Decker Law Secures Reversal in Precedent-Setting Qui Tam Action
California Court of Appeal Clarifies Public Disclosure Bar in Insurance Fraud Qui Tam Actions
The California Court of Appeal, Fourth Appellate District, Division Three, recently issued a partially published decision clarifying the limits of the public disclosure bar under Insurance Code section 1871.7, a statute central to California insurance fraud and qui tam litigation.
Reversing trial-court judgments entered by the Orange County Superior Court, the Court held that a qui tam action is not barred simply because information was publicly available. Instead, jurisdiction is precluded only when the allegations of fraud themselves were publicly disclosed before the action was filed. The opinion provides important guidance for California appellate practitioners, trial courts, and litigants handling insurance fraud disputes statewide.
Background: A California Insurance Fraud Qui Tam Case
The case arose from alleged misrepresentations connected to an underinsured motorist insurance claim litigated in California. Acting as a relator, the plaintiff filed a qui tam action under California Insurance Code section 1871.7, asserting fraud based on false statements made during claims handling and related litigation.
The trial court sustained demurrers without leave to amend as to most causes of action, concluding it lacked jurisdiction under the statute’s public disclosure bar because the complaint referenced facts appearing in public court records and filings. Decker Law filed an appeal on behalf of the aggrieved plaintiff. The Court of Appeal reversed in part.
The California Court of Appeal’s Holding
The Court held that the trial court misinterpreted Insurance Code section 1871.7(h)(2). Under California law, the public disclosure bar applies only when a qui tam action is “based upon” publicly disclosed allegations or transactions, not when a relator relies on facts that may be found in public records.
The Court drew a critical distinction: publicly available information is not the same as publicly disclosed allegations of fraud. Because the relator’s complaint was not derived from any prior public disclosure of fraudulent allegations or transactions, the statute did not divest the trial court of jurisdiction.
Why the Trial Court’s Interpretation Failed Under California Law
The appellate court rejected the notion that merely citing public records defeats a qui tam claim. Such an interpretation, the Court explained, would contradict the Legislature’s intent by insulating fraudulent conduct whenever pieces of relevant information already exist in the public domain. California’s insurance fraud statutes are designed to prevent parasitic lawsuits, not to preclude relators from independently investigating facts, synthesizing information, and identifying fraud based on their own efforts.
Practical Implications for California Insurance Fraud Litigation
This decision has significant consequences for California insurance fraud cases and appellate review of demurrer rulings:
California relators and whistleblowers may rely on public records without triggering the public disclosure bar, provided the fraud allegations themselves were not previously disclosed.
Defendants in California insurance litigation face a higher threshold when seeking dismissal under section 1871.7 at the pleading stage.
California trial courts now have clear appellate guidance on evaluating jurisdictional challenges under the Insurance Code.
Appellate counsel can rely on this decision when challenging overbroad applications of statutory jurisdictional bars.
Conclusion
The Court of Appeal’s decision reinforces a disciplined, text-based approach to California insurance fraud law. By limiting the public disclosure bar to cases involving prior disclosure of fraud allegations or transactions, the Court preserved the Legislature’s intent to encourage private enforcement while preventing truly derivative actions.