Monday, November 19, 2007

Mixed ruling for chiropractors against insurers

Encompass Insurance Co. v. Giampa, --- F.Supp.2d ----, 2007 WL 3359703 (D. Mass.)

Plaintiff sued five people (one named Edward Kennedy, but not the Senator of that name) and two businesses that provide chiropractic services, alleging fraud in obtaining insurance benefits for services that were excessive, unnecessary, or never even provided. Defendants counterclaimed based on the lawsuit and an accompanying press release, alleging defamation and libel; intentional interference with advantageous business relations; unfair and deceptive acts or practices under Massachusett’s Chapter 93A; and false advertising in violation of the Lanham Act.

The court dismissed all the counterclaims except the defamation/libel and Chapter 93A claims based on statements in the press release that could fairly be read to characterize the defendants as criminals.

In 2005, based on an extensive investigation, Encompass sued defendants for fraud, RICO violations, etc. Defendants contend that Encompass lacked a good faith basis for its claims. Two days after filing suit, Encompass issued a press release, “Boston Area Chiropractors Named in Million-Dollar Fraud Case.” Among other things, an Allstate VP (Allstate operates Encompass) stated, “these judgments against criminals range from individuals to sophisticated organized crime syndicates,” and the press release continued: “In addition to financial victories, Allstate and Encompass SIU work closely with local, state, and federal authorities for criminal investigation and prosecution--resulting in arrests around the country, taking criminals off the street.” The press release was disseminated in the trade and by various media outlets.

Encompass argued that it was entitled to the absolute litigation privilege. Though this privilege covers statements made in connection with filing and prosecuting a lawsuit, it doesn’t absolutely cover press releases like this one. Unreasonable and unnecessary statements outside the lawsuit can negate the privilege. Here, plaintiff not only repeated the complaint’s allegations, but added “statements about its investigation, the costs of insurance fraud to consumers and the insurance industry, and Encompass' commitment to fighting fraud and prosecuting criminals.” In fact, statements to newspapers and in press conferences are generally excluded from the absolute privilege, since protection for such statements is not necessary to further the policy of encouraging full investigation of claims and communication of those claims to the court and other parties.

The Lanham Act claims, however, faced an obvious standing barrier. Whatever the test applied, defendants couldn’t show any competitive injury.

To state a claim for defamation, plaintiff must allege both falsity and negligence. The court found these elements sufficiently pleaded at this stage of the litigation, but only “to the extent that the statements describing insurance fraud as a crime, discussing Allstate's financial victories against criminals and describing Encompass' efforts to take criminals off the street could reasonably be interpreted as falsely accusing the defendants of criminal behavior.” Those statements on their face don’t concern the defendants, but in the context of the whole press release, they could reasonably be seen to falsely impute criminal behavior to defendants. There’s nothing in the record suggesting criminal charges have been or could be brought, so defendants satisfied their pleading burden.

Statements of the amount in controversy and the length of the pre-suit investigation, however, were true and thus not actionable, even though defendants alleged that Encompass “grossly exaggerated” the nature of the case and the amount in controversy. Even if the complaint had no basis, Encompass actually did ask for $1.8 million in damages, so calling the lawsuit an "$1.8 million case" is an “unrefutable statement of fact.”

Fault was adequately alleged, because state of mind can be averred generally. Encompass retains other defenses, like the fact/opinion distinction, but those have to be argued on summary judgment.

Defendants also asserted claims for intentional interference with business relations between themselves and their patients, prospective patients, and other insurance companies. These were dismissed because defendants failed to allege intentional interference, even though plaintiff’s knowledge of those relationships can be inferred from the pleadings. Though the counterclaims allege “wrongful” interference, and even intent to damage their reputations, there are no allegations that Encompass intended to interfere with business relationships.

Defendants’ counterclaims for violations of Chapter 93A (barring unfair or deceptive acts or practices) survived to the extent that they were predicated on the allegedly defamatory statements in the press release, but not to the extent they were based on the lawsuit. Though filing a frivolous lawsuit can violate Chapter 93A, defendants failed to allege any specific facts supporting the claim of frivolity or ulterior motive.

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