The Leegin Case - You Can't Prove Fraud Before Its Proved

Sunday, August 28, 2005 | 0

The Court of Appeal, 2nd District, has issued a decision upholding the dismissal of an employer's civil suit against a worker's compensation claimant for fraudulent filing of a worker's comp claim. In this case, Leegin Creative Leather Products v Diaz, the applicant had filed a claim for bilateral upper extremity injuries which was turned over to SCIF by the employer. Liability was accepted, the injured worker was on light duty for 3 months, the employer was then unable to continue the limited duty and the IW began to receive TTD. Approximately 1 month after the employee began to receive TTD the employer became suspicious of the claim and hired an investigator who filmed the applicant engaging in a variety of activities. The employer had the film reviewed by a physician who noted that the videotape documented the injured worker should be able to return to some level of activity but did not indicate the films demonstrated no loss of work capacity.

The employer placed SCIF on notice that they thought the claims was suspicious and requested more surveillance and investigation by the Fund. The employer then filed a civil claim claiming that the injury was fraudulently reported to them and that as a result of the employee's fraud, the employer would suffer damages including increased premiums and employment costs. The employer also sought punitive damages.

The trial court dismissed the suit on the grounds that the injured worker had a right to pursue a compensation claim, that Leegin's remedy was to contest the case before the WCAB and that the suit was barred under the anti-SLAPP provisions of CCP 425.16.

The Appellate Court upheld the dismissal. The court held that in order for the employer to prevail, it had to demonstrate that there was some chance of prevailing on the underlying claim. The court noted that there were no damages to the employer even if they could demonstrate the filing was fraudulent as, under LC 3761, such a showing would require the carrier to refund any premium that was associated with such a finding. The court also held that in order for the employer to prevail they would have to prove detrimental reliance on the employee's fraudulent filing of a claim. However the employer did not rely to their detriment on the claim being filed as the law requires the employer to forward such a claim to the insurance company. Therefore forwarding the claim to SCIF did not involve Leegin's use of any discretion and therefore no showing of detrimental reliance on the filing. Further, it is well settled that the obligation to determine if benefits are due rests with the carrier subject to the employer's rights under LC 3761 to object to the provision of benefits. In this case, SCIF continued to provide benefits and had not raised any issue of fraud before the WCAB.

The court further noted:

"Finally, we observe that sound policy considerations support this conclusion. Permitting an employer to bring a civil action for fraud against an employee while the workers' compensation proceeding is pending could have a chilling effect on the employee's exercise of the right to file a workers' compensation claim. In addition, the workers' compensation system already provides the proper vehicle for an employer to raise the claim of fraud and to protect itself from the damages (higher premiums) caused by the fraudulent claim."

COMMENTARY:

While employers might find the court's action to be disappointing, it may very well be that the primary issue could be that the employer pursued this action far too early in the proceedings. Certainly while the California workers' compensation claim is pending, and particularly since no allegation or assertion of fraud was being raised, the employer's ability to prove their allegations of fraud were very weak. Further, the information that they had, i.e., evidence that the employee was able to engage in some moderately physical activities, did not really address the issue of whether the claim itself was fraudulently filed and addressed the nature and extent of injury. Even the employer's own medical report, which reviewed the films and provided comment, indicated that the employee could return to work at a job which involved lifting weights of no more than 25 pounds and without repetitive activities as far as the use of the arms was concerned. This is hardly a definitive statement that the injured worker had nothing wrong with her. In many respects, this was probably simply the wrong case to take and try and make this claim. The evidence of fraud in filing the workers' compensation claim itself was weak and unconvincing. Even taken in its best light, it is not likely that this would have convinced anyone that the injured worker's claim itself was fraudulently presented.

There may very well be other allegations that an employer could make of damages once a claim has been pursued and completed before the WCAB that might get around the court's assertion that Labor Code