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A. The Insured’s Right to Privacy v. The Insurer’s Right To Investigate
Courts have generally encouraged the use of surveillance as a means of investigating suspected fraudulent insurance claims, especially those involving fraudulent or exaggerated personal injury, disability, or workers’ compensation claims. “Because of the public interest in exposing fraudulent claims, a plaintiff must expect that a reasonable investigation will be made subsequent to the filing of a claim.” Tucker v. American Employer’s Insurance Co., 1,71 So. 2d. 437, 438 (Fla. Dist. Ct. App. 1965). Tucker found that investigators must limit themselves to reasonable means of surveillance or expose themselves and the insurer to liability for a tort claim.
Throughout state and federal courts in the United States, most litigation involving improper surveillance procedures or techniques is based upon legal theories of trespass, invasion of privacy, unfair claims practice, defamation, slander, bad faith, and intentional infliction of emotional distress.
The court found that two investigators conducting a surveillance of a woman who had filed a personal injury claim was reasonable in Forster v. Manchester, 189 A.2d 147 (Pa. 1963), because they videotaped her only when she left her house and exposed her activities to the scrutiny of the public at large. The court approved of the investigators’ surveillance methods because they attempted to observe the woman unobtrusively and the investigators neither trespassed upon her property nor spied on her in the privacy of her home. It is from the Forster court that we attribute the famous quote…. “It is in the best interests of society that valid claims be asserted and fabricated claims be exposed.”
A similar case was found in Figured v. Paralegal Technical Services, Inc., 555 A.2d 663 (NJ Sup. Ct. App. Div. 1989), appeal dismissed, 583 A.2d 350 (N.J. 1990), where investigators received a surveillance assignment to assess the severity of a plaintiff’s injuries. The investigators watched the plaintiff in her yard from the road in front of her home, followed her when she drove to a store, and allegedly stared at her as she sat in the parking lot. A week later, the investigators followed the plaintiff as she drove forty miles down the highway and, when she pulled into a rest area, the investigators again stared at her. The New Jersey court found that such surveillance was incapable of producing “mental distress … so severe that no reasonable man could be expected to endure it.” The court, in this case, also rejected a claim for invasion of privacy because the investigators only observed the plaintiff in public and “whatever the public may see from a public place cannot be private.”
In an action by a workers’ compensation claimant who alleged that his privacy was invaded by investigators hired by the insurance carrier to observe him, the court granted summary judgment for the insurer stating that the claimant had to expect reasonable inquiry into, and investigation of, his claims. The investigator’s actions consisted of parking outside the claimant’s house to observe his outside activities, where claimant’s activities could be observed by any passerby and where there was no wrongful intrusion into claimant’s privacy. Johnson v. Corporate Special Services Inc., 602 So.2d 385 (Ala. 1992).
B. Unreasonable Intrusion
An individual conducting an unreasonably intrusive surveillance can lead to liability on the part of the investigator and the insurance carrier who employs or retains the surveillance investigator. The use of improper procedures can also render the video footage captured during the surveillance inadmissible at a workers’ compensation hearing and/or at the trial of the personal injury or disability claim.
Some courts have gone so far as to hold that a plaintiff implicitly waives his right to privacy when he files an action for damages to the extent the defendant has a corresponding right to “reasonably investigate and ascertain for himself the true state of the claimant’s injury.” Pinkerton National Detective Agency, Inc. v. Stevens, 132 S.E.2d 119 (Ga. App. 1963).
However, in Pinkerton the Georgia Court of Appeals found in favor of the plaintiff because the investigator’s surveillance procedures and techniques were not considered reasonable conduct in an investigation. In this case, the investigators cut a hole in plaintiff’s hedge so they could peer in her windows, eavesdropped upon the plaintiff’s activities in her home, came to her home on two occasions pretending to have business with her, and engaged in overt and prolonged trailing of the plaintiff in a conspicuous manner so as to excite the speculation of neighbors. The plaintiff became emotionally disturbed – and manifested physical conditions in the form of nervous spasms, sleeplessness, nightmares, rashes and lesions accompanied by uncontrollable itching – because of the investigators’ prolonged unreasonable surveillance and investigation.
In the Figured v. Paralegal Technical Services, Inc. case, above, the plaintiff’s complaint relied upon the Restatement (Second) of Torts provision regarding “Intrusion Upon Seclusion”. This provision states: One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another, or his private affairs or concerns, is subject to liability to the other for invasion of privacy, if the intrusion would be highly offensive to a reasonable person. Restatement (Second) of Torts, S 652 B
C. Unreasonable Investigation
Two California investigators became unreasonably overzealous in their creative surveillance techniques in Unrah v. Truck Insurance Exch., 498 P. 2d 1063 (Cal. 1972). After the investigators received an assignment to assess the severity of plaintiff’s workers’ compensation disability. one of the investigators initiated a romantic relationship with the woman, and on one of their dates he took her to Disneyland. There, they engaged in several physically demanding rides and activities while the second investigator secretly videotaped their exploits. When the tape was shown at plaintiff’s workers’ compensation hearing, she suffered a physical and mental breakdown. The California court found that the insurer’s immunity did not extend to intentional torts and that the investigators acted with malice with their intentional infliction of emotional distress. The plaintiff was awarded two million dollars in punitive damages.
In Schultz v. Frankfort M. Acc, & P.G. Ins, Co., 139 NW 386 (Wis. 1913), the “rough shadowing” (that is, the open, public, and persistent following of the plaintiff, without any attempt at secrecy and in such a manner as to make obvious to the public that the plaintiff was being followed and watched), was held to be an actionable tort for which the plaintiff was entitled to recover damages. The private detectives employed by the defendant kept the plaintiff under surveillance day and night, watched his home, eavesdropped there, and made known to the plaintiff’s neighbors that he was being watched, thus restraining him of his liberty.
A very close question was presented in Turner v. General Adjustment Bureau, 832 P.2d 62 (Utah App. 1992) where two investigators were assigned to determine the legitimacy of a claimant’s workers’ compensation claim. During a period of three months, the investigators were able to repeatedly gain access to the claimant’s home by posing as representatives of a product marketing research company. They gathered information on the claimant’s activities which was later used to successfully deny his claim. The court rejected the fraud claim because there was evidence that the plaintiff had not suffered any actual damages from the investigators’ masquerade. The court also found that the jury’s verdict was supported by evidence that the investigators entered the home with the consent of the claimant, for a legitimate purpose, and only for short periods of time. The court made special note of the lack of any allegations that the investigators harassed or annoyed the plaintiff during the investigation.
D. Invasion of Privacy
The West Virginia Supreme Court recognized in deciding Crump v. Beckley Newspapers Inc. 320 S.E. 2d 70 (W. Va. 1983) that four types of invasion of privacy claims exist. The four types of invasion of privacy are:
(1) Unreasonable intrusion upon the seclusion of another;
(2) Appropriation of another person’s name or likeness;
(3) Unreasonable publicity given to another person’s private life; and
(4) Publicity that unreasonably places another in a false light before the public.
Recognition by the West Virginia court, and that of many other state and federal courts, of a cause of action for invasion of privacy poses a definite and substantial risk of liability for improper surveillance.
Investigators failed the test of reasonableness in Souder v. Pendleton Detectives Inc., 88 So. 2d 716 (La. Ct. App. 1956) when they “constantly shadowed, watched, and eavesdropped on a worker’s compensation claimant, using binoculars on some occasions; … that they trespassed upon claimant’s property without his consent and that investigators watched claimant in his home by peeking through his windows… “. The Louisiana court was supportive of an insurance company’s right and obligation to conduct an investigation of suspicious claims against it, but emphasized that such investigations must be “conducted within the legal bounds.” Here, the investigators both committed trespass and violated Louisiana’s peeping Tom statute.
An Alabama jury found that investigators acted unreasonably and violated a claimant’s privacy when they hid in an abandoned house near the claimant’s home and used high power binoculars to videotape claimant’s family moving about inside their home. Alabama Electric Coop., Inc. v. Partridge, 225 So. 2nd 848 (Ala.
1969)
E. NAIC Model Privacy Act
The National Association of Insurance Commissioners (NAIC), in 1992, drafted the NAIC Insurance Information and Privacy Protection Model Act for the purpose of establishing standards for the collection, use, and disclosure of information gathered in connection with insurance transactions by insurance institutions, agents, or insurance support organizations.
The model act, in Section 3 “Pretext Interviews,” states that “no insurance institution, agent, or insurance support organization shall use or authorize the use of pretext interviews to obtain information in connection with an insurance transaction”. Pretext Interview is defined as an interview whereby a person, in an attempt to obtain information about a subject, performs one of the following acts: A: Pretends to be someone he or she is not; B: Pretends to represent a person he or she is not in fact representing; C: Misrepresents the true purpose of the interview; or D: refuses to identify himself or herself upon request.
However, the Model Act provides that a pretext interview may be undertaken to obtain information from a person or institution that does not have a generally or statutorily recognized privileged relationship with the suspected claimant.
Also, the Model Act states that a pretext interview may be undertaken where there is a reasonable basis for suspecting criminal activity, fraud, material misrepresentation or material nondisclosure in connection with a claim.
Many states have adopted all or part of the model act as part of their state regulations or statutes governing insurance. North Carolina, Virginia, Georgia, Illinois, Connecticut, Arizona, and California are among the adopting states.
COMMON SURVEILLANCE ISSUES
A. Surveillance of an Insured Premises
One court has found that it is not unreasonable for an insurance company to hire investigators to stake out an insured’s home that it had reason to believe would be the subject of arson. In Shipley v. Tennessee Farmers Mutual Ins, Co., 1991 WL 77540 (Tenn Ct. App. 1991), the insurer received an anonymous tip that the insureds “were having marital difficulty and their home was going to burn.” The insurer believed that this information was reliable and initiated a cancellation of the insured’s homeowner policy. The process would take ten days, however, so the insurer hired a security agency to “watch the house.” The insureds filed suit against the insurer for invasion of privacy, trespass, outrageous conduct and defamation. The court dismissed the first two claims because it found that the security guards were independent contractors. The court also found that even if the insurer’s actions were based on unsubstantiated rumor, they hardly constituted such “atrocious and utterly intolerable” conduct as to “arouse the senses of a civilized society” and therefore could not support a claim of outrageous conduct. The defamation action was brought because the insurer told the security company the factual basis for their assignment. The court found the disclosure defamatory but dismissed the claim for lack of any alleged harm.
B. Interviewing Neighbors
Investigators conducting the surveillance assignment must be discreet in the manner in which they obtain information from uninvolved persons and what information they may disclose during the course of their questioning. An example of an improper interviewing tactic was provided by the investigator in Paul V. Aetna Casualty & Sur, Co., 831 F.2d 1064 (6th Cir 1987). The investigator spoke to some neighbors of an insured who had suffered a fire loss and asked the neighbors if they were aware the claimant “had been involved in a grand theft auto ring, had committed criminal fraud, had committed arson, was involved in illegal drug trafficking and had killed a man.” The man had once plead guilty to negligent vehicular homicide, but there was no factual basis for any other statements. The court upheld the jury award for the insured for his claim of invasion of privacy and slander. Similarly, in Dailey v. Integon Gen. Ins, Corp., 331 S.E.2d 148 (NC Ct. App. 1985) appeal denied, 336 S.E.2d 399 (NC 1985), the insurance investigator told sixteen neighbors of the insured that he had “determined this was a contract burning of the house and that it was done for insurance purposes, and asked the neighbors if they knew whether the insured had hired someone to burn his house down” and as a result “stirred up a lot of hate” in the neighborhood.
Other examples of insurer liability for gross misconduct during investigative questioning include Green v. State Farm Casualty Co., 667 F.2d 22 (9th Cir. 1982) and Republic Ins, Co. v. Hires, 810 P.2d 790 (Nev. 1991). In the Green case, an insurance adjuster posed as a state policeman, interviewed the neighbors of an insured who had sustained a fire loss and implied that the insured had committed arson. In Hires, the insurance investigator conducted an extensive investigation of an insured who had sustained a burglary loss. The investigator spoke to many of the insured’s neighbors and asked them if they had any information that the claimant had staged the burglary loss and if they were aware the claimant’s wife was having an affair with the neighbor who had discovered the burglary. In both cases the insurer was found liable.
C. Surveillance With An Enhanced View – The few court cases that have been decided on the issues of magnified or enhanced view surveillance have been primarily limited to a specific case that was decided and have not provided any broad or sweeping guidelines on this issue.
As we have seen, the courts can and will differ in their opinion of what is and what is not a violation of an individual’s reasonable expectation of privacy. Enhanced or magnified view surveillance can take on several forms, including: 1. Photographer taking an unnatural or contorted position; 2. Illuminating an otherwise darkened area; 3. Magnifying what is visible to the eye; and 4. Magnifying what is otherwise not visible.
In general, the courts have not found enhancing the view during surveillance to be illegal. There have been many instances in which the enhancement has proven to be legal and constitutional; however, not all enhanced views are permitted. The legality, and therefore the admissibility, is based on the position of the investigator and the location of the subject. The laws pertaining to view enhancing are still evolving. The creativity and ingenuity of those conducting surveillance, along with technological advances in optical equipment, is responsible for much of the confusion and conflict in court rulings on the subject. The Supreme Court has not ruled specifically on whether optical equipment used for enhanced views during surveillance is legal, but they have considered the following factors in making decisions on the legality of enhancements:
1. Position of the investigator;
2. Position of the claimant or subject;
3. The type of device used during the surveillance; and
4. The circumstances under which the view was obtained.
Since the Supreme Court has not given any definitive ruling in this area, the lower courts have issued widely differing opinions on the subject. Investigators should first seek guidance from their Office of General Counsel, with subsequent consideration to obtaining an opinion from a qualified local outside defense counsel before proceeding if there is uncertainty concerning the legality of enhanced view surveillance in their jurisdiction.
In Sustin v. Fee, 431 N.E.2d 992 (Ohio 1992) the court ruled that the individual utilized binoculars only to view the curtilage of the residence and did not use them to view inside the residence and therefore ruled there was no invasion of privacy.
The court held in Pearson v. Dodd, 410 F.2d 701 (D.C. Cir. 1969) that the liability for an invasion of privacy occurs when there is an intrusion upon the private, intimate affairs of the subject and when that intrusion is one to which people would not reasonably expect to be subjected.
In deciding invasion of privacy questions, courts have found that a balancing test is required. The test applied is one that must weigh the societal need prompting the intrusion against an individual’s right to and reasonable expectation of privacy.
D. Stalking – Over the past ten years, the phenomenon of stalking has resulted in many states passing criminal legislation prohibiting such activity. While a state-by-state survey of stalking legislation is beyond the scope of this article, it is important that investigators conducting surveillance be aware of stalking statutes and take the appropriate steps in their surveillance activities to prevent themselves from being on the wrong side of a criminal complaint.
An example of a stalking statute is the one enacted in Pennsylvania. 18 Pa. C.S.A. Section 2709 provides as follows:
Stalking – a person commits the crime of stalking when he engages in a course of conduct or repeatedly commits acts toward another person, including following the person without proper authority, under circumstances which demonstrate either of the following: 1) an intent to place a person in reasonable fear of bodily injury or; 2) an intent to cause substantial emotional distress to that person.
The statute defines “course of conduct” as a pattern of actions composed of more than one act over a period of time, however short, evidencing a continuity of the conduct. The statute defines “emotional distress” as a temporary or permanent state of great physical or mental strain.
To convict a person accused of stalking, one must prove that the person acted with the intent to place the subject either in fear of bodily injury or in emotional distress. In most cases, an investigator who properly conducts a surveillance cannot be found to have acted with intent to either injure or cause emotional distress to the subject. Most state statutes dealing with stalking contain this intent requirement.
The one instance where a surveillance could result in a reasonable charge of stalking is from the previously addressed surveillance tactic of “rough shadowing.” The investigator who conducts a surveillance openly and blatantly could be found guilty of stalking if that surveillance is so blatant and open to have caused the subject to suffer substantial emotional distress. If such surveillance techniques excite speculation among neighbors or place the subject in a false light, a court might find that there was stalking if the subject manifests distress in some physical manner. It is important that investigators are aware of stalking statutes. However, most surveillances, when properly conducted, do not pose a serious risk of the investigator violating these statutes (e.g., hidden, unobtrusive surveillance is not likely to form the requisite basis of showing intent to cause emotional distress).
E. Electronic Surveillance: Wiretapping – When conducting surveillance, an investigator must understand and adhere to state and federal statutes which are applicable to certain surveillance activities. Consequently, investigators must be wary of the methods used to conduct electronic surveillance. Unless an investigator is working in conjunction with law enforcement authorities and has obtained authority to conduct electronic surveillance (e.g., court order) , an investigator who uses any electronic or mechanical device in conjunction with surveillance must be aware of the legal implications from such surveillance and the potential for criminal and civil penalties against those who conduct improper electronic surveillances. In this section, we will highlight the requirements of the Federal Wiretap Act. However, investigators should be aware that most states have enacted their own version of the wiretap statute, with many state versions imposing stricter requirements than the federal model. Therefore, an investigator must be familiar with the law governing electronic surveillance in any jurisdiction where he or she intends to operate.
1. What Constitutes Electronic Surveillance?
The Federal Wiretap law is very broad as it relates to electronic surveillance. 18 USCS, Section 2510 provides various definitions for differing aspects of electronic surveillance. The statute defines a “wire communication” as any oral transfer made in whole or in part through the use of facilities for the transmission of communications by the aid of a wire, cable or other like connection between the point of origin and the point of reception. “Oral communication” is defined as any oral communication uttered by a person exhibiting an expectation that such communication is not subject to interception under circumstances justifying such expectation. “Intercept” is defined as the oral or other acquisition of the contents of any wire, electronic, or oral communication through the use of electronic, mechanical or other device.
Thus, not only is any telephone, cellular phone, radio, or electronic mail communication protected, but also any spoken communication of a person who has a reasonable expectation that such communication will not be overheard is protected under the statute. The most obvious example is the ordinary wiretap placed on a phone line. Clearly, this wiretap is an interception of a wire communication. Another example of an interception of an oral communication would be the bugging of a subject’s home, with the subsequent recording of and/or listening to the subject’s conversations conducted within the subject’s home. The use of sophisticated sound equipment on a video camera (a “shotgun” microphone) which can record conversations at a great distance (where a subject may have a reasonable expectation of privacy in that conversation) would also likely be prohibited.
However, as noted above, not every oral communication is protected under the statute. For example, an investigator is conducting a surveillance operation, parking across the street from the subject’s home, whereupon the subject emerges from the house and shouts across the yard to his next door neighbor, “Harry, I just got a check from my insurance company for a million dollars and you know I was never injured in that accident!” The fact that the investigator recorded such a comment is not likely to be considered interception of an oral communication because the subject cannot reasonably believe he has an expectation of privacy in his shouted statement. Needless to say, cases of a subject screaming such incriminating information at the top of his lungs are few and far between.
2. What Conduct Is Prohibited by the Statute?
The Federal Wiretap Statute prohibits any person from intercepting, attempting to intercept, or procuring another person to intercept or to attempt to intercept any wire, oral, or electronic communication. It is also unlawful to use any electronic, mechanical or other device to intercept any wire, oral or electronic communication. Further, it is unlawful for a person to disclose to any other person the contents of any wire, oral or electronic communication when a person knows or has reason to know that the information was obtained through the interception of such a communication. A violation of this section subjects the interceptor to both criminal and civil penalties.
3. When is an Interception Allowed?
The wiretap statute provides an elaborate scheme for obtaining court permission to perform wiretapping operations or other electronic interceptions. Such permission is granted almost exclusively to law enforcement officials pursuant to an investigation of criminal activity. In a case where investigators are cooperating with law enforcement authorities, before performing any electronic surveillance the investigator should be sure that the law enforcement official in question has the appropriate authority to conduct the surveillance, especially if such surveillance would otherwise be in violation of the law.
The federal law also provides for another situation where an interception of a communication would be lawful. It is permissible for a person not acting under color of law to intercept a wire, oral or electronic communication where such person is a party to the communication or where one of the parties to the communication has given prior consent to such interception, “unless such communication is intercepted for the purpose of committing any criminal or tortuous act in violation of the Constitution or law of the United States or of any state”. Federal law has adopted the “one-party” permission rule. Therefore, under federal law, a person speaking on the phone with another person may record that conversation without the consent of the other person. Similarly, it is lawful for a person to wear a body wire and record a conversation with another person, even if the other person is unaware that the conversation is being recorded. However, such conduct is not justified if the communication is being intercepted for the purpose of committing a criminal or tortuous act.
Further, as has been demonstrated above, invasion of privacy is a tort in many states. An investigator should not be surprised if, after making an electronic recording, he or she is accused of invading the privacy of the subject, thereby rendering such interception unlawful. Again, it is critical that an investigator be familiar not only with the federal law, but also the law of the jurisdiction where the surveillance is being-conducted. Several jurisdictions have adopted surveillance statutes that are more restrictive than the federal statute. Therefore, mere compliance with the federal wiretap statute may not be sufficient to protect an investigator from a state law claim. For example, some states (such as Pennsylvania) require that both parties are aware of and give their consent to any electronic interception (such as the recording of a telephone conversation). The “one party” permission rule does not apply and any electronic surveillance based on such permission would lead to a state law claim against the investigator.
4. What Are the Consequences of an Unlawful Interception?
Under federal law, there are three potential consequences of a violation of the wiretap act. They are:
1) Intercepted communications not admitted into evidence.
The wiretap statute provides that whenever any communication has been intercepted, no part of the contents of such communication and no evidence derived therefrom may be received in evidence in any trial, hearing, or other proceeding in or before any court or other authority of the United States, any state or political subdivision thereof if the disclosure of that information would be in violation of the statute. Therefore, if a communication is obtained in violation of the statute, it will be useless to the investigator as (s)he will be barred from producing any useful information derived from that interception. Further, the statute incorporates the legal doctrine known as the “fruit of poisonous tree” not only for the actual communication excluded from evidence, but for any further evidence the investigator obtains as a result of information derived from an unlawful interception.
2) Criminal penalties.
A violation of the federal wiretap statute is a federal crime and is punishable as such under the United States sentencing guidelines, which punishment may consist of a fine, imprisonment or both.
3) Civil damage.
The wiretap statute also specifically provides for recovery of civil damages. A person whose communication is intercepted may recover appropriate relief, including preliminary inequitable or declaratory relief, such as an injunction, actual and/or statutory damages (discussed below) and, in appropriate cases, punitive damages, reasonable attorneys fees and other litigation costs. Further, the statute provides that the court may assess the actual damages suffered by the subject and any profits made by the violators as a result of the violation or statutory damages consisting of $100.00 a day for each day of the violation or $10,000.00, whichever is greater.
The statute of limitations on any civil suit under this section is two years from the date upon which the claimant first had a reasonable opportunity to discover the violation.
As we have seen, the definition of electronic surveillance and interception of oral communications under the federal statute is very broad, and investigators must be extremely careful when conducting such surveillance to remain within the legal boundaries. Further, investigators must be certain that they are familiar with the electronic surveillance statutes governing the jurisdiction in which they operate as well as the federal statute. Failure to comply with these statutes may result not only in the loss of otherwise probative evidence, but also may subject a careless investigator (and their employer) to criminal and/or civil sanctions.
Larry G. Henning, CFE, CIFI, is Vice President of Investigations at MJM Investigations, Inc., Raleigh, NC. Robert J. Wilbraham, Esq. is an attorney with Wilbraham, Lawler & Buba, Philadelphia, PA.
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