  Two years later, the plaintiffs filed this lawsuit against the private investigator and the Sheriff's investigator.

The trial court granted the private investigator's motion for summary disposition based on the prior settlement and statutory immunity, and also granted the Sheriff investigator's motion based on governmental and qualified immunity.  The appellate court affirmed.  As for the private investigator, the court held that it was a "representative" of the insurance company within the plain language of a prior settlement agreement.  The court then interpreted the term "malice" as used in the statutory immunity for investigators of insurance fraud under MCL 29.4(6) (providing immunity for publication during the course of the investigation),  MCL 500.4509(3) (providing immunity for provision of information to law enforcement).  The court used the definition of the term "actual malice" from defamation case law, by analogy to the medical peer-review immunity statute, and concluded that an insurance investigator does not act with malice unless his or her actions were in reckless disregard for the truth.

The court also affirmed the grant of the Sheriff investigator's motion for summary disposition on the bases of governmental and qualified immunity because he did not act with gross negligence or wanton disregard for the rights of another.

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