The Mosby Case; Stay Professional if Fraud Alleged

Saturday, August 2, 2003 | 0

When the Fourth Appellate District of the California Court of Appeals issued its ruling in Freddie Curtis Mosby, Jr vs. Liberty Mutual Insurance Co. (G030304, 07/23/03) holding that an injured worker is entitled to sue a workers' compensation insurance company for malicious prosecution in unwarranted and unsubstantiated fraud pursuits, a wake up call was sent to the adjusting community: be sure a fraud referral to the District Attorney's office is well documented, substantiated, and warranted.

In Mosby, Freddie Mosby was injured in 1997 when an air conditioner had fallen on him and thereafter went through several years of different treating physicians and QMEs. During the course of the claim the employer requested Liberty Mutual to initiate an investigation upon allegations that Mosby was a "liar".

Liberty Mutual instigated a criminal complaint in spite of medical evaluations which supported Mosby's on-the-job injury. No less than three medical reports had verified his injuries and there was nothing to indicate that the injuries hadn't been sustained.

A critical factual element in the case is that, according to the facts stated in the Court's opinion, Liberty Mutual gave misleading information to the district attorney, including misleading testimony by one of its agents at the preliminary hearing.

The over-zealous claims examiner went so far as to change Mosby's status from "temporarily disabled" to "permanent and stationary" for the purpose of making Mosby look more culpable and ensuring that the felony charges had some support. Despite this, the District Attorney's office moved, itself, to have the criminal charges dropped. Mosby and his wife Sheri then sued the employer and carrier for malicious prosecution, and the Court of Appeals said that Mosby had a right to sue the carrier for what was described as a "malicious" fraud referral. The Court said that Liberty Mutual had overstepped the boundaries, and took on the persona of "bad cop", stating that malicious prosecution is a viable cause of action against workers' compensation insurers who make reports of workers' compensation fraud with malice.

"The statutory duty of insurers to report cases of workers' compensation fraud is instructive as to the fundamental abnormality of fraud reporting," said the Court. "The duty was first fastened on insurers in 1991. (Citation.) That itself is significant in considering exactly what is 'normal' in workers' compensation claims processing. The late enactment of such a duty suggests that fraud reporting was not part of the historical workers' compensation 'bargain.' From 1913 to 1991 normal claims processing did not envisage any institutional linkage between the workers' compensation system and the criminal justice system.

"But even if the independence of fraud reporting from the workers' compensation claims handling process were not enough, we cannot avoid the fact that in a related statute the Legislature has made it pretty plain that there should be no civil immunity for workers' compensation fraud reporting. (See Ins. Code, section 1877.5.) In pertinent part the statute reads: "No insurer . . . who furnishes information, written or oral, pursuant to this article, . . . shall be subject to any civil liability in a cause of action of any kind where the insurer . . . acts in good faith, without malice, and reasonably believes that the action taken was warranted by the then known facts, obtained by reasonable efforts." (Emphasis added by the Court.)

"There is bound to be a lot of discussion of this case, but for the record, I think suit should be POSSIBLE if the facts as alleged in this case are proven to be true. That is all that has really been held to date," says James Stewart, paralegal with the Fresno, CA firm Cole, Fisher, Bosquez-Flores, Cole and O'Keefe, and author of the Work Comp Index 5th ed., Rehab Index, 9th ed., 2003 Comp Supplement and the Tables and Schedules in "The Labor Code Book".

"If a person is falsely, fraudulently accused of a crime out of hate, vengeance seeking, or what have you, the accuser and their employer should not be immune from suit for their "wrong doing" or lack of reasonable care by a supervisor in O.K.'ing the filing of the papers with the D.A. simply because a work comp claim is involved," Stewart says. "The case will be touted by the ultraconservative as being unduly restrictive of 'fraud-fighters' everywhere, however, I think most claims persons will support the decision. I do not think the community as a whole benefits from vindictive adjusters who falsely accuse injured workers to support a personal agenda. I am not saying that happened here, just that if it is ALLEGED to have occurred, and is proven, civil damages should result and that a suit should be possible."