RICO Applied to Insurance Fraud Claim

New York Law Journal
Volume 235
©Copyright 2006 ALM Properties, Inc. All rights reserved.
Monday, February 27, 2006

By: Mark Fass

AN UNUSUAL application of the Racketeer Influenced and Corrupt Organizations Act (RICO) will go forward following a Manhattan judge's denial of an insurance company's motion to dismiss.

The Tennessee-based insurance giant UnumProvident Corp., which has already paid $23 million in settlement agreements with individual states over the past year, has been accused of developing an elaborate network of conspirators to avoid paying claims.
In the present case, plaintiff Ronald Weisel alleges that the company's improper discontinuation of his disability-insurance payments cost him his home, 'his way of life' and extreme emotional distress.

His case, charging among other things that Unum-Provident violated the federal statute typically used to prosecute mafioso and gang members, has survived the company's motion to dismiss.

'Plaintiff presents facts that state a colorable RICO claim,' Supreme Court Justice Judith J. Gische held in Weisel v. Provident Life, 600759/05. 'Defendants, on the other hand have not made a preliminary showing that his claims are flatly contradicted by indisputable documentary evidence, and therefore, not entitled to consideration.'
To establish a claim under RICO, which has both civil and criminal components, a plaintiff must show that a defendant violated at least two of 35 enumerated crimes within a 10-year period.

The crimes--such as mail fraud, wire fraud, sports bribery and obstruction of justice--are generally associated with organized crime. They also carry harsh penalties, including triple damages and prison sentences of up to 20 years.

Suffering from, among other things, disabling neck and back injuries, Mr. Weisel began in 1986 to collect $7,000 a month from two policies issued by UnumProvident's predecessors Provident Life and Casualty Insurance Company and Provident Life and Accident Insurance Company.

In 1999, the defendant insurance companies terminated his benefits based on a medical examination by 'independent' doctors.

'Sinister' Scheme

In his complaint, Mr. Weisel alleges that a 'far more sinister' factor was at work.
The defendants 'developed a Scheme together with purported 'expert' witnesses, employer-sponsored insurance plans, participating employers and insurance brokers, agents and producers...to justify wrongful denials and terminations of disability policies and claims,' Mr. Weisel claims.

Justice Gische allowed Mr. Weisel to amend his pleadings to add the claim and denied UnumProvident's motion to dismiss, holding that Mr. Weisel's allegations of mail and telephone fraud would, if true, constitute an actionable RICO claim.

Mr. Weisel is not the first to make such allegations against UnumProvident.
In January 2005, the company agreed to pay a $15 million fine and to reopen 215,000 cases as part of a settlement with 48 states.

In June, California's Department of Insurance issued an $8 million fine--the largest in its history--as part of a settlement with the company.

This case does, however, appear to be the first to use RICO charges against the insurer. 'It's sending a message to the insurance company that they're not going to be allowed to get away with it any more,' said Amy Albert of Weiss & Hiller, which represents Mr. Weisel. 'The plaintiff in this case is now going to be able to pursue treble and punitive damages.'

Michael S. Hiller,  who oversees the plaintiff's case, was unavailable for comment.
Robert J. Luddy of Windels Marx Lane & Mittendorf represents the defendants. He did not return a call for comment.

Although RICO has been frequently used to target organized crime, it has been used in non-gangster contexts as well.

In 2002, the former minority owners of the now-defunct Montreal Expos filed charges against majority owner Jeffrey Loria and Major League Baseball Commissioner Bud Selig, alleging that they violated RICO by conspiring to devalue the team. The parties ultimately settled.

And in NOW v. Scheidler, an ongoing class action seeking damages and injunctive relief from anti-abortion activists who block access to clinics, the plaintiffs originally alleged RICO violations. Those causes of action, however, were dismissed by the U.S. Supreme Court.

Mark Fass can be reached at mfass@alm.com.
2/27/2006 NYLJ 1, (col. 6)