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Guzhagin v. State Farm Mut. Auto. Ins. Co.: US District Court : INSURANCE - no aggregation of doctors' claims as would-be TP benefits of no-fault policies; qualified privilege

Civil No. 07-4650 (JRT/FLN)
Lawrence H. Crosby and Jay D. Olson, CROSBY & ASSOCIATES, Suite
234E, 2277 Highway 36 West, St. Paul, MN 55113-3830, for plaintiffs.
Katherine A. McBride, Leatha G. Wolter, and Tamara L. Rollins,
MEAGHER & GEER, LLP, Suite 4400, 33 South Sixth Street,
Minneapolis, MN 55402, for defendant.
Dr. Artur Guzhagin is a chiropractor employed at Loring Park Chiropractic Clinic
(Loring Park). Dr. Guzhagins patients include several individuals insured by
defendant State Farm Mutual Automobile Insurance Company (State Farm).
Dr. Guzhagin and Loring Park filed this action after State Farm refused to reimburse
them for their services, alleging breach of contract, negligence, defamation, tortious
interference with contract, and product disparagement. State Farm now moves for
summary judgment. For the reasons given below, the Court grants State Farms motion.
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State Farm sells no-fault automobile insurance in Minnesota. Its insureds include
Hanan Mohamed, Iman Mohamed, Ikran Mohamed, Bashir Hassan, Ahmed Hassan,
Abdikadir Said, Saynab Ali, and Borivanh Thammavongsa. Each of these individuals
allege that they suffered injuries in automobile accidents, and each submitted claims to
State Farm for chiropractic expenses allegedly incurred at Loring Park. The treating
chiropractor for each patient was Dr. Guzhagin.
In their briefing, the parties do not address the total claim amounts sought for
Dr. Guzhagins services or the frequency of the alleged treatments. However, the record
contains billing records or claim summaries for five of the individual insureds. (McBride
Aff., Exs. 5, 10, 12, 15, 18.) This Courts independent review of those documents reveals
that the insureds claims ranged from approximately ,500 to ,000, for periods of
treatment ranging from three weeks to approximately four months. (Id.) In the case of
one patient, Loring Park submitted a bill for nearly 150 separate chiropractic charges
incurred in less than three months. (McBride Aff., Ex. 5.)
State Farm investigated the validity of these claims. In the case of three of the
individual insureds, State Farm concluded that they had made material misrepresentations
concerning the circumstances of their automobile accident. A provision of their
insurance agreement stated [t]here is no coverage under this policy if you or any other
person insured under this policy has made false statements with the intent to conceal or
1 For the purposes of this summary judgment motion, the Court considers the facts and
evidence in the light most favorable to plaintiffs, the non-moving party.
-3 -
misrepresent any material fact or circumstance in connection with any claim under this
policy. (McBride Aff., Ex. 2 at 34.) Pursuant to this provision, State Farm denied these
three claimants requests for benefits. State Farm sent a letter to Loring Park including
the following:
State Farm fire and Casualty Company has completed its investigation
regarding this matter. As a result, all no-fault benefits have been denied for
the above-listed patients. Therefore, we will not be making any payments
for billings received. Please forward billings you have to your patients for
(McBride Aff., Ex. 1 at Ex. A.)
As to the other five claims, State Farm took sworn depositions of the individual
insureds. Those depositions are included in the record, and contain detailed questioning
concerning the specifics of their treatment. (McBride Aff., Ex. 1 at Ex. 6, 8, 11, 13, 18.)
State Farm points to approximately twenty instances in which it believes that this
testimony contradicted Loring Parks billing records. Among those are numerous
instances where the insureds appeared to deny receiving particular categories of treatment
or receiving those treatments only on rare occasions despite the fact that those
treatments appear repeatedly in Loring Parks payment request.2 Plaintiffs contend that
2 Rather than recounting the entire list of these inconsistencies, the Court offers the
following illustrations. In one case, the insured indicated in his deposition that he had only
received electrical stimulation during his first week of treatment. (McBride Aff., Ex. 6 at 41.)
However, the billing records for this patient indicate that he received electrical muscle
stimulation for every visit for a twenty-day period, which appeared to include 12 separate visits
to Loring Park. (McBride Aff., Ex. 5.) In another case, a patient indicated that on his first visit,
Dr. Guzhagin merely checked his arm and leg strength and massaged his neck. (McBride Aff.,
Ex. 11 at 44-48.) However, the billing records for that visit seek payments for therapeutic
procedures, electrical muscle stimulation, acupuncture, and adjustment. (McBride Aff., Ex. 12.)
(Footnote continued on next page.)
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in several of these instances State Farm has misconstrued the depositions, but plaintiffs
do not specifically address the majority of the alleged contradictions. Based on this
evidence, State Farm refused to pay for Loring Parks alleged treatments. For each
patient, State Farm sent Loring Park a letter stating the following:
Our investigation concludes that Loring Park Chiropractic has failed to
substantiate the right to payment. Therefore, these bills are not owed by
State Farm or our insured and are being denied.
(McBride Aff., Ex. 1 at Ex. B, C, E, F.)3 In some cases these notices were also sent to the
insureds attorneys, and none of the letters included further details about State Farms
Following these denials, one of the individual insureds who was denied benefits
because of unsubstantiated treatment filed for arbitration. The arbitrator upheld State
Farms decision to deny all payments for Loring Parks services. (McBride Aff., Ex. 16.)
Two more of the insureds have also sought benefits through arbitration, but the parties
have not notified the Court of any resolution of those cases.
Dr. Guzhagin and Loring Park contend that they should have been paid for their
services, and filed this action in federal district court. They bring claims for breach of
contract, negligent refusal of an insurance company to participate in a statutory scheme
providing personal injury protection to insureds within the State of Minnesota,
(Footnote continued.)
Plaintiffs have offered no explanation for these two particular inconsistencies or many others,
other than to generally assert that all billed procedures were performed.
3 In one case, State Farm denied benefits both for accident-related misrepresentations and
unsubstantiated treatment, and sent a notice that also referenced the misrepresentations.
(McBride Aff., Ex. 1 at Ex. D.)
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defamation, tortious interference with contract, and product disparagement. Plaintiffs
breach of contract claim is based on defendants insurance contracts with the individual
claimants. Plaintiffs allege that they qualify as third-party beneficiaries under those
contracts, and are thus able to enforce State Farms payment obligations. Plaintiffs
defamation, tortious interference, and product disparagement claims are based on the
letter communications quoted above.
Summary judgment is appropriate where there are no genuine issues of material
fact and the moving party can demonstrate that it is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c). A fact is material if it might affect the outcome of the suit,
and a dispute is genuine if the evidence is such that it could lead a reasonable jury to
return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247
(1986). A court considering a motion for summary judgment must view the facts in the
light most favorable to the non-moving party and give that party the benefit of all
reasonable inferences that can be drawn from those facts. Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Plaintiffs allege that by not reimbursing them for their services, State Farm
breached its individual contracts with its insureds. Plaintiffs argue that they have
standing to enforce these contracts because they qualify as third-party beneficiaries.
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State Farm moves for summary judgment on this claim on three grounds: (1) plaintiffs do
not meet the requirements for third-party beneficiary status under Minnesota law; (2) the
contracts at issue contain an anti-assignment provision, preventing the insureds from
assigning their right to payment to plaintiffs; and (3) even if the Court concludes that
plaintiffs have enforceable rights under the individual insureds contracts, any action
seeking enforcement of those rights would be subject to mandatory arbitration under
Minnesotas No-Fault Automobile Insurance Act (No-Fault Act). Because this Court
agrees that this claim is subject to mandatory arbitration requiring the dismissal of these
claims even if plaintiffs have the right to enforce the individual insurance contracts the
Court need not address the additional arguments raised by State Farm.
Minnesotas No-Fault Act provides for the mandatory submission to binding
arbitration of all cases at issue where the claim at the commencement of arbitration is in
an amount of ,000 or less . . . for no-fault benefits or comprehensive or collision
damage coverage. Minn. Stat. 65B.525, subd. 1. This arbitration requirement cannot
be waived, and deprives courts of subject matter jurisdiction over no-fault claims of
,000 or less. See Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 800
(Minn. 2004).
State Farm contends that this principle applies here, because each of the individual
claims was for less than ,000. Plaintiffs have not responded to this argument in their
brief, and when questioned at oral argument, plaintiffs merely insisted that the total
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amount of their assigned claims exceeds ,000.4 The Minnesota Supreme Court,
however, has squarely rejected that argument. In Illinois Farmers, a glass service
company argued that because it had been assigned insurance benefits arising out of more
than 5700 individual auto glass claims worth a total of more than million its
consolidated claim for those benefits exceeded ,000, and was not subject to
mandatory arbitration. Id. at 804. The court disagreed, holding that the glass service
company [could] not defeat the No-Fault Acts jurisdictional mandate for arbitration by
consolidating the claims of . . . individual policyholders. Id. While the court noted that
it was mindful of concerns over the expense of 5700 arbitrations, it concluded that it
must follow the mandate of the No-Fault Act, which unequivocally demands that all
claims in an amount of ,000 or less be arbitrated. Id. at 805 (quotation omitted).
Here, too, this Court faces an (alleged) assignee of multiple individual claims,
none of which exceeds ,000. In those circumstances, the Court is bound to follow
Illinois Farmers in enforcing the unequivocal mandate of Minnesotas No-Fault Act.
Accordingly, the Court concludes that even if plaintiffs have enforceable rights under the
individual insurance contracts, plaintiffs claim that State Farm breached those contracts
by failing to provide benefits is subject to mandatory arbitration under Minnesota law.
4 Clearly if eight claims totaled more than ,000, at least one would have to be for
more than ,000. However, plaintiffs indicated that this figure reflected 25 State Farm claims,
without explaining the origin or relevance of the additional claims, and without alleging that any
particular claim was for more than ,000. In addition, the Courts independent review of the
billing records and claim summaries submitted in the record has uncovered no claim exceeding
-8 -
This Court therefore lacks subject matter jurisdiction over plaintiffs breach of contract
claim and must dismiss that claim without prejudice.
Plaintiffs also bring a claim for defamation, based on the statements included in
the claim-denial letters quoted above. Plaintiffs note that these letters were sent to the
individual insureds and their attorneys, and falsely stated that Dr. Guzhagin had failed to
substantiate its right to payment.5 State Farm argues that plaintiffs have failed to
establish all of the elements for a defamation claim, and that even if they could do so, the
statements in question were shielded by a qualified privilege. This Court agrees that
these comments were shielded by a qualified privilege, and therefore need not address the
underlying question of whether they were defamatory.6
In order for a defamatory communication to be shielded by a qualified privilege, it
must be made upon a proper occasion, from a proper motive, and must be based upon
reasonable or probable cause. Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 256-
57 (Minn. 1980). [T]he existence of a privilege results from the courts determination
that statements made in particular contexts or on certain occasions should be encouraged
5 Plaintiffs complaint includes further unspecified allegations about disclosures to third
parties. The only specific allegations in plaintiffs brief and complaint, however, concern the
content of State Farms letters. The Court therefore focuses its analysis on those
6 The Court notes, however, that it is unclear how the letter concerning the first three
claimants who had been denied benefits for material misrepresentations about their accident
could be construed as defamatory toward plaintiffs.
-9 -
despite the risk that the statements might be defamatory. Lewis v. Equitable Life
Assurance Socy of the U.S., 389 N.W.2d 876, 889 (Minn. 1986). Whether an occasion
is a proper one upon which to recognize a privilege is a question of law for the court to
determine. Id.
Here, State Farm was required under Minnesota law to provide its insureds with
the basis for its claim denials. See Minn. Stat. 72A.201, subd. 8(5)(i). That mandate
provided it with a proper occasion and a proper motive for notifying its insureds of
its coverage decision. See Moore & Assocs. v. Metro. Life Ins. Co., 604 S.W.2d 487, 490
(Tex. Civ. App. 1980) (applying the qualified privilege to a communication of a claim
denial to an insured because that disclosure was legally required). As to reasonable
cause, the record contains billing records submitted for one patient that sought more than
,000 for nearly 150 chiropractic procedures performed over the course of less than
three months. (McBride Aff., Ex. 5.) After receiving this request and other similar
requests, State Farm conducted an investigation that included the taking of sworn
depositions, which thoroughly explored the insureds treatment histories. The testimony
given in these depositions appears inconsistent with Loring Parks billing records in
numerous instances, many of which plaintiffs have declined to address. Finally, the
Court notes that as to at least one of these disputes, an arbitrator has affirmed State
Farms denial of benefits. In those circumstances, the Court concludes that State Farms
letters to its insureds were supported by reasonable cause. Cf. Wirig v. Kinney Shoe
Corp., 461 N.W.2d 374, 380 (Minn. 1990) (noting that probable cause did not exist
-10 -
where an employer had undertaken no investigation to substantiate charges concerning
an employees conduct).7
Where the qualified privilege applies, a defamation plaintiff may only prevail if he
or she can demonstrate actual malice. Lewis, 389 N.W.2d at 889. Actual malice requires
a showing that statements were made from ill will and improper motives, or causelessly
and wantonly for the purpose of injuring the plaintiff. Bauer v. State, 511 N.W.2d 447,
450 (Minn. 1994). Malice can be shown by extrinsic evidence of personal spite, as well
as by intrinsic evidence such as the exaggerated language of the libel, the character of the
language used, the mode and extent of the publication, and other matters in excess of the
privilege. Bol v. Cole, 561 N.W.2d 143, 150 (Minn. 1997). However, actual malice
cannot be implied merely from the fact that the statement was false. Id. While malice
is generally a question of fact, summary judgment is appropriate where the evidence
would be insufficient for a reasonable juror to find for the plaintiff. See id. at 150-51.
Here, plaintiffs do not directly address the issue of malice in their brief. However,
they broadly contend that they should have been given more information about why State
Farm denied payment, and argue that the allegedly defamatory statements themselves
suggest negative inferences about plaintiffs conduct. The Court finds these allegations
insufficient as a matter of law to overcome the qualified privilege. As to the lack of
7 The Court adds that this is not necessarily a final determination about the truth of the
insureds deposition testimony, or a blanket conclusion of wrongdoing on the part of the
plaintiffs. The appropriate forum for those questions would be a no-fault arbitration proceeding,
as indicated above. Rather, the Court merely concludes that there is sufficient evidence in the
record to support the application of the qualified privilege.
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additional information, State Farms letter indicated it had performed an investigation,
and plaintiffs concede that they never requested any further details. While the Court is
bothered by State Farms failure to give some greater accounting for its decision, the
Court is not persuaded that its failure to do so without a request suggests ill will. As to
the language in the letters themselves, State Farms limited disclosure concisely stated
the conclusions of its investigation. While plaintiffs disagree with those conclusions, this
Court does not have jurisdiction to revisit them for the reasons set forth above, and a
disagreement about factual accuracy is not grounds for a finding of actual malice. See
Bol, 561 N.W.2d at 150. Accordingly, the Court dismisses plaintiffs defamation claim
with prejudice.
Plaintiffs also bring claims for tortious interference and product disparagement.
These claims, however, are based on the allegedly defamatory statements made by State
Farm in its claim-denial letters. (See Memo in Opposition to Summary Judgment, at 17-
18.) As State Farm points out, a Minnesota plaintiff is not permitted to avoid defenses to
a defamation claim by challenging the defamatory statements under another doctrine.
See Wild v. Rarig, 234 N.W.2d 775, 793 (Minn. 1975) (dismissing a claim for wrongful
interference with business relationships pursuant to the statute of limitations for
defamation where the allegedly wrongful act eventually stems from and grew out of the
defamation); Zagaros v. Erickson, 558 N.W.2d 516, 523 (Minn. Ct. App. 1997)
(dismissing a negligence claim pursuant to an immunity defense available for defamation
-12 -
where the claim is essentially relabeling a defamation claim). Here, plaintiffs cannot
avoid the qualified privilege defense outlined above by recharacterizing their defamation
claim as a claim for tortious interference or product disparagement. Accordingly, those
claims are dismissed with prejudice.
Finally, plaintiffs allege a claim for negligent refusal of an insurance company to
participate in the statutory scheme providing personal injury protection to insureds within
the State of Minnesota. (Complaint at 5.) State Farm argues that this claim does not
exist under Minnesota law, and should therefore be dismissed. Plaintiffs have not
responded to this argument, and this Court has uncovered no indications that it is an
available cause of action under Minnesota law. Accordingly, this claim is dismissed with
8 The Court notes that plaintiffs have also argued that State Farms motion for summary
judgment is premature. First, plaintiffs note that a relevant case on the assignability of insurance
benefits is currently pending before the Minnesota Supreme Court. See Star Windshield Repair,
Inc. v. W. Natl Ins. Co., 744 N.W.2d 237 (Minn. Ct. App. 2008), rev. granted (Minn. Apr. 29,
2008). However, because the Court concludes that it would not have jurisdiction over the
parties contract dispute even if the insureds benefits were effectively assigned to the plaintiffs,
it need not reach this issue. Second, plaintiffs indicate that further discovery will substantiate its
suspicion that State Farm has communicated defamatory statements to additional third parties.
In an affidavit submitted in opposition to summary judgment, plaintiffs counsel contends that
State Farm may be suggesting to other insurance companies that plaintiffs are violating the
corporate practice of medicine doctrine. (Crosby Aff., at 6.) However, this allegation does not
appear in plaintiffs complaint. Moreover, neither plaintiffs affidavit nor their brief provide any
further context for this claim, or describe the specific defamatory comments or the circumstances
in which they were conveyed. Finally, when asked to elaborate on this claim at oral argument,
plaintiffs indicated that this suspicion is based merely on its knowledge of the sharing of
information among other insurance companies. In those circumstances, the Court finds that it
(Footnote continued on next page.)
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Based on the foregoing, all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that State Farms Motion for Summary Judgment [Docket
No. 12] is GRANTED as follows:
1. Plaintiffs breach of contract claim (Count 1) is DISMISSED WITHOUT
2. Plaintiffs negligence claim (Count 2), defamation claim (Count 3), tortious
interference claim (Count 4), and product disparagement claim (Count 5) are
DATED: July 24, 2008 s/ John R. Tunheim _
at Minneapolis, Minnesota. JOHN R. TUNHEIM
United States District Judge
(Footnote continued.)
would be inappropriate to allow plaintiffs to forestall summary judgment in a case filed in
September 2007 based on this vague and belatedly-introduced allegation.


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