Third Circuit: Insurance company didn't prove defamation claim over lowered credit rating

By Nicholas Malfitano | Apr 23, 2015

PHILADELPHIA – On April 8, the U.S. Court of Appeals for the Third Circuit affirmed a lower court ruling by finding a Wayne insurance provider did not present necessary evidence warranting a new trial in its defamation claim against a New Jersey-based insurance rating agency.

Regis Insurance Company, a provider of property and casualty insurance, initially filed suit after A.M. Best lowered Regis’s credit rating from a B+ to a B- in January 2010. A.M. Best cited “recent” disclosures surrounding the presumed financial insolvency of Regis’ parent company, Tiber Holding Corporation, as its reasoning for this lowered rating.

A.M. Best was made aware of the New York Superintendent of Insurance slamming Tiber with combined judgments of $43 million in both 2000 and 2002, relating to litigation surrounding an insurance company no longer in existence that had been owned and operated by Regis’ president, Richard DiLoreto. A.M. Best felt its lowered rating of Regis was justified, due to potential concerns that Regis could be seized in order to satisfy the aforementioned judgments.

However, Regis claimed the lowered rating it received and an accompanying press release put out by A.M. Best announcing this decision were defamatory, commercially disparaging and constituted tortious interference against both current and prospective customers, resulting in lost business.

An initial March 2013 Memorandum Opinion from Judge Petrese B. Tucker of the U.S. District Court for the Eastern District of Pennsylvania said A.M. Best made statements that were potentially defamatory when it lowered Regis’s rating but did not explain Tiber had been insolvent for the entire previous decade — a time period in which Regis operated as normal and earned consistent B+ ratings from A.M. Best from 2000 to 2009.

It was Tucker’s view at that time that downgrading Regis while not providing this contextual information was misleading on the part of A.M. Best.

“Ultimately, it is for Best's readers to decide whether they still want to do business with Regis despite the risk posed by the insolvency of Tiber,” Tucker said. “But Best's readers lack the ability to make an informed decision on that point if Best deprives them of the information necessary to do so.”

Tucker dismissed the claims of tortious interference in their entirety, stating there was no evidence A.M. Best was intentionally trying to harm Regis’ business.

When the matter proceeded to trial in May 2013, Regis entered six days’ worth of evidence and testimony attempting to prove A.M. Best defied its own internal methodology used to establish their ratings system, which resulted in the alleged defamatory rating. But, the court was not convinced and ruled for A.M. Best.

Regis then petitioned the court for a new trial, a decision also reached by Tucker in May.

“The Court’s March 1, 2013 Memorandum Opinion left open the possibility that the rating could be defamatory if Regis could prove A.M. did not follow its own methodologies in arriving at the rating decision. Regis’ evidence in this regard was wholly insufficient,” Tucker said.

“In sum, Regis presented no competent evidence that A.M. Best departed from its methodologies in rating Regis,” Tucker continued. “As such there was no evidence from which a jury could conclude that the rating was anything other than an opinion, about which reasonable people could disagree. Because the rating is an opinion, it cannot be false and cannot serve as a basis for a defamation or a commercial disparagement claim.”

The court opined similarly on the A.M. Best press release regarding Regis’ downgraded rating, commenting on how A.M. Best followed its standard methodologies and procedure in sending draft copies of its press releases to companies it rates. It did so twice in the month prior to issuing the press release on Regis and its downgraded rating.

“The fact that A.M. Best gave Regis two opportunities to propose changes to the press release again undermines any assertion that Best acted with reckless disregard for the truth,” Tucker wrote.

“Finally, Regis also presented no evidence at trial that any current or prospective client read the press release, and opted not to renew or purchase insurance with Regis due to its contents. Again, Regis only offered evidence of alleged harm due to the rating itself. As such, Regis’ defamation and commercial disparagement claims must also fail because there was no evidence that anyone read the allegedly defamatory statement, and reputational harm resulted,” Tucker stated.

Tucker concluded there was “no actual malice” on the part of A.M. Best towards Regis in their rating of the latter company and denied Regis' motion for a new trial.

Subsequently, Regis appealed to the Third Circuit, where the matter reached Judge D. Brooks Smith, Judge Kent A. Jordan and Judge Franklin S. Van Twerpen. Smith authored the Third Circuit’s six-page opinion on the matter, released April 8.

Smith found that not only had A.M. Best correctly followed its own methodologies in rating Regis, it may have even been generous in its assessment of Regis’ financial health.

“In fact, given that Tiber was insolvent, guidelines in Best’s published methodology suggested that Regis should perhaps have been downgraded all the way to a C or a C+ rating (a significantly more severe downgrade than Regis actually received),” Smith wrote.

Smith further concurred with Tucker that Regis later objected to language in A.M. Best’s press release about the downgrade, when in fact it had not one, but two previous opportunities to read drafts of the release and challenge its wording.

“Best twice showed Regis draft press releases containing the identical ‘recent disclosure of the lack of financial flexibility’ language of which it now complains. Although Regis responded by disputing the merits of the downgrade and threatening to sue over the downgrade, Regis never took issue with any of the specific language used in the press release,” Smith said.

Smith opined since there was no dispute the literal wording in the press release was factual, Regis sought to prove grounds for a new trial instead based on defamatory “implication or innuendo” in the press release’s wording. Smith believed Regis failed on that account.

“On appeal, Regis makes no attempt whatsoever to defend the District Court’s reasoning that the use of the word “recent” was misleading—instead it simply argues that ‘the issue of falsity should have been submitted to the jury because the trial court had already determined that the statements in the press release were capable of a defamatory meaning at the summary judgment stage,” Smith wrote.

“As the words in the press release cannot be properly construed to suggest that the ‘lack of financial flexibility’ was itself ‘recent,’ Regis was not and is not entitled to have its claim considered by a jury.”

Upholding the ruling of the Eastern District Court, Smith denied Regis’ motion for a new trial.

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