Last week, a Los Angeles Superior Court held that the relevant date for determining when the statute of limitations begins to run under the Insurance Frauds Prevention Act (IFPA) is the date an insurer forms a reasonable belief that a claim is fraudulent and refers the claim to the California Department of Insurance (DOI), not the date the insurer refers a claim to its Special Investigation Unit (SIU).
In People of the State of California ex rel. Fireman’s Fund v. Front Gate Plaza, LLC, Case No. LC 093216 (Los Angeles Superior Court), the defendants moved for summary judgment on the ground that the insurer had referred the subject insurance claims to its SIU more than three years before it filed the lawsuit. The defendants argued that the lawsuit was barred because an IFPA action “may not be filed more than three years after the discovery of the facts constituting the grounds for commencing the action.” Ins. Code § 1871.7(l)(1). The court disagreed, finding that the relevant date for determining when the IFPA’s statute of limitations runs is the date the insurer refers a claim to the DOI, not the date it refers the claim to its SIU. The court noted that California law requires insurers to establish an SIU “to investigate possible fraudulent claims by insureds” and that the SIU must refer acts of suspected fraud to the government “where the facts and circumstances create a reasonable belief that a person or entity may have committed or is committing insurance fraud.” The court further noted that the insurer must make such referral within 60 days after determining that a claim appears fraudulent. The court then held:
“When synthesizing these Insurance Code provisions and regulations, it is apparent that the mere reporting by an insurer to its SIU of suspected fraud would not, by itself, commence the running of the statute. Instead, it is the referral by the insurance company's SIU to the Insurance Commissioner of the suspected fraud which is the relevant date.”… [I]f the mere referral to the SIU from the claims department triggered the limitations period, the insurer would have to immediately report every possible suspected fraudulent claim to the DOI to prevent the limitations period from running before DOI had any knowledge of the claim or the opportunity to investigate. This result, in the Court's view, would be directly contrary to the legislative scheme requiring the creation of an SIU in the first instance.”
The court denied summary judgment because it found that there was a triable issue of fact as to when the insurer formed, or should have formed, a reasonable belief of fraud.