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April 1971: Broker wins libel suit over false credit report

April 1971: Broker wins libel suit over false credit report

An insurance broker has been awarded $290,000 in damages in a libel case involving a Retail Credit Co. background investigation report that the reporting service admitted was based on false information.

Retail Credit said it is covered by an umbrella policy, including a libel clause, with a $50,000 deductible and a limit higher than the $290,000 loss. Marsh & McLennan Inc., Atlanta, are the brokers and the Travelers Insurance Co. is the carrier.

This is the second time the case has been tried. Retail Credit lost the first one too, but the verdict was turned aside because of a technicality in the conduct of the trial. The first suit was for only $50,000.

The story began seven years ago when Paul F. Roemer, a well-established Oakland insurance broker, asked for authorization to act as an agent for Penn Mutual Life Insurance Co. in San Francisco. The firm routinely asked the local office of Retail Credit for an “agency qualification report” on Mr. Roemer-including an evaluation of his personal life, integrity and reputation.

Mr. Roemer told Business Insurance that Retail Credit submitted the report to Penn Mutual on Dec. 16, 1964. According to testimony at the trial, the report said that Mr. Roemer was intelligent, pleasant and a good family man (the father of four); a long-time resident of the community, member of a country club and a veteran of World War II. It estimated his net worth at $350,000.

But the report went on to quote “sources” at a real estate firm partially owned by Mr. Roemer that said there was “a question of honesty” and “misuse of funds” on Mr. Roemer’s part. Retail Credit’s report concluded that Mr. Roemer “is by no means recommended.”

After receiving the report, Penn Mutual turned down Mr. Roemer’s request but did not say why. He was mystified, but did not discover Penn Mutual’s reason until sometime later when an acquaintance learned by chance of the report from the “sources” quoted by Retail Credit Co. These “sources” proved to be a former business associate who had had a falling out with Mr. Roemer.

The trial brought to light the fact that this former associate had actually told Retail Credit’s investigator that he was “prejudiced” against Mr. Roemer.

Once Mr. Roemer learned of the report he started to track the matter down. “In August of 1964 my credit was perfect,” he told Business Insurance. “Just a few months later I was anathema. The report was so bad that Penn Mutual asked Retail Credit to check again, which they supposedly did. On Feb. 21, 1965, they reported that nothing further could be added. So, this negative ‘research’ began to circulate around the industry. On March 11, reports were sent to the Home Insurance Co. and the Commercial Union Insurance Co. of America. And, in April of 1965 it was sent to Fireman’s Fund.”

Mr. Roemer said that agency qualification reports are standard procedure and that something like 83% of Retail Credit Co’s business comes from this type of work. “They have 48 million files in there,” he continued. “Their unconcern for people is incredible.” Retail Credit’s vp and director testified at the trial that he had drawn up the rules for investigations. Four sources are required, but the Retail Credit vp said it’s not so bad if only one source for a fact can be found.

“I don’t give a damn about the money,” Mr. Roemer said, “it’s their attitude and the damage they can do to individuals that gets me. They should have to make disclosures to the people investigated. A man whose life is being examined should have the right to sit down and vindicate himself.”

In its defense, Retail Credit had admitted its report on Mr. Roemer was incorrect, but argued that it was made confidentially to subscribers, done in good faith without malice and therefore was privileged.

The $290,000 award made by an Alameda County superior court jury appears to reflect growing public concern about large organizations accumulating confidential information on private individuals.

Several sources in the insurance industry said obtaining libel coverage is a real problem, and that it’s getting more difficult all the time.

F. J. Brutzman, insurance manager for Retail Credit Co., told Business Insurance, “We’ve always had libel and slander coverage-like newspapers and such. We’re studying the transcript of the trial for grounds to appeal this decision.”

The investigating company’s general counsel said, “We’ve put in a claim but we’re making a motion for a new trial and any discussion of insurance coverage now would be premature.”

The above article was first published in the April 12, 1971, edition of Business Insurance. To access complete, searchable copies of Business Insurance going back the magazine’s launch in 1967, click here.