In January 2016, Gilbert 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. Stephanie Ann Magill worked as a senior claims examiner for ESIS and was the adjuster assigned to investigate Ellinger’s claim.

ESIS denied Ellinger’s claim. 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.

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 she testified that she was unaware of the time line memorandum. 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 brought suit on behalf of the People of the State of California against Zurich American Insurance Company, ESIS, Inc., and Magill under Insurance Code section 1871.7, a provision of the Insurance Frauds Prevention Act (IFPA). 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).

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. The Court of Appeal affirmed in the unpublished case of People ex. rel. Ellinger v Magill (March 2022) E076378.

The trial court found persuasive State of California ex rel. Nee v. Unumprovident Corp. (2006) 140 Cal.App.4th 442 and State of California ex rel. Metz v. Farmers Group, Inc. (2007) 156 Cal.App.4th 1063, and concluded that insurance carriers are not subject to liability under the IFPA for claims handling practices.

In this case the opinion rejected arguments against these prior decisions and concluded that “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.”