Reported / Citable
Background
California’s Insurance Frauds Prevention Act (Insurance Code § 1871.7) authorizes private individuals — known as relators — to bring qui tam lawsuits on behalf of the state against people they believe have committed insurance fraud. Successful relators share in any monetary recovery.
Jerilyn Henggeler filed a qui tam complaint alleging that Omar Dauod, his wife Gina, their attorney James Ballidis, and his law firm defrauded Geico Indemnity Company out of $22.9 million in connection with an underlying personal-injury jury verdict. Henggeler had read about the verdict in news coverage and incorporated trial testimony into her complaint.
The defendants demurred, arguing the suit ran afoul of section 1871.7’s ‘public disclosure bar,’ which strips courts of jurisdiction when a qui tam action is based on previously disclosed allegations or transactions in a court proceeding, public report, or news media — unless the relator is an ‘original source.’ The trial court agreed, sustained the demurrers without leave to amend, and entered judgment for the defendants. Henggeler appealed.
The Court’s Holding
The Court of Appeal reversed in part. As a matter of first impression, the court held that the public-disclosure bar applies only where the qui tam suit is based on publicly disclosed ‘allegations’ of fraud or specific fraudulent ‘transactions.’ It does not apply when the suit merely uses publicly available ‘information’ to support its allegations. Trial testimony — even if it later becomes the foundation of a fraud allegation — is information; it is not itself an allegation of fraud or a fraudulent transaction.
Because Henggeler did no more than use publicly available trial testimony to construct her own fraud allegations, the public-disclosure bar did not strip the trial court of jurisdiction over her IFPA claim. The court grounded its reading in the legislative history and judicial gloss surrounding the IFPA and its closely related federal counterpart.
The court did, however, affirm dismissal of three of Henggeler’s four causes of action that depended on workers’-compensation fraud allegations she had not adequately pled. Only the IFPA cause of action survives, and the case returns to the trial court for further proceedings on it.
Key Takeaways
- Section 1871.7’s public-disclosure bar is narrow: it requires that the qui tam claim itself be based on previously disclosed allegations or transactions of fraud, not just on publicly available facts.
- Reading about a verdict in the news and using trial testimony to draft a fraud complaint will not, without more, defeat IFPA standing.
- Where a relator pleads claims under multiple fraud theories (here, IFPA and workers’ compensation), each theory must independently satisfy the elements; weak counts can be dismissed without dooming the entire case.
- Defense counsel should focus public-disclosure-bar challenges on whether the actual fraud allegations track previously disclosed allegations, not merely on the relator’s information sources.
- The opinion is published as a case of first impression on the IFPA’s public-disclosure bar and is binding statewide unless reviewed.
Why It Matters
The IFPA is one of California’s most aggressive tools for fighting insurance fraud, in part because qui tam plaintiffs and their counsel can recover sizeable shares of penalties. This decision substantially preserves that tool by rejecting a broad reading of the public-disclosure bar. Under the court’s holding, plaintiffs and their counsel can rely on news reports and trial transcripts as starting points without fear that the resulting suit will be tossed at the demurrer stage.
For insurance carriers and defense counsel, the case is a reminder that the public-disclosure bar is not a default escape hatch. Defendants need to show that the qui tam complaint is built on previously disclosed fraud allegations or fraudulent transactions, not simply that some of the relator’s facts came from public sources. Companies that face IFPA exposure should pay close attention to the substantive sufficiency of each cause of action; weak claims (like the workers’-compensation counts here) can still be picked off, but the IFPA core may well survive.