Insurer Reporting of Total Loss to DMV is Subject to Qualified Privilege and Court Explains Admissibility of Claim Documents

In Klem v. Access Insurance Co. (No. 17D070623, filed 11/20/17), a California appeals court analyzed the admissibility of claim file documents as evidence, and held that an insurer’s reporting of a vehicle total loss determination to the California DMV resulting in a branded salvage title is subject to qualified privilege.

In Klem, the Plaintiff had an accident with an Access insured. Access determined that his vehicle was a total loss based on an inspection of the vehicle and comparable vehicles. Access sent Klem a check and advised that he could keep the car for salvage. Further, Access notified the California DMV, via the standard form for notice of total loss under California Vehicle Code section 11515(b) (form REG 481 “Salvage Vehicle Retention by Owner”), and told Klem that he would be issued a salvage certificate.

Klem did not cash the check and wrote to Access arguing that the vehicle was worth more. Also, he advised Access that he was repairing the vehicle, and instructed Access not to report it as salvaged. He said that he would agree to reporting the vehicle as salvage in exchange for payment of the “full value” of the vehicle.

When Access would not withdraw the DMV notification, Klem sued for slander of title and unfair business practices under the Unfair Competition Law (UCL). He claimed that because he had repaired the vehicle it was not a total loss subject to DMV reporting. Access responded by filing an anti-SLAPP motion, supported by a declaration from an Access compliance officer attaching claims logs and documents, which Klem opposed with his own declaration. The trial court denied the motion, concluding that although the DMV report constituted a protected activity for purposes of an anti-SLAPP motion, it was not a privileged communication and Klem had established a probability of prevailing on the merits.

The appeals court reversed, dealing first with evidentiary issues. The trial court had sustained Klem’s objections to the Access claims person’s declaration and the claim file documents based on lack of personal knowledge, hearsay, multiple hearsay, and lack of foundation. But the appeals court explained that such materials fall within the business records exception to the hearsay rule under Evidence Code section 1271, which states that a writing made as a record of an act, condition, or event is not hearsay if it (a) was made in the regular course of a business; (b) was made at or near the time of the act; (c) the custodian or other qualified witness testifies to its identity and the mode of its preparation; and (d) the source’s method of preparation indicate its trustworthiness. The appeals court stated:

“Meadows’s declaration was sufficient to establish these requirements. He explained it is the ‘general business practice’ of Access Adjusters to ‘regularly make entries into the claims log,’ and to prepare and send letters. Claims log entries are made ‘at the time of the conversation or action … or shortly thereafter,’ and logs and letter copies are maintained in the regular course of business. Meadows was a qualified witness (evidenced by his role as a senior compliance officer and familiarity ‘with the procedures, records, and record-keeping’), and he verified the documents were accurate copies. Lastly, the source of the information and time of preparation provide trustworthiness; the materials were prepared by claims personnel, during the claims process.”

The Access court did note possible “multiple hearsay” in claim log notes reflecting others’ conversations, but said that to the extent those served as proof that the communications took place, they were not hearsay at all. (Citing Stewart v. Estate of Bohnert (1980) 101 Cal.App.3d 978, 990.) The Access court also rejected personal knowledge and foundation objections to the claims person’s declaration, saying that “So long as the person who originally feeds the information into the process has firsthand knowledge, the evidence can qualify as a business record.”

The Access court then turned to the substantive issue of DMV reporting and anti-SLAPP law. The Access court agreed that submission of a DMV total loss salvage notice was protected speech, not because issuing a salvage title constitutes an official proceeding, but because it relates to an issue of public interest: “[A]nyone who sells, purchases, or drives cars in California is impacted by these communications.” Conversely, the Access court rejected Klem’s argument that his case came within the public interest exception to the anti-SLAPP law, saying that his slander of title claim concerned only himself, not the public. Further, because Klem’s UCL claim sought treble damages “on his own behalf,” the court found he was seeking relief “different from the relief sought for the general public,” and therefore the public interest exception did not apply.

The appeals court did disagree, however, that Klem had any probability of success on the merits. The Access court said that to establish slander of title, a plaintiff must show: “(1) a publication, (2) which is without privilege or justification, (3) which is false, and (4) which causes direct and immediate pecuniary loss.” (Citing Manhattan Loft, LLC v. Mercury Liquors, Inc. (2009) 173 Cal.App.4th 1040, 1051.)

The Access court concluded that submission of the standard DMV total loss form was not absolutely privileged. The court said that the absolute privilege of Civil Code section 47(b) applies to “communications made as part of a ‘judicial or quasi-judicial proceeding,’ defined to include any sort of ‘truth-seeking’ ‘or other official proceeding.’” But nothing in Vehicle Code section 11515 (insurer reporting of total loss determination) or in the REG 481 notice, suggests that submission of the form results in an investigation. “Indeed, the DMV ‘has no discretion to reconsider the total loss salvage vehicle determination.’”

But the court found that the report does carry qualified privilege under Civil Code section 47(c), which applies to “a communication, without malice, to a person interested therein, (1) by one who is also interested, or (2) by one who stands in such a relation to the person interested as to afford a reasonable ground for supposing the motive for the communication to be innocent, or (3) who is requested by the person interested to give the information.” The Access court said that “Access and the DMV have a common interest in reporting of total loss salvage vehicles and Access’s submission of the REG 481 notice was reasonably calculated to advance that interest.”

Since Access had established that there was a qualified privilege, the burden had shifted to Klem to show malice or falsity. He did neither: “Klem’s apparent premise—that a salvage title causes a reduction in vehicle value—is flawed. A total loss salvage determination follows an accident. It is the accident that causes the vehicle’s damage…. Klem identifies no evidence a salvage title even necessarily correlates with a lower value. But to the extent it does, this correlation simply reflects that a vehicle with damage history may have reduced value.” Further, “Klem’s evidence does not reflect any ill will on Access’s part. There was nothing nefarious about accurately informing Klem regarding his options as to his claim…. Ultimately, Klem provides no evidence Access sent the REG 481 notice to reduce the Vehicle’s value or induce settlement, rather than to comply with what Access believed to be its statutory obligations in light of its total loss evaluation.”

As to falsity, Klem likewise failed to carry his burden. The Access court read the definition of “Total Loss Salvage Vehicle” in Vehicle Code section 544 and noted that while it might be semantically possible to read it to mean that a vehicle can only be a total loss salvage when there is no repair, by any party, that would frustrate the purpose of the statue: “Reading section 544, subdivision (a), as a whole, we conclude the only reasonable interpretation is that repair following an uneconomical-to-repair determination does not preclude total loss salvage status.” The “main objective” of the salvage law was to “identify total loss salvage vehicles apart from operable vehicles,” while also addressing concerns regarding safety, fraud, theft, and “vehicles that were improperly repaired.” Also, “interpreting section 544, subdivision (a), to focus on whether a vehicle is uneconomical to repair (not whether someone wants to repair it, regardless) promotes the effective operation of the salvage laws.”

Having concluded that intent to repair or actual repair was not determinative of total loss salvage status, the Access court held that Klem had provided no other objective evidence of falsity. His own declaration that he did not consider it uneconomical to repair was insufficient, and even “if Klem did rely on value, his evidentiary showing likewise would be deficient. His only evidence is his $4,500 estimate (again, in his declaration), with no indication this was based on the Kelley Blue Book or some other objective source. Indeed, he indicates the Vehicle had ‘unique value,’ suggesting the estimate was based on subjective factors. Klem also provided no evidence of the cost of repair. This evidence also would not call into question Access’s assessment that the Vehicle was uneconomical to repair, or, in turn, show its REG 481 notice to be false.” Nor did he supply any evidence of actual pecuniary loss, beyond his own subjective opinions.

Having disposed of slander of title, the Access court also disposed of the UCL claim, saying that “Klem cannot establish his UCL claim because, among other reasons, he did not establish actual injury.” The court noted the UCL requirement that a person “has suffered injury in fact and has lost money or property as a result of the unfair competition,” and stated that “[e]ven if we consider the allegations and evidence provided in support of the slander of title claim, they do not reflect economic injury due to Access’s communication. Thus, Klem has not demonstrated the standing necessary to pursue his UCL claim.”

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

November 22, 2017