Remember When RICO Was About The Mafia?

Insurance Reinsurance Managed Healthcare Review - Spring 2012

In 1970, Congress enacted the Organized Crime Control Act within which is the Racketeer Influenced and Corrupt Organizations Act better known as "RICO" (codified as amended at 18 U.S.C. §§ 1961-68 (2011)). The primary target of RICO was organized crime, but the statute was drafted without any such limitation to its applicability. Indeed, RICO has been compared to the Ku Klux Klan Act of 1871, which while aimed at the Klan in the south after the Civil War, could be applied to any person depriving another of his or her civil rights. (18 U.S.C. §§ 241-242 and 42 U.S.C. § 1981, et seq.).

Because RICO's civil sanctions include injunctions, treble damages, costs and attorneys' fees, it is a desirable vehicle to attack all types of business practices including those of insurers. In addition to the Federal RICO statute, 33 states have enacted their own racketeering legislation. Under the Federal RICO statute, plaintiffs must show both a criminal enterprise and a pattern of racketeering activities, though the term "enterprise" can be broadly defined and encompass almost anything. Indeed, the Eleventh Circuit held that a pick-up basketball game could be considered an "enterprise." U.S. v. Pipkins, 378 F.3d 1281 (11th Cir. 2004), citing U.S. v. Elliott, 571 F.2d 880 (5th Cir. 1978). Some state's statutes have lesser requirements. For example, in Georgia, there is no requirement that a plaintiff plead or establish an "enterprise."

In essence, plaintiffs now easily convert allegations of garden variety misdeeds or simple fraud into RICO claims and subject insurers to the threat of treble damages, attorneys' fees and costs. Class actions now routinely contain RICO claims because the class criteria such as numerosity and commonality lend themselves to the requisite pattern of racketeering activity. Insurers facing RICO allegations are not without defenses however. To take advantage of RICO's enhanced damages, plaintiffs must plead sufficiently each statutory component or have their RICO claim dismissed. Two recent examples of insurer victories in RICO claims are CIGNA's victory in North Cypress Medical Ctr. Operating Co. v. CIGNA Healthcare, U.S. Dist. Ct. S.D. Tex. Case No. 4:09-CV-2556 (order dated November 3, 2011), and Aetna's victory in Association of New Jersey Chiropractors v. Aetna, Inc., 2011 WL 2489954 (D.N.J.) (decided June 20, 2011).

North Cypress claimed CIGNA reimbursed amounts...