By Barry Zalma, Attorney and Consultant
States are called upon to enforce sanctions against insurance agents and brokers who violate the law and defraud the public. In doing so they act as both police agencies and administrative agencies dealing with licenses to practice insurance. Because criminals and those who violate insurance laws and regulations to defraud the public are less than reasonable and honorable persons, public officials must be protected from vexatious individuals so that they can carry out their duties without fear of multiple lawsuits.
An investigation into the questionable business practices of Alan D. Knowlton's ("Knowlton") employer, Bankers Life and Casualty Co. ("Bankers Life" or "the Company"), eventually led the Maine Bureau of Insurance ("the Bureau") and the Maine Attorney General's Office ("the AG's Office") to Knowlton's front door. Knowlton accepted responsibility for his own unlawful conduct and Judith Shaw, Glenn Griswold and Andrew Black (collectively, "the state officials"), representing the Bureau and the AG's Office agreed to take no further action against Knowlton. That promise turned out to be short-lived, however, when they agreed to Knowlton's termination in a separate agreement with Bankers Life. Knowlton sued the state officials and lost and the First Circuit Court of Appeal, in Alan D. Knowlton v. Judith Shaw; Andrew Black; Glenn Griswold, No. 12-1251, 2013 U.S. App. LEXIS 293 (1st Cir. 01/04/2013), was asked to resolve the dispute and allow Knowlton to continue to work.
In or around 2001, the Bureau began investigating Bankers Life's improper marketing practices targeting elderly consumers. Shaw, the Bureau's Deputy Superintendent, became involved and initiated a parallel investigation into Bankers Life's sales practices. Griswold, Director of the Consumer Healthcare Division of the Bureau, led that investigation. In or around January 2005, after finding that Bankers Life had engaged in improper sales practices in Maine, Assistant Attorney General Black, Shaw and Griswold began negotiating with Bankers Life to resolve those claims.
Bankers Life was not the only one on the state officials' radar, however. Shaw, Griswold and Black quickly turned their attention to Knowlton, the Company's Branch Sales Manager in Bangor, Maine, after learning about his November 2004 sales recruitment meeting. At that meeting, he distributed materials representing that Bankers Life had an "A" rating by A.M. Best Company, when its rating was actually a "B++." In response to an attendee's comment that he was pleased about the "A" rating, Knowlton said he hoped to see it improve.
On the heels of the investigation into Knowlton's actions, Knowlton entered into a consent agreement with the AG's Office and the Bureau to resolve licensing violations associated with the sales recruitment meeting and his conversation with the potential recruit. In the agreement, Knowlton admitted that he violated the Maine Insurance Code by distributing materials containing a misleading representation about Bankers Life's financial condition and by acknowledging the attendee's comment about the A.M. Best Company rating. In addition to accepting responsibility for those violations, he agreed to submit to a 60-day suspension of his insurance producer license and a 270-day period of license probation, pay a civil penalty of $750.00, and comply with other requirements regarding recruiting materials and the reporting of consumer complaints. In exchange, the Bureau and the AG's Office agreed to "forgo pursuing further disciplinary measures or other civil or administrative sanctions against [him] for the violations" described in the agreement.
Not one week passed before the Bureau and the AG's Office entered into a separate consent agreement with Bankers Life to resolve the claims against it. During their negotiations, the Bureau accepted Bankers Life's proposal that the branch managers of its South Portland and Bangor branch offices (which included Knowlton's position as the Bangor branch manager) be terminated. Thus, the agreement called for Bankers Life to "relieve the managers of its South Portland and Bangor branch offices of their positions as branch managers." Bankers Life terminated Knowlton's position as branch manager on April 14, 2005.
Knowlton's complaint asserts claims against Shaw, Black and Griswold in their individual capacities for violations of 42 U.S.C. § 1983 and 42 U.S.C. § 1985(2). Specifically, the complaint alleges that by agreeing to Bankers Life's termination of Knowlton's position as branch manager, the appellees deprived Knowlton of continued employment with the Company without due process under § 1983. The complaint added that Shaw, Black and Griswold violated his rights under § 1985(2) by participating in a conspiracy with the Bureau and Bankers Life to deprive him of his rights to challenge the termination provision in the consent agreement.
The state officials moved to dismiss the complaint on several grounds, including absolute immunity for the § 1983 claim. In granting the motion, the district court agreed that absolute immunity protected the state officials from liability. The court further concluded that Knowlton failed to plead a plausible claim.
Absolute immunity is not available to either prosecutors or agency officials whose actions are primarily administrative or investigative in nature and unrelated to their functions as advocates in preparing for the initiation of a prosecution or for judicial proceedings. In considering whether absolute immunity attaches to an official's conduct, the First Circuit employs a functional approach where the availability of absolute immunity turns on a functional analysis which looks to the nature of the function performed, not the identity of the actor who performed it.
Shaw and Griswold, as representatives of the Bureau, have the duty and authority to enforce Maine's insurance laws, and through the AG (Black), may invoke the aid of the Superior Court through proceedings to enforce any action taken by the Bureau or pursue criminal prosecution based on violations of the Code. An enforcement petition need not, however, reach an administrative proceeding or even the courthouse door. The Bureau may decide to execute consent agreements that impose penalties or fines authorized by law to resolve a complaint or investigation without further proceedings. The decision to resolve the violations before pursuing further proceedings not only arose directly from their roles as the State's advocates in enforcing Maine's insurance laws, but was inextricably related to the judicial process. Absolute immunity promotes effective government, where officials are freed of the costs of vexatious and often frivolous damages suits that may result from their decisions.
While no administrative proceeding was initiated in this case (only a petition to enforce was issued), we see no meaningful difference between the nature of an agency official's decision to pursue an administrative proceeding and that of her decision to resolve a violation before reaching that step. In both instances, the agency official acts as the State's advocate, exercising the broad discretion in deciding whether a proceeding should be brought and what sanctions should be sought. The discretion officials exercise in deciding which cases should move forward to further legal proceedings and which may be resolved with consent agreements might be distorted if their immunity from damages arising from that decision was less than complete.
The state officials' decision to agree to the termination provision, however, need not be put in the framework for adversarial testing and judicial supervision, for absolute immunity to apply.
The state officials carried their burden in establishing they are entitled to absolute immunity for entering into the consent agreements with Knowlton and Bankers Life and the First Circuit affirmed the district court's dismissal of Knowlton's claims against the state officials.
The first circuit should be commended for providing the officials with absolute immunity from Knowlton's action. Knowlton should have been happy with the deal he made with the state since his acts were clearly wrong and in violation of his promises when he was licensed.
That the state gave him a minor suspension of his license and allowed him to return to work should have been enough. Bankers Life was obviously upset that he, and others, had put them into trouble with the state and did not want to keep Knowlton on the payroll. To sue the state for agreeing that Bankers Life could fire him was, in my opinion, an act of unmitigated gall. Knowlton is still licensed in Maine and can work if he wishes. He is not entitled to keep a job, especially after putting his employer in a position to be sued by those to whom he lied.
The mercy shown to Knowlton by the state was rewarded with a lawsuit rather than Knowlton losing his license or spending time in jail.
Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" "Heads I Win, Tails You Lose - 2011," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.
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