In a case of first impression in California, McKennon Law Group PC has successfully defeated American General Insurance Company’s (“American General’s”) attempt to dismiss the counterclaims of our client, Nguyet Minh Le, in federal court in the Central District of California. McKennon Law Group PC is an insurance litigation law firm that attempts to compel insurance companies to pay insurance benefits that the insurers improperly refuse to pay. In some of our cases, unusual circumstances arise. Ms. Le’s case was one of those cases. We were hired to address an insurer’s negligence and recklessness when it paid over $1,000,000 in life insurance proceeds to the wrong person: Ms. Le. American General mistakenly paid her because it thought she was the true beneficiary of a life insurance policy it issued. Because of its gross negligence, American General confused Ms. Le with another beneficiary and confused the insured as Ms. Le’s husband. It sued Ms. Le to recover the money it paid to her. She turned to us for help. We mounted a vigorous defense against American General’s lawsuit and also countersued American General for negligence, negligent misrepresentation, and fraud. American General attempted to convince the court to dismiss Ms. Le’s counterclaims. In a June 22, 2023 opinion, the court concluded that Ms. Le had properly alleged claims against American General. See Am. General Life Ins. Co. v. Nguyet Minh Le, EDCV 22-867, slip op., (C.D. Cal. June 22, 2023). The question before the court had never been litigated in California previously: when a person is mistakenly paid life insurance benefits and relies on that money to pay off loans, buy cars, and otherwise make expenditures she would not have otherwise made, does she have a cause of action against the insurance company for wrongfully and negligently paying her life insurance benefits? The federal court answered this question with a resounding “yes.”
Ms. Le’s story is a sad and unusual one. Her husband passed away. Before his death, he informed Ms. Le that he had life insurance. However, he did not provide specific details about the policy. After his passing, Ms. Le contacted the National Association of Insurance Commissioners (“NAIC”) about the potential policy. The NAIC offers a service that helps people locate unclaimed life insurance benefits. In response to the inquiry to the NAIC, American General contacted Ms. Le. They informed her that her late husband had over one million dollars in life insurance coverage.
In fact, Ms. Le’s husband was not covered under the million-dollar policy that American General had identified. American General provided our client with a claim form and encouraged her to file a claim for the million dollars. When she did so, American General encountered numerous errors in its system. Unbeknownst to our client, various pieces of her and her husband’s identifying information did not match American General’s records for the policy. The Social Security numbers for the actual insured and Ms. Le’s late husband did not match. The Social Security numbers for the beneficiary and our client did not match. Our client and her husband lived in California. The policy’s insured and beneficiary did not live in California. American General still insisted that our client was the proper beneficiary and it paid her the policy’s death benefit.
After receiving the death benefit, Ms. Le drastically altered her life. She quit her job, she purchased an expensive car, she traveled, she paid expenses for her family members and she otherwise spent hundreds of thousands of dollars that she would not have spent had she not received over $1,000,000. She adjusted to a new life with these additional funds.
After having paid Ms. Le the death benefit, American General realized that it had erred. American General promptly sued our client to recover the money it had paid her. We responded to American General’s lawsuit with a counterclaim for negligence, negligent misrepresentation, and fraud. American General filed a motion to dismiss the counterclaim.
American General raised a variety of arguments why Ms. Le’s counterclaims should be dismissed. Its first argument was that the litigation privilege compelled the court to dismiss Ms. Le’s claims. The litigation privilege “precludes liability arising from a publication or broadcast made in a judicial proceeding or other official proceeding.” Fremont Reorganizing Corp. v. Faigin, 131 Cal.Rptr.3d 478, 493 (Ct. App. 2011). “[C]ommunications with some relation to judicial proceedings are absolutely immune from tort liability by the litigation privilege.” Chaffey Joint Union High Sch. Dist. v. Fieldturf USA, Inc., 2016 WL 11674265, at *2 (C.D. Cal. May 19, 2016). In its motion, American General argued that Ms. Le’s claims all arose out of it attempting to take the money back and, therefore, the litigation privilege applied because its attempts to take the money back were inherently part of litigation. Ms. Le argued that her statements were “non-communicative” in nature and it was American General’s negligent and/or reckless handling of the claim and insurance proceeds that had caused her harm, and thus the privilege did not apply. The Court dismissed American General’s argument. It explained that “American General’s alleged negligent and reckless acts were not communications made in a judicial proceeding or in connection with a judicial proceeding, and [thus] do not qualify for the litigation privilege.” See Nguyet Minh Le, EDCV 22-867, at **4-5. The mishandling of the claim and payment of insurance proceeds were the acts at the root of Ms. Le’s harm.
American General also argued that our client had not suffered any harm from its actions. The Court again disagreed. It explained that taking on financial obligations because of American General’s actions constituted a legally recognizable harm. See id. at **5-6.
American General next argued that Ms. Le could not bring a claim for fraud. “Under California law, the elements of a cause of action for fraud are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Id. at *6 (citations omitted and emphasis in original). Given that an insurance company would not knowingly give the wrong person a million dollars, American General insisted that Ms. Le’s fraud claim failed as a matter of law. American General’s argument was incorrect. As the Court explained, if American General had acted recklessly, then, in fact, Ms. Le could bring a claim for fraud. Even if an entity does not know that it made misrepresentations, if it made statements in reckless disregard for the truth, the harmed party may still bring a claim for fraud. The Court found that Ms. Le had adequately alleged that American General had acted recklessly. As the Court explained, “The Court cannot overlook American General’s failure to investigate the mismatching SSNs, or take further steps to confirm the identity of the claimant before dispersing more than a million dollars in funds.” Id. at *7.
Finally, American General argued that it did not owe a duty of care to Ms. Le. Ms. Le’s negligence claims all required her to establish that American General owed her a duty of care. A “duty of care” is the legal requirement that a person act toward another with the care and prudence that a reasonable person would use. This duty does not extend to all people under all circumstances, and American General argued that no such duty extended from American General to Ms. Le in this context. The Court found that American General did owe Ms. Le a duty of care. As it explained:
[T]he Court concludes that American General owed a duty of care to Ms. Le because it treated her as if she were the proper beneficiary under the insurance policy. . . . Although the original life insurance policy was not intended to affect Ms. Le, it was highly foreseeable that if American General made Ms. Le believe she was the proper beneficiary of the policy [although] she [actually] was not, she would be harmed by the misrepresentations. Ms. Le certainly suffered injury by undertaking financial obligations she would not have [undertaken] if she were not paid the insurance money. American General’s alleged conduct directly caused Ms. Le’s injury. According to Ms. Le, she had done no more than request information of policies that matched her and her late husband’s information, and it was American General that contacted her and informed her that she was a beneficiary. American General’s mess was of its own making. Public policy should incentivize insurance companies to handle claims with reasonable care, such as to confirm basic identifying information, before dispersing more than a million dollars in funds. The Court is confident that Ms. Le’s circumstances are unusual enough that finding a duty of care here would not have an outsized “adverse impact on a class of defendants upon whom the duty is sought to be imposed.” Cf. Adelman v. Assoc. Int’l Ins. Co., 108 Cal. Rptr. 2d 788, 796 (Ct. App. 2001).
Id. at *8 (emphasis in original). The Court concluded that an insurer owes a duty of care when telling people that they are entitled to benefits under a life insurance policy.
The Court’s denial of American General’s motion was significant. Not only did it allow Ms. Le to pursue her claims in Court, but it also set the precedent that insurance companies cannot recklessly conduct their business and then just walk away with a complete disregard for the lives that they damage. When people receive significant amounts of insurance proceeds, they often make life-altering decisions based on the money that they received. An insurer must be held accountable for its actions.