North Carolina Farm Bureau Mutual Ins. Co. v. Cully’s Motorcross Park, Inc., 2013 WL 2635575 (N.C. June 13, 2013)
A fire insurer initiated a declaratory judgment action to determine its liability for fire damage in the aftermath of a house fire in which arson was suspected. The insureds, Mr. and Ms. Volpe, and the corporate owner of the house asserted several counterclaims including malicious prosecution. During the course of the fire and insurance claim investigation, the fire insurer’s investigator discovered evidence of arson and reported his suspicions to local law enforcement. The fire insurer’s investigator also determined that Ms. Volpe had failed to disclose a deed of trust on the property and sold the property without disclosing the deed. The investigator also provided this information to law enforcement. Law enforcement investigated and subsequently arrested Ms. Volpe for obtaining property by false pretenses. The district attorney later dismissed the charge. Ms. Volpe amended her answer to add a counterclaim against the fire insurer for malicious prosecution.
After a bench trial, the trial court found that Ms. Volpe’s actions did not amount to a crime and the fire insurer was liable for malicious prosecution. The appellate court affirmed and the fire insurer appealed to North Carolina’s Supreme Court.
The North Carolina Supreme Court considered the elements of proof necessary to sustain judgment for malicious prosecution under North Carolina law. The fire insurer argued that because it only reported the matter to law enforcement, it could not be liable for malicious prosecution. The intermediate appellate court ruled that because a criminal prosecution would have been unlikely if the fire insurer’s investigator had not contacted law enforcement, the trial court did not err by determining that the insurer initiated criminal proceedings.
The Supreme Court reversed. First, the Court noted the elements required to prove the insurer was guilty of malicious prosecution: (1) the insurer initiated the earlier proceeding; (2) malice on the part of the insurer in doing so; (3) lack of probable cause for the initiation of the earlier proceeding; and (4) termination of the earlier proceeding in favor of the accused. The dispositive issue in the present case was whether the trial court erred when it found as a matter of law that the insurer had initiated the prosecution. The Supreme Court ruled that the appellate court applied the wrong standard to this determination. The appellate court had concluded that but for the insurer’s reporting of the matter to law enforcement, the prosecution of Volpe would not have occurred. The Court found this was error because the undisputed facts established that the investigating law enforcement officer arrested Ms. Volpe on his own initiative. Further, the insurer’s investigator never requested the arrest or prosecution. Although law enforcement considered the information provided by the insurer, an independent investigation and decision were made to proceed with the prosecution. Thus, the first element of the malicious prosecution action against the insurer could not be established.
If law enforcement conducts an independent investigation and exercises its own discretion to initiate a prosecution, the first element of a malicious prosecution action cannot be established under North Carolina law. The “but for” test relied upon by the trial and intermediate appellate court does not apply per the Supreme Court’s ruling.
The decision establishes that an insurer that merely reports information to law enforcement has not “initiated” a prosecution under North Carolina law for purposes of the first element of a malicious prosecution action.