Amicus Curiae Brief — Humana Inc. v. Forsyth

so “Supreme Court, Ui

ot No. 97-303 | FILED

| SEP 18 1998

IN THE

SUPREME COURT OF THE —

October Term, 1997

HUMANA INC. AND

HUMANA HEALTH INSURANCE OF NEVADA, INC.,

Petitioners,

Vv.

MARY FORSYTH, MARIETTA CADE, WILLIE ANDREWS,

MARY LOU BUEHLER, HELEN STAVES,

RANDOLPH BRATTON, AND SEARLE AUTO GLASS, INC.

Respondents.

Of Counsel

John A. MacDonald *Eugene R. Anderson

(On the Brief) ANDERSON KILL & OLICK, P.C.

Timothy P. Law 1251 Avenue of the Americas

(On the Brief) New York, New York 10020-1182

ANDERSON KILL (212) 278-1000

& OLICK, P.C.

1600 Market Street *Counsel of Record

Philadelphia, PA 19103

(215) 568-4202

Amy S. Bach

United Policyholders

110 Pacific Avenue, No. 262

San Francisco, CA 94111

(415) 343-9990

PACKARD PRESS® / APPELLATE DIVISION, 1617 JFK BOULEVARD, PHILA, PA 19103 (215) 563-9000

Se eee ee eee ~

QUESTION PRESENTED

The question presented is whether the application of the

Racketeer Influenced and Corrupt Organizations Act

(“RICO”), 18 U.S.C. 1961, et seq., to insurance companies

would “invalidate, impair or supersede” state statutory! insur-

ance law in violation of the McCarran-Ferguson Act.

1. The McCarran-Ferguson Act protects laws “enacted” by the States.

See 15 U.S.C. § 1012(b). Only Statutory law, not the common law or insur-

ance department regulatory law, is “enacted” within the ordinary meaning

of that word.

I. THE REMEDIES IN STATE UNFAIR

TRADE PRACTICES ACTS ARE NOT

EXCLUSIVE VEHICLES FOR AFFORD-

ING PRIVATE REMEDIES TO POLICY-

HOLDERS HARMED BY INSURANCE

the Insurance Industry " Amici, Strenuously

Opposed State Insurance Department

Involvement In Awarding Private Rem-

edies for Insurance Company Unfair Trade

C. Due To The Opposition Of The Insurance

Industry, The NAIC Rejected A Proposal

To Add A Class Action Remedy And A

Non-Discrimination Provision To The

Il. THE STATE REGULATORY STRUC-

TURE DOES NOT EXCLUSIVELY

HANDLE THE TASK OF REMEDYING

EACH INDIVIDUAL POLICYHOLDER’S

DAMAGES CAUSED BY INSURANCE

TABLE OF CONTENTS — (Continued)

Page

Ill. THE POWERFUL REMEDIES AVAILABLE

UNDER RICO DO NOT IMPAIR STATE

A. The Structure Of The Model Act Indicates

That It Is Primarily Designed To Protect

Departments To Combat Insurance Com-

C. State Systems Allow Policyholders to Pur-

sue Other Remedies, In Addition To Their

Remedies Under State Unfair Trade Prac-

D. RICO Criminal Remedies Are An Impor-

tant Part Of The Web Of Laws Designed

To Eradicate. Insurance Company Fraud .. .

IV. THE INSURANCE INDUSTRY CONSIS-

TENTLY USES FEDERAL LAW AGAINST

POLICYHOLDERS BUT DENOUNCES ITS

USE TO REMEDY INSURANCE COM-

SSE a cacub cts Cdbadoctdecesosce

A. The Insurance Industry Uses RICO

Against Policyholders....................

B. The Insurance Industry Uses Other Federal

Laws Against Policyholders...............

6 2encesbdodinbuhbemerescestcesssue -

11

17

TABLE OF AUTHORITIES

Cases: Page

Aetna Cas. & Sur. Co. v. P&B Auto. Body, 43 F.3d 1546

GS Ge BD bhi nc kbde vaNee dali edbtddidc cic 19

Agency Holding Corp. v. Malley-Duff & Assocs.,

483 U.S. 143, 107 S. Ct. 2759 (1987) ............... 13

Ainsworth v. Combined Ins. Co. of Am., 763 P2d 673

og BRS ees 1 eo 15, 16

Anderson v. Humana, Inc., 820 F. Supp. 368 (N.D. Ill.

1993), aff'd, 24 F.3d 889 (7th Cir. 1994) ............ 16

Barnett Bank v. Nelson, 517 U.S. 25 (1996) ............. 21

Blue Cross of Calif. v. SmithKline Beecham, No.

397CV01795 (D. Conn. Aug. 19, 1997)............. 19

Chubb & Sons, Inc. v. Wigand, N.Y.LJ., Jan. 23, 1998

ame Ge ass ccatncendcckévek wall chncecccs 20

Clark v. Millam, 847 F. Supp. 409 (S.D. W.Va. 1994) ..... 13

Crystal Bay General Imp. Dist. v. Aetna Cas. & Sur. Co.,

713 F. Supp. 1371 (D. Nev. 1989) ............... 15, 16

Gent v. Collinsville Volkswagen, Inc., 451 N.E.2d 1385

Gh I odned cnkscdhd deblotheanescce se 16

Hart v. Prudential Prop. & Cas. Ins. Co., 848 F. Supp. 900

Gk BE is acti doit clks bts atest ohne ot. 14

Kaiser v. Stewart, Civil Action No. 96-6643, 1997 U.S.

Dist. LEXIS 12788 (E.D. Pa. August 19, 1997)... 13, 14

Kempe v. Monitor Intermediaries, Inc., 785 F.2d 1443 (9th

GEE ME bsocednchechbetedesenadnaneiinhe..ii.. 13

Merchants Home Delivery Serv., Inc. v. Reliance Group

Holdings, Inc., 50 F.3d 1486 (9th Cir. 1995), cert.

denied, 516 U.S. 964 (1993)... 2.6... cece cee uee 20

Morton Int'l, Inc. v. General Accident Ins. Co., 629 A.2d

831 (NJ. 1993), cert. denied sub nom, Ins. Co. of

N.Am. v. Morton Int'l, Inc., 512 U.S. 1245 (1994) . . . 2

iv

TABLE OF AUTHORITIES — (Continued)

Cases: Page

NAACP v. American Family Mut. Ins. Co., 978 F.2d 287

(7th Cir. 1992), cert. denied, 508 U.S. 907 (1993).. 17, 21

Nationwide Mut. Ins. Co. v. Perez, No. 97-2172 (JP), 1997

U.S. Dist. LEXIS 13744 (D.PR. Aug. 14, 1997)..... 19

Neibel v. Trans World Assurance Co., 108 F.3d 1123 (9th

Sl imdinktabsdnacrdecdatbtccudddnesdncnces. “

PLA. Michigan City, Inc. v. National Porges Radiator

Corp., 789 F. Supp. 1421 (N.D. Ill. 1992) ........... 16

Pinski v. Adelman, No. 94 C 5783, 1995 U.S. Dist. LEXIS

16550 (N.D. Ill. Nov. 2, 1995) ...........0sc005. 16, 17

Preferred Mut. Ins. Co. v. Dumas, Nos. 89-3394, 89-3446,

1991 U.S. App. LEXIS 21288 (6th Cir. 1991) ....... 19

Sabo v. Metropolitan Life Ins. Co., 137 F3d 185 (3d Cir.

TR AL 2a SNS a ma ee 17

Schnact v. Brown, 711 F.2d 1343 (7th Cir), cert. denied,

ne cowanc 13

Shearson/Amer. Express, Inc. v. McMahon, 482 U.S. 220

ihe ridin s idbetine aden vadoconeseses 13

Soanes v. Empire Blue Cross/Blue Shield, 970 F. Supp.

GN dn 0 oBkcseciccsedasdoaseess 19, 20

State Farm Mut. Auto. Ins. Co. v. Ammann, 828 F.2d 4

a RET a iy a a 19

State of North Carolina v. Alexander & Alexander Servs.,

Inc., 680 F. Supp. 746 (E.D. N.C. 1988) ............ 13

Tweet v. Webster, 614 F. Supp. 1190 (D. Nev. 1985)... .. 3, 15

United States Fid. & Guar. Co., v. Peterson, 763 P2d 673

ENON ECA: «0 i othe Sonat 15

United States v. Blumeyer, 114 F.3d 758 (8th Cir. 1997). . 12, 18

TABLE OF AUTHORITIES — (Continued)

Cases: Page

United States v. Stewart, 955 F. Supp. 385 (E.D. Pa.

NE OE RATES OPER 5 BIER relate 19

Zenith Ins. Co. v. Eisenberg, Nos. 94-55893, 95-56188,

94-56138, 1996 U.S. App. LEXIS 26815 (9th Cir. Oct.

Shy Bhs sob adacedetechuserednens bbaticececsge« 20

FEDERAL STATUTES

Employment Retirement Income Security Act, 29 U.S.C.

Rist pcastundandnbenbscedoessanbsdens 21, 22

McCarran-Ferguson Act, 15 U.S.C.

PO Gkustedhsaccodde decccecdsese i, 14, 18, 20, 21

Racketeer Influenced and Corrupt Organizations Act 18

ae Op OED ccc ccccvcvcucesceuncssede passim

Sy WE PE SdaciseeGadcc cececdycodccceccadeseceed 18

BS UE, Bi ob bak seb deboed ress ctauteacaces 18

STATE STATUTES

Ariz. Rev. Stat. § 20-456.C (1997) .... 2.2.0... cece eee 7

Ark. Code Ann. § 23-66-212(d) (1997) ................. 7

Cal. [Ins.] Code § 790.09 (Deering 1997) ............... 7

Conn. Gen. Stat. § 38a-817(d) (1997) .................. 7

Del. Code Ann. tit. 18, § 2308(g) (1997). ............... 7

Del. Code Ann. tit. 18, § 2309(e) (1997)................ 7

Haw. Rev. Stat. § 431:13-202(b) (1997) ................. 7

Idaho Code § 41-1319(8) (1997). ... 2... 66. c cece ceeees 7

215 Ill. Comp. Stat. 5/428 (3) (1998) ...............04.. 7

Ind. Code Ann. § 27-4-1-10 (1998)... .. 2.2.6... ee eee eee 7

BOD GA Sa Ce iv ccncccccccccncsocccesocces 7

Ky. Rev. Stat. Ann. § 304, 12-120(4) (Michie 1996)...... 7

vi

TABLE OF AUTHORITIES — (Continued)

State Statutes: Page

Massachusetts Unfair Practices Act, Mass. Gen. Laws ch.

FE codes ded de ddduvcdesecscscutidccicvecctocacee 19

Mich. Comp. Laws § 500.2049 (1997) ..........cceceees 7

Mich. Stat. Ann. § 24.12049 (1997) .... 22... ..ccceeeees 7

Minn. Stat. §72A.29 (1997) ..........ccccceccccceeeees 7

Miss. Code Ann. § 83-5-43(4) (1997). ..........6ceeeeee 7

Mont. Code Ann. § 33-18-1004(4) (1997)............... 7

N.C. Gen. Stat. § 58-63-35(d) (1997)... ....... cece eeees 7

N.J. Stat. Ann. § 17:29B-8 (1998)... 2... 6.6 c cece cee e eee 7

N.J. Stat. Ann. § 17B:30-17 (1998)... ........00ccceeues 7

_ NM. Stat. Ann. § 59A-16-27.E (1998) ............0055: 7

N.Y. Ins. Law § 2409(b) (Consol. 1997) .............05: 7

Neb. Rev. Stat. § 44-1530(3) (1997)... 2.6... ..cceeeees 7

Nev. Rev. Stat. § 666A.310............ccccceccccees 14, 15

Nev. Rev. Stat. § 686A.310.2 ..... 2.2.6. cccccccees 1, 14, 15

Okla. Stat. tit. 36, § 1208.D. (1997) ........... 0c cceeees 7

Ge FEU SUE, BFR CUSSED ccc ccccccccccccccces 7

R.1. Gen. Laws § 27-29-7(d) (1997)... 0... cece ccc ecees 7

Tenn. Code Ann. § 56-8-110(d) (1997) ...........66005. 7

W. Va. Code § 33-11-6(c) (1998)... 0.6... ccc ccc cee uee 7

Wyo. Stat. Ann. § 26-13-115(d) (1997) ................. 7

MISCELLANEOUS

AIA, AIA Continues Assault on Regulatory Red Tape

te DR da dan dc cbeebdechsness ceocccosecses 22

AIA, Insurers Urge President to Sign Highway Funding

SE CE ED 60 6b ebb ccccnecdsooceccescs 22

vii

TABLE OF AUTHORITIES — (Continued)

Miscellaneous: Page

AIA, News (Aug, 13, 1996) .........cccccccvccccees 22, 23

All-Industry Committee Draft, (January 24, 1947), (final

draft) of an Act Relating to Unfair Competition and

Unfair and Deceptive Acts and Practices in the Busi-

ness of Insurance, 1960-2 NAIC Proc. 486.......... 3

Brief of Amici Curiae for ACLI and HIAA in Support of

the Petition, Pilot Life Ins. Co. v. Dedeaux, No.

85-1043, Oct. Term, 1985 (dated Dec. 20, 1985)... 21, 22

Brief of Amici Curiae National Association of Insurance

Funding Corp. v. Merchants Home Delivery Services,

Inc., No. 95-409 (U.S. filed Sept. 29, 1995) ........ 3, 13

Brief for Respondents The Travelers Ins. Co., et al., New

York State Conference of Blue Cross & Blue Shield

Plans v. The Travelers Ins. Co., Nos. 93-1408, 93-1414

and 93-415, 1993 U.S. Briefs 1408, Oct. Term, 1994

SE ee Ws 0650 lath ceacamiestoticibcces 22

First Report of the Advisory Committee to the NAIC

B-5 Subcommittee to Review the Model Unfair

Trade Practices Act, June 16, 1971, 1971-2 NAIC

DO Blinc ns on txddhdbavawid ds becdeenbs ve 6

Health Insurers Sue SmithKline’s Lab Division, Ins. Cov-

erage Litig. Rptr., Sept. 5, 1997 ...............0.5. 20

RIE NITES DE 23

HIAA, Federal Perspectives (July 31, 1997).......... 23, 24

Insurance Information Institute, III Insurance Issues

Ss Be Fontebbdbis cocchocecedestcce 23

Insurers Sue Over Lab Billing, Bus. Ins., Aug. 25, 1997.. 20

Chip Kahn, CEO and President-Designee, HIAA, State-

TABLE OF AUTHORITIES — (Continued)

Miscellaneous: Page

Donald McHugh, Statement te the NAIC (B) Committee

on Behalf of the NAII, AMIA & State Farm Mutual

Insurance Company, 1972-1 NAIC Proceedings 443 6

“NAII Member Urges Congress to Strengthen Disaster

Bill,” PR Newswire Assoc., Inc. (Apr. 23, 1998)... .. 24

New York State Insurance Department, 1995 Annual

Ranking of Automobile Insurance Companies...... . 10

Franklin W. Nutter, Pres., RAA, Statement Before the

U.S. House of Representatives Committee on Bank-

ing and Financial Services (Apr. 23, 1998).......... 24

Remarks of Co-Chairman Durkin, Laws, Legislation

& Regulation (b) Committee; Unfair Trade Practices

(b)6) Subcommittee, 1972-1 NAIC Proceedings 490 8

‘Reset tlla iibiiat ibility Ciaintinis eh te tale:

B-6 Subcommittee to Review the Model Unfair Trade

Practices Act, Nov. 29, 1979, 1972-1 NAIC Proceed-

Scott J. Paltrow, A Matter of Policy; How a State Becomes

Popular with Insurers— But Not Consumers, Wall St.

Pep IEE be bes cbeedvedécoccocccvevceses 10, 11

Scott J. Paltrow, Insurance-Industry Lawyer Hired to

Audit its Watchdog, Wall St. J., June 11, 1998....... 9

Statement by the ALC, LIAA, HIAA, and NALU to the

NIC (B) Committee, re: Revised Unfair Trade Prac-

tices Act, 1972-1, NAIC Proceedings 443........... 5

Robert S. Sieler, Chairman, Industry Advisory Commit-

tee, Unfair Trade Practices (B-6), Subcommittee to

the NAIC Laws, Legislation and Regulation (B)

Committee, Statement, 1972-1 NAIC Proceedings

TABLE OF AUTHORITIES — (Continued)

Miscellaneous: Page

Unfair Trade Practices Act, National Association of

Insurance Commissioners ..............+s++00 passim

Christopher Winans, Insurer’s Weapon Against RICO

Claims Could Backfire If It’s Too Successful, Best's

Ins. Mgmt. Rep., Jume 14, 1993...........00eeeees 21

STATEMENT OF STANDING

United Policyholders, as amicus curiae, has obtained the

consent of both the Petitioners and the Respondents to submit

this brief. The letters of consent have been lodged with the

Clerk of the Court.

INTEREST OF THE AMICUS CURIAE

United Policyholders is a national, not-for-profit educa-

tional organization whose mission is to educate the public,

legislators and the courts on insurance issues and consumer

rights, and to assist policyholders in securing prompt and fair

insurance settlements.? The resolution of the issue presented

in this case is of great importance to United Policyholders and

its members. The RICO statute is an important tool used by

policyholders nationwide to combat patterns of fraud in the

insurance industry.

SUMMARY OF ARGUMENT

Rather than focus on what test this Court should apply to

determine whether RICO impairs state insurance statutes, in

particular Nev. Rev. Stat. § 686A.310.2, United Policyholders’

Brief addresses whether RICO actually impairs state insur-

ance laws.

Petitioners argue that RICO’s remedies are more draco-

nian than those allowed under state law and, for that reason,

disrupt a comprehensive state system designed to remedy

insurance company fraud. See Brief on the Merits of Petition-

ers at 21-25. Similarly, amici curiae, Alliance of American

Insurers (“AAI”), American Council of Life Insurance

(“ACLI”), Blue Cross and Blue Shield Association

(“BCBSA”), Health Insurance Associations of America

(“HIAA”), National Association of Independent Insurance

(“NAII”), National Association of Mutual Insurance Compa-

nies (“NAMI”), and Reinsurance Association of America

(“RAA”) (collectively, the “Insurance Industry Amici”) point

2. No counsel for any party in this case authored this brief in whole or

in part, and no person or entity other than United Policyholders and its

members made any monetary contribution to the preparation or submission

of this brief.

2

to the “draconian” and inflexible nature cf RICO’s mandatory

treble damage provision. See Brief of AAI, ACLI, BCBSA,

HIAA, NAII, NAMI and RAA as Amicus Curiae in Support

of Petitioners at 22-29 (“Insurance Industry Amici Brief”).

Petitioners and the Insurance Industry Amici demon-

strate a misunderstanding of the allegedly comprehensive

state regulatory schemes upon which they rely. Like most

states, Nevada has adopted a version of the Unfair Trade

Practices Model Act developed by the National Association of

Insurance Commissioners. All state insurance regulatory

schemes based on the Unfair Trade Practices Model Act leave

intact private remedies under common law or other, non-

insurance, statutory law for insurance company unfair trade

practices and fraud. These schemes expressly leave intact

other state and federal criminal law, like RICO. Indeed,

imperiled by this case is the application to insurance compa-

nies of every federal criminal statute enacted over the last fifty

years.

The insurance industry historically asserted the existence

of these other remedies to avoid an expansion of the remedies

that insurance commissioners could impose. The insurance

industry utilizes the full range of private remedies, including

RICO, to address policyholder fraud.

Insurance industry fraud can be national in scope and

affect millions of policyholders. Because the state insurance

regulatory system was never designed to be the only weapon

in the fight against insurance company fraud, the use of RICO

is fully consistent with, and does not impair, state unfair trade

practices acts.

3. For instance, the New Jersey Supreme Court held that the insurance

industry misled the nation’s insurance regulators in securing approval of a

standard exclusion contained in standard-form Comprehensive General

Liability insurance policies sold to millions of policyholders. See, Morton

Int’l, Inc. v. General Accident Ins. Co., 629 A.2d 831, 848-55 (NJ. 1993), cert.

denied sub nom., Ins. Co. of N.Am. v. Morton Int'l, Inc., 512 U.S. 1245

(1994). The Court refused to give effect to the industry's judicial interpreta-

tion of the exclusion because to do so would require “ignoring the industry's

misleading presentation to regulators over twenty years ago, and overiook-

ing the apparent unfairness that such an interpretation would impose on

policyholders who were charged rates that did not reflect the radical dimi-

nution in coverage contemplated by the insurance industry.” Jd. at 873.

3

LEGAL ARGUMENT

I. THE REMEDIES IN STATE UNFAIR TRADE PRAC-

TICES ACTS ARE NOT EXCLUSIVE VEHICLES FOR

AFFORDING PRIVATE REMEDIES TO POLICY-

HOLDERS HARMED BY INSURANCE COMPANY

FRAUD

with insurance fraud, including the Nevada Act at issue

herein, are usually derived from the Unfair Trade Practices

Model Act (the “Model Act”) developed by the National

Association of Insurance Commissioners (“NAIC”). See Brief

of Amici Curiae National Association of Insurance Commis-

sioners Supporting Respondent, Prometheus Funding Corp. v.

Merchants Home Delivery Services, Inc., No. 95-409 (U.S. filed

Sept. 29, 1995) at 2; Tweet v. Webster, 614 F. Supp. 1190 (D.

Nev. 1985).

A review of the NAIC’s adoption of the Model Act

reveals that: (1) it was never intended to provide an exclusive

vehicle for awarding private remedies for insurance company

fraud; (2) at the insurance industry's request, the NAIC

rejected a proposal to allow insurance commissioners to order

private restitution because the insurance industry insisted that

ders already had other common law and statutory

remedies; (3) the Model Act did not incorporate anti-

discrimination provisions because policyholders had remedies

under existing non-insurance civil rights laws; and, (4) the

Model Act specifically provided that its remedies for insurance

company fraud did not replace private remedies available

under non-insurance statutes and the common law.

From 1947 to the early 1970's, the Model Act regulated

misrepresentation and false advertising of policy contents;

false information and advertising with respect to the business

of insurance; defamation; boycott, coercion and intimidation;

false financial statements, stock operations and advisory board

contracts; unfeir discrimination in the making of life insurance

or accident or health insurance rates; and rebates for life insur-

ance, life annuity, or accident and health insurance policies.

See All-Industry Committee Draft, (January 24, 1947), (final

draft) of an Act Relating to Unfair Competition and Unfair and

a

Acts and Practices in the Business of Insurance,

1960-2 NAIC Proc. 486, 500-510.‘

In the early 1970s, the NAIC considered fundamental

revisions to the Model Act and appointed an insurance Indus-

try Advisory Committee to review the proposed changes. See,

generally, 1971-2 NAIC Proceedings 341. Many of the Insur-

ance Industry Amici appearing in this case were members of

the Industry Advisory Committee.

A. The Insurance Industry, Including Many of the Insurance

Industry Amici, Strenuously Opposed State Insurance

Department Involvement In Awarding Private Remedies

for Insurance Company Unfair Trade Practices, Including

Fraud

One proposed revision to the Model Act considered by

the NAIC would have allowed insurance commissioners to

award private damages for insurance company unfair trade

practices, including fraud. The proposed Section 8(a)(C) pro-

vided as follows:

[T]he (Commissioner) may, at his discretion, order

any one or more of the following:

C. Such other relief as is reasonable and appro-

priate.

See Report of the Industry Advisory Committee to the NAIC

B-6 Subcommittee to Review the Model Unfair Trade Practices

Act, Nov. 29, 1979, 1972-1 NAIC Proceedings 490, 498.

The Industry Advisory Committee “object[ed] strenu-

ously” to the proposed extension of the commissioners’

authority. The Industry Advisory Committee expressed its

concern that Section 8(a)(C) “tends to confer the powers of an

equity court upon the Commissioner but without the limita-

tions or safeguards that are proscribed for traditional proceed-

ings.” It opined that “we do not believe a Commissioner

should attempt to fill a role that is usually the province of a

jury — that is, ascertain who may have been harmed and to

what extent.” Jd. at 510.

4. The NAIC proceedings referenced herein can be found in the

“NAIC” file of the “INSURE” library on the LEXIS system.

5

The insurance industry explained that policyholders

already could use other remedies at law to combat unfair

trade practices, like insurance company fraud, and that to

allow the commissioner to also award such damages would

sanction a double recovery. This view was expressed by Rob-

ert S. Sieler, Chairman of the Industry Advisory Committee,

in his testimony accompanying the Committee's submission of

its report to the NAIC:

In the more serious cases, the public has the very real and

effective capability of using remedies at law that now

exist. This clause makes prosecutor, judge and jury out of

the Commissioner and

t 's w

Statement by Robert S. Sieler, Chairman, Industry Advisory

Committee, Unfair Trade Practices (B-6), Subcommittee to

the NAIC Laws, Legislation and Regulation (B) Committee,

1972-1 NAIC Proceedings 443, 446 (emphasis added).

The Industry Advisory Committee warned the NAIC that

it was “very seriously concerned about this matter” and that it

could not “endorse the Act with this provision in it.” Jd.

Chairman Sieler’s remarks were echoed by key insurance

industry organizations, including the American Life Conven-

tion (“ALC”), the Life Insurance Association of America

(“LIAA”), the HIAA, and the National Association of Life

Underwriters (“NALU”). These insurance industry represen-

tatives complained that “Section 8(a)(C)... is an unlimited

grant to the Commissioners, administrative officials, of the

authority or power usually reserved to courts of equity.” State-

ment by the ALC, LIAA, HIAA, and NALU to the NIC (B),

Committee, re: Revised Unfair Trade Practices Act, 1972-1,

NAIC Proceedings 443, 447.

Two of the Insurance Industry Amici, AAI (known at the

time as the American Mutual Insurance Alliance) and NAII,

strongly argued against the adoption of Section 8(a)(C)

because the authority to award “other relief” was “so all-

encompassing as to grant the regulator the power to impose

judicial type remedies without the protection of appropriate

judicial procedures.” Statement to the NAIC (B) Committee

6

by Mr. Donald McHaugh on behalf of the NAII, AMIA, &

State Farm Mutual Insurance Company, 1972-1 NAIC Pro-

Act by the Law, Legislation & Regulation (B) Committee.

1972-1 NAIC Proceedings at 490. Thus, due to the insurance

industry's strong opposition, the Model Act and the numerous

state laws subsequently patterned after it have largely left the

award of private damages for insurance company unfair trade

practices and fraud to other non-insurance statutory law and

common law.

Having successfully convinced the NAIC not to exclu-

sively occupy the area of private remedies for insurance com-

B. The Language Of The Model Act Explicitly Preserved The

Application Of Other Law To Regulated Activity

Section 9(d) of the Model Act indicates clearly the

NAIC’s intent that the Model Act would coexist with other

non-insurance laws that provide private remedies

arguing

specifically

[ing] this very clear.” Id.

Section 9(d) provides, in its entirety, that:

(d) No order of the (Commissioner) under this Act

or order of a court to enforce the same shall relieve or

given state insurance commissioners the power to bring class

actions on behalf of consumers for violations of the Model

Act. The Industry Advisory Committee strongly recom-

mended against the inclusion of “any provision for consumer

Practices Act, June 16, 1971, 1971-2 NAIC Proceedings 341,

350.

5. See Ariz. Rev. Stat. § 20-456.C (1997); Ark. Code Ann. § 23-

§ 72A.29 Subd. 1 (1997); Miss. Code Ann. § 83-5-43(4) (1997), Mont. Code

Stat.

Ann. § 17B:30-17 (1998); NJ. Stat. Ann. § 17:29B-8 (1998), N.M. Stat. Ann.

§ 59A-16-27.E (1998); N.C. Gen. Stat. § 58-63-35(d) (1997); N.Y. Ins. Law

§ 240%(b) (Consol. 1997); Okla. Stat. tit. 36, § 1208.D. (1997); Or. Rev. Stat.

§ 731.252(2) (1997); R.1. Gen. Laws § 27-29-7(d) (1997), Tenn. Code Ann.

§ 56-8-110(d) (1997); W. Va. Code § 33-11-6(c) (1998); and Wyo. Stat. Ann.

statutes that have been held not to provide any private right of action.

Among other things, the Industry Advisory Committee

told the NAIC that “[t]he common law in all states recognizes

the principal of representative actions, so the consumer is not

without remedy in this area....” Jd. The insurance industry

argued that reform was unnecessary because the problem was

already addressed under relevant non-insurance law. Again,

the insurance industry prevailed and the NAIC did not

address this area.

The NAIC also considered adding a non-discrimination

provision to the Model Act which would affect the “under-

writing practices of insurers.” The non-discrimination provi-

sion “would have restricted the right of insurers to reject per-

sons as risks solely because of race, color, creed, marital status,

sex, national origin, residence, age, lawful occupation, failure

to place collateral insurance, or previous refusal by another

insurer.” Remarks of Co-Chairman Durkin, Laws, Legislation

& Regulation (B) Committee; Unfair Trade Practices (b)6)

Subcommittee, 1972-1 NAIC Proceedings 490, 491.

Among other reasons, the NAIC “decided not to incorpo-

rate such provisions because: (1) Some of these matters are

presently covered in civil rights laws....” Once again, the

NAIC rejected an expansion of the Model Act's protection for

because the insurance industry argued success-

fully that other remedies were sufficient to protect policyhold-

ers. Even though insurance underwriting is an area of intense

state insurance regulation, the NAIC clearly intended that

federal laws of general application could and would apply to

common law. The text of the Model Act, which explicitly

preserves policyholders’ other remedies, supported these

arguments.

Plainly, the Model Act and the state insurance codes are

not designed to provide a comprehensive and balanced admin-

i

Ht

ie

i

4

i

=

:

as

rR

:

|

|

:

addition to those provided for in this title.

Pub. L. No. 91-452, § 904(b), 84 Stat. 941, 947 (1970). See also, Neibel v.

Trans World Assurance Co., 108 F.3d 1123, 1130-31 (9th Cir. 1997) (“plain-

10

had 33 consumer complaints filed against it, the highest of any

life insurance company; Allstate Insurance Company, which

had 375 complaints, the third highest for an automobile insur-

ance company; Travelers Group; Aetna; New York Life; and

three of the insurance industry's largest trade groups. See id.

In New York State, when a policyholder files a complaint

in which there are disputed underlying facts, the Insurance

Department “generally close[s] these complaints as ‘Questions

of Fact’ and [the Insurance Department] dofes] not count

_ them against an insurer.” See New York State Insurance

Department, 1995 Annual Ranking of Automobile Insurance

Companies, at 4.

The Indiana Insurance Department regulates 1,800 insur-

ance companies with a budget of only slightly over $4 million

annually. Sally McCarthy, the Indiana Insurance Commis-

sioner, candidly admits that the Department has been unable

to take action even against insurance companies “that repeat-

edly refuse to pay claims and that mislead customers.” Scott J.

Paltrow, A Matter of Policy; How a State Becomes Popular

with Insurers — But Not Consumers, Wall St. J., Jan. 14, 1998,

at 1.

Since 1993, the Indiana Insurance Department has

received a total of 21,000 complaints. Over the same period,

the Department has sent 211 warning letters to 72 companies.

Disciplinary action has been taken against eleven companies.

In only one of these cases was the action taken in response to

consumer complaints. Jd. The Insurance Department's legal

division “almost never takes action,” even when the Insurance

Department's consumer services division refers files concern-

ing insurance companies it believes to be violating the state's

Unfair Claims Practices law. Jd.

Illustrative of the problem is the experience of fifty poli-

cyholders who filed complaints with the Indiana Insurance

Department alleging that State Farm Insurance Company was

low-balling their claims resulting from a chain of severe thun-

derstorms which damaged hundreds of thousands of homes on

April 19, 1996. “In nearly identical complaints,” these policy-

holders complained that State Farm offered to pay their

claims at far less than the actual cost of repairs and “withheld

insurance all across the country have “failed to

detect widespread sales fraud by several of the nation's biggest

life-insurance despite thousands of consumer com-

RICO DO NOT IMPAIR STATE INSURANCE

REGULATORY SCHEMES

The state insurance codes that RICO allegedly i impairs do

8. The attempts to give insurance regulators credit for initiating settle-

ments to benefit Holocaust victims and the Prudential policyholders are

misplaced. These matters were well underway before the insurance regula-

tors first became involved.

12

A. The Structure Of The Model Act Indicates That It Is Pri-

marily Designed To Protect The Public Against Insurance

Company Charlatans.

Under Section 7 of the Model Act, an insurance commis-

sioner initiates administrative action against a person that is

engaged in any unfair method of competition or any unfair or

deceptive act or practice. Cf United States v. Blumeyer, 114

F.3d 758, 768 (8th Cir. 1997) (“our particular concern in Doe

— that wronged policyholders would turn to RICO suits

instead of pursuing administrative channels of relief, see id. at

1306-07 — is simply inapplicable here”).

The commissioner serves a statement of charges on the

insurance company and sets a hearing date. The iasurance

company then has an opportunity to show cause why an order

requiring it to cease and desist from the unfair trade practice

should not be entered. While no formal rules of pleading or

evidence are required, the commissioner may administer

oaths, examine and cross-examine witnesses, and receive oral

and documentary evidence.

If the commissioner finds that the insurance company

committed an unfair trade practice, then the commissioner

may take action pursuant to Section 8 of the Model Act. The

commissioner's action may include ordering the insurance

company to cease and desist the unfair trade practice and to

pay relatively minor monetary penalties. In addition, the com-

missioner may suspend or revoke the insurance company's

license, if the violation was knowing. The commissioner may

impose additional penalties if an errant insurance company

violates a cease and desist order.

Absent from this administrative process is any right of an

injured victim of insurance company fraud to initiate a pro-

ceeding, to participate in the hearing, or, most importantly, to

recover any remedy. The victim may, like anyone else, inter-

vene upon a showing of good cause. Model Act, Sec. 7(b). If

the commissioner does not find an unfair trade practice, then

an intervenor may appeal to a judicial forum. Model Act, Sec-

tion 10.

The state administrative process is simply not designed to

be the sole process to address insurance company unfair trade

The National Association of Insurance Commissioners

(“NAIC”), whose members are the principal state insur-

ance regulators, strenuously disagrees with the notion

that RICO impairs any state's insurance laws. The NAIC

urges, to the contrary, that RICO enhances the effective

enforcement of those laws.

Brief of Amicus Curiae National Association of Insurance

Commissioners Supporting Respondent, Prometheus Funding

Corp. v. Merchants Home Delivery Serv., Inc., No. 95-409.

Indeed, insurance commissioners routinely use RICO?

9. See Kempe v. Monitor Intermediaries, Inc., 785 F.2d 1443 (9h Cit.

1986); Schnact v. Brown, 711 F.2d 1343 (7th Cir.), cert. denied, 464 U.S. 1002

(1983); Kaiser v. Stewart, Civil Action No. 96-6643, 1997 U.S. Dist. LEXIS

12788 (E.D. Pa. Aug. 19, 1997); Clark v. Millam, 847 F. Supp. 409 (S.D.

W.Va. 1994); State of North Carolina v. Alexander & Alexander Servs., Inc.

680 F. Supp. 746 (E.D. N.C. 1988).

14

A recent case from the Eastern District of

is illustrative. See Kaiser v. Stewart, Civil Action No. 96-6643,

1997 U.S. Dist. LEXIS 12788 (E.D. Pa. Aug. 19, 1997). The

Insurance Commissioner of Pennsylvania brought a civil

RICO action on behalf of an insolvent insurance company.

The Commissioner alleged that the defendants had taken con-

trol of the insurance company, had siphoned off assets of the

company, rendering it insolvent, and then had disguised that

insolvency through a pattern of fraud.

The defendants in Kaiser argued that the McCarran-

Ferguson Act barred the RICO claims. Kaiser, 1997 U.S. Dist.

LEXIS 12788, at * 37. The district court rejected that argu-

ment, finding RICO to be consistent with the

insurance laws, regardless of the difference in remedies. /d., at

* 42-44. The court came to a similar conclusion in a parallel

criminal RICO action, finding that the federal interest in pro-

tecting the public from racketeering is perfectly compatible

with Pennsylvania’s interest in ing policyholders.

United States v. Stewart, 955 F. Supp. 385 (E.D. Pa. 1997).

C. State Systems Allow Policyholders to Pursue Other Rem-

edies, In Addition To Their Remedies Under State Unfair

Trade Practices Acts

The Model Act and the state systems patterned after it

allow policyholders to pursue private causes of action outside

of the administrative procedure provided by the Model Act.

The state unfair trade practices acts co-exist with other rem-

edies under state common law, state non-insurance statutory

law, and federal RICO.

1. The Nevada Scheme

The Nevada Unfair Trade Practices Act, particularly Nev.

Rev. Stat. § 686A.310, which addresses unfair insurance trade

practices, is not the exclusive remedy for policyholder dam-

ages caused by insurance company fraud. Section 686A.310

was patterned after the NAIC Model Act. Hart v. Prudential

Prop. & Cas. Ins. Co., 848 F. Supp. 900, 903 (D. Nev. 1994). It

was added to the Nevada statutes in 1975 and sets forth twelve

15

specific activities that are deemed unfair trade practices. See

Tweet v. Webster, 614 F. Supp. 1190, 1191 (D. Nev. 1985). The

district court in Tweet held that Nev. Rev. Stat. § 686A.310 did

not create a private cause of action for an injured third-party

claimant. Jd. at 1195.'°

In response to Tweet, in 1987 the Nevada legislature

amended § 686A.310 to eliminate the “frequency” or “general

business practice” requirement and to provide specifically for

a private cause of action:

In addition to any rights or remedies available to the

commissioner, an insurer is liable to the insured for any

damages sustained by the insured as a result of the com-

mission of any act set forth in subsection 1 as an unfair

practice.

Nev. Rev. Stat. § 686A.310(2). This provision allows a policy-

holder to bring a judicial action to achieve redress for any

activity proscribed in Nev.Rev.Stat. § 686A.310.

Moreover, Nevada common law provides a cause of

action for an insurance company’s tortious breach of the

implied covenant of good fair and dealing. See United States

Fidelity & Guar. Co. v. Peterson, 540 P2d 1070, 1071 (Nev.

1975). A policyholder can obtain punitive damages for injuries

caused by an insurance company’s breach of the duty of good

faith and fair dealing where the insurance company acted

oppressively or where the insurance company has engaged in

wilful and intentional conduct in reckless disregard of its pos-

sible consequences. Ainsworth v. Combined Ins. Co. of Am.,

763 P2d 673 (Nev. 1988). Under Nev. Rev. Stat. § 42.010, a

non-insurance statute of general application, a jury may award

punitive damages where the defendant has been guilty of

fraud, malice, or oppression. Jd., 763 P.2d at 675.

10. One federal court subsequently held that the original version of

Nev. Rev. Stat. § 686A.310 implied a private right of action by a first-party

claimant, Le. by the policyholder. Crystal Bay Gen. Imp. Dist. v. Aetma Cas.

& Sur. Co., 713 F. Supp. 1371, 1376-77 (D. Nev. 1989). Amicus curiae

believes that this is the right result and that all state statutes based upon the

Model Act provide for a private right of action in addition to preserving all

non-insurance statutory and common law rights.

16

The insurance industry has argued that the treble dam-

ages imposed by RICO are more draconian than the Nevada

statutory scheme and, therefore, somehow impair it. Common

law punitive damages, however, can extend well beyond

RICO’s award of treble damages. In Ainsworth, the Nevada

Supreme Court approved an award of $5,939,500 in punitive

damages against an insurance company where the jury had

found that the policyholders were entitled to $9,600 in benefits

under the insurance policies, as well as an additional $200,000

in compensatory damages. RICO treble damages in Ainsworth

would have amounted to a small fraction of the almost $6 mil-

lion punitive damages awarded under state common law.

In addition, under Nevada's unfair trade practices act, the

Insurance Commissioner can revoke or suspend an insurance

company’s license to do business, a remedy far more draco-

nian than the imposition of treble damages.

2. The Hlinois Scheme

Like Nevada, Illinois has adopted a state unfair trade

practices act patterned upon the Model Act. Unfortunately,

the courts in Illinois have held that there is no private right of

action under the Illinois regulatory scheme. See Anderson v.

Humana, Inc., 820 F. Supp. 368, 373 (N.D. Ill. 1993), aff’d, 24

F.3d 889 (7th Cir. 1994). As is universally true in other states,

however, the Illinois insurance regulatory scheme was never

designed to occupy the field of private redress redress of insurance

nois insurance regulatory scheme. aby ener thy Aah aa

Dist. v. Aetna Cas. & Sur. Co., 713 F. Supp. 1371 (D. Nev.

1989). For instance, policyholders victimized by insurance

company fraud may seek redress either under common law

fraud doctrines or under non-insurance statutes such as the

Illinois Consumer Fraud Act. See Pinski v. Adelman, No. 94 C

5783, 1995 U.S. Dist. LEXIS 16550, at * 20 (N.D. Ill. Nov. 2,

1995); PLA. Michigan City, Inc. v. National Porges Radiator

Corp., 789 F. Supp. 1421, 1426 (N.D. Ill. 1992). Policyholders

bringing fraud actions in Illinois may be entitled to punitive

damages and attorney's fees. Gent v. Collinsville Volkswagen,

Inc., 451 N.E.2d 1385, 1390-91 (Ill. App. Ct. 1983).

17

Common law and non-insurance statutory rights co-exist

with the regulatory scheme. The fact that RICO provides for

treble damages, 18 U.S.C.A. § 1964(c), no more impairs the

insurance regulatory scheme than does the existence of com-

mon law fraud, punitive damages, or other non-insurance

statutory causes of action available to the . See

NAACP v. American Family Mut. Ins. Co., 978 F.2d 287, 297

(7th Cir. 1992), cert denied, 508 U.S. 907 (1993); Pinski, 1995

US. Dist. LEXIS 16550, at * 20.

3. The Pennsylvania Scheme

The Third Circuit recently explained RICO’s relationship

with Pennsylvania statutory and common law. See Sabo v. Met-

ropoliten Life Ins. Co., 137" 137 F.3d 185, 192-95 (3d Cir. 1998). The

court noted that, even though the insurance commissioner

alone was empowered to enforce the Unfair Insurance Prac-

tices Act (“UIPA”), Pennsylvania courts had not barred com-

mon law suits for fraud and deceit arising out of insurance

practices and had sanctioned policyholders’ use of Pennsylva-

nia’s consumer protection statute to recover for insurance

company fraud. Jd. at 192. The Third Circuit found “no indi-

cation... that Pennsylvania's non-recognition of a private

remedy under the UIPA represents a reasoned state policy of

exclusive administrative enforcement or that the vindication

of UIPA norms should be limited or rare.” Jd. at 195. Allow-

ing the RICO action, the court ruled, would not “invalidate,

impair or supersede” Pennsylvania's scheme of insurance

regulation. !d

D. RICO Criminal Remedies Are An Important Part Of The

Web Of Laws Designed To Eradicate Insurance Company

The insurance industry is not immune from federal crimi-

nal statutes. If this Court decides that the McCarran-Ferguson

Act precludes the application of civil RICO to insurance com-

panies, it will jeopardize prosecutions under every federal

criminal law enacted in the last fifty years.

On the contrary, a holding by this Court that civil RICO

applies to the insurance industry will avoid the contortions

18

necessary to permit the continued enforcement of federal

criminal laws. See, e.g., United States v. Blumeyer, 114 F.3d 758,

768 (8th Cir. 1997) (distinguishing criminal RICO from civil

RICO on the basis that policyholders do not initiate adminis-

trative criminal action, ignoring the fact that policyholders do

not initiate action under the unfair trade practices acts).

Some of the Insurance Industry Amici argue that the

enactment of 18 U.S.C. § 1033, imposing criminal penalties for

certain types of fraud committed by persons “engaged in the

business of insurance,” signals that Congress intended or

understood that RICO would not apply to insurance compa-

nies.!! If this dubious proposition were true, it would mean

that the McCarran-Ferguson Act would exempt insurance

ies and all the of insur-

ance from any liability under any general federal criminal stat-

ute passed since the 1945 enactment of the McCarran-

Ferguson Act.

Thankfully, the proposition is not true. Section 1034(a),

which imposes civil penalties for violations of Section 1033,

provides that “[t]he imposition of a civil penalty under this

subsection does not preclude any other criminal or civil statu-

tory, common law, or administrative remedy, which is available

by law to the United States or any other person.” See 18

U.S.C. § 1034(a). Clearly, Congress understood that persons

committing fraud while engaged in the business insurance

could be held liable under other federal criminal and civil

laws. RICO is just such a law.

IV. THE INSURANCE INDUSTRY CONSISTENTLY

USES FEDERAL LAW AGAINST POLICYHOLDERS

BUT DENOUNCES ITS USE TO REMEDY INSUR-

ANCE COMPANY FRAUD

A. The Insurance Industry Uses RICO Against Policyholders

The insurance industry's position on the application of

federal law, particularly RICO, to the. business of insurance

11. See Brief of Alliance of American Insurers, American Council of

Life Insurance, Blue Cross and Blue Shield Association, Health Insurance

Association of America, National Association of Independent Insurers,

National Association of Mutual Insurance Companies and Reinsurance

Association of America as Amici Curiae in Support of Petitioners, at 12 n.4.

19

swings like a weather vane in a tornado. The best illustration

of the insurance industry's fleeting concern for principles of

federalism is found in the insurance industry's own widespread

use of RICO. When insurance companies claim to be victims

of insurance fraud, they look to RICO for a remedy.

Aetna Casualty & Surety Company brought several

claim adjusters alleging that the parties engaged in a scheme

to obtain payments under fraudulent insurance claims in vio-

lation of RICO. See Aetna Cas. & Sur. Co. v. P&B Auto Body,

43 F.3d 1546, 1551 (1st Cir. 1994). Aetna alleged that the par-

ties committed predicate acts of mail fraud. Jd. at 1560. Aetna

brought the RICO causes of action at the same time it

asserted that the defendants were liable to it under the Mas-

sachusetts Unfair Trade Practices Act, Mass. Gen. Laws ch.

93a, which allows for a private right of action, including the

imposition of treble damages. See id. at 1566.

Insurance companies have brought many other RICO

actions. See, Preferred Mutual Ins. Co. v. Dumas, Nos. 89-3394,

89-3446, 1991 U.S. App. LEXIS 21288 (6th Cir. 1991) (insur-

ance companies brought a civil RICO action, as well as com-

mon law fraud actions, against a policyholder for the submis-

sion of fraudulent insurance claims); State Farm Mut. Auto.

Ins. Co. v. Ammann, 828 E.2d 4 (9th Cir. 1987) (insurance

companies sought RICO treble damages for the submission of

false claims); Vanliner Ins. Co. v. All Risk Serv., Ltd., 990 F.

Supp. 1145, 1146-47 (E.D. Mo. 1997) (insurance company

sought damages for, among other things, fraudulent induce-

ment, negligent misrepresentation, breach of contract, breach

of fiduciary duty, conversion, and violations of RICO relating

to the issuance of certain insurance policies); Nationwide Mut.

Ins. Co. v. Perez, No. 97-2172 (J.P), 1997 U.S. Dist. LEXIS

13744 (D. P.R. 1997) (insurance company brought RICO

action based on alleged insurance scam previously

wrecked cars); Soanes v. Empire Blue Cross/Blue Shield, 970 F.

Supp. 230, 239-241 (S.D. N.Y. 1997) (insurance company pre-

vails in RICO claim in which defendants made representations

to obtain low-cost insurance coverage for members); Blue

Cross of California v. SmithKline Beecham, No. 397CV01795

20

AVC (D. Conn. filed Aug. 19, 1997) (thirty-five major health

insurance companies charged SmithKline with RICO viola-

tions involving the alleged use of improper billing and kick-

backs);!? Soanes v. Empire Blue Cross/Blue Shield, 970 F.

Supp. 230 (S.D. N.Y. 1997) (health insurance company

brought RICO claims against administrators of various labor

unions’ health insurance programs); Chubb & Son, Inc. v.

Wigand, N.Y.L.J., Jan. 23, 1998, at 26 (N.Y. Sup. Ct.) (insur-

ance companies charged an insurance adjuster with violations

_ of RICO for allegedly devising schemes to inflate insurance

claims).

The insurance industry has also sought to benefit from

pro-RICO decisions such as Merchants Home Delivery Ser-

vice, Inc. v. Reliance Group Holdings, Inc., 50 F.3d 1486 (9th

Cir.), cert. denied, 516 U.S. 964 (1995) (“Merchants Home”).

For instance, Zenith Insurance Company filed an action in

federal district court alleging that the defendants had caused

the filing of bogus insurance claims and had submitted fraudu-

lently inflated bills for medical and other services in conjunc-

tion with those claims. See Zenith Ins. Co. v. Eisenberg, Nos.

94-55893, 95-56188, 94-56138, 1996 U.S. App. LEXIS 26815, at

*6 (9th Cir. Oct. 11, 1996). Zenith Insurance Company

brought both state law claims and federal RICO claims. /d.

The district court dismissed Zenith’s RICO claims under the

McCarran-Ferguson Act. Jd.

Zenith appealed and the 9th Circuit reversed and rein-

stated Zenith’s RICO claims. Jd. at *6-8. The Ninth Circuit

held that the fraudulent practices of which Zenith complained

were “prohibited both under California [state acts] and under

the federal RICO statute.” Jd. at *8. The Ninth Circuit rea-

soned that “there is no principled basis for distinguishing, for

McCarran-Ferguson Act purposes, between the alleged insur-

ance [company] fraud in [Merchants Home] and the alleged

insurance fraud in [Zenith).” Id.

12. The insurance companies in that case contended that they collec-

tively represented “almost [forty percent] of America’s private insurance

industry.” See Health Insurers Sue SmithKline's Lab Division, Ins. Coverage

Litig. Rptr., Sept. 5, 1997, at 254; see also, Insurers Sue Over Lab Billing,

Bus. Ins., Aug. 25, 1997, at 2.

|

4

|

|

ers would go apoplectic if they suddenly found that they no

longer could use RICO to prosecute allegations of insurance

fraud. Christopher Winans, /nsurer’s Weapon Against RICO

Claims Could Backfire If It's Too Successful, Best's Ins. Mgmt.

Rep., June 14, 1993, at 4. One suspects that the insurance

industry would be similarly apoplectic if it discovered that it

could not longer use RICO or other federal statutes to com-

|

!

i

rity Act, 29 U.S.C. 1001, et seg., to trump otherwise trouble-

some state laws.

Insurance Industry Amicus ACLI is the largest life insur-

ance trade association, and Insurance Industry Amicus HIAA

purports to represent hundreds of companies that sell over

eighty-five percent of America’s health insurance. Brief of

Amici Curiae for ACLI and HIAA in Support of the Petition,

13. The world has not, and will not, come to an end if the insurance

industry is held subject to RICO. In Barnett Bank v. Nelson, the insurance

industry argued to this Court that “the sky will come falling down,” “eradi-

cate the well-established state regulation” and undermine the regulatory

scheme if the Supreme Court ruled that the McCarran-Ferguson Act did not

preempt applicable federal law. See Petitioner's Reply Brief at Point II, Bar-

nett Bank v. Nelson, 517 U.S. 25 (1996) (No. 94-1837) quoting amici briefs.

The Court was not impressed with this parade of horribles. This Court held

that the McCarran-Ferguson Act did not preempt the application of federal

law. Barnett Bank v. Nelson, 517 U.S. 25 (1996). See also, NAACP v. Ameri-

can Family Mut. Ins. Co., 978 F.2d 287, 297 (7th Cir. 1992), cert. denied, 508

U.S. 907 (1993) (insurance company unsuccessfully demanded exemption

from the prohibition agains: redlining in the Federal Fair Housing Act).

22

Pilot Life Ins. Co. v. Dedeaux, No. 85-1043, Oct. Term, 1985

(dated Dec. 20, 1985) at 1 (“Pilot Life Brief”). In Pilot Life,

ACLI and HIAA took a forceful anti-federalism position

before this Court, arguing against the application of state com-

mon laws and in favor of the sole application of the federal

ERISA statute. The ACLI and the HIAA wrote that “[t}he

adjudication of benefit claims based upon diverse state com-

mon laws will inevitably result in the haphazard imposition of

ages is unpredictable under state common laws which permits

such awards.” Jd.

Similarly, several years ago HIAA and ACLI joined a

number of major insurance companies in arguing to this Court

that, under ERISA, “state insurance regulations are not saved

from preemption. ...” Brief for Respondents The Travelers

Ins. Co., et al., New York State Conference of Blue Cross &

Blue Shield Plans v. The Travelers Ins. Co., Nos. 93-1408,

93-1414 and 93- 415, 1993 U.S. Briefs 1408, Oct. Term, 1994

(dated Dec. 13, 1994).

Other examples of insu:ance industry attacks on federal-

ism abound. A recent AIA press release began with the fol-

lowing observation:

Fifty state regulatory systems can be redundant and

costly for the nation's property and casualty insurers, par-

ticularly at the time when competition is intense and

companies are slashing business costs.

AIA, AIA Continues Assault on Regulatory Red Tape at 1

(June 16, 1998)."* One of the AIA's goals is to free commer-

cial insurance from price regulation by state insurance regula-

tors. Id.

The insurance industry regularly champions federal legis-

lation that protects it from having to pay claims arising out of

state-based consumer litigation. On August 13, 1998, the AIA

championed federal legislation relieving companies with Year

2000 liability from some lawsuits. See AIA, News (Aug. 13,

14. This document is publicly available on the Internet at

www.aiadc.org/press/061698.html.

1998)."° Applauding the legislation, the AIA opined that Con-

gress needed to do more to limit liability. Jd.

The AIA recently supported federal legislation in the

area of highway safety, stressing the financial impact of motor

vehicle accidents upon “auto insurance consumers.” AIA,

Insurers Urge President to Sign Highway Funding Measure

(June 3, 1998)."° A number of years ago, State Farm Insurance

Company and a group of insurance companies successfully

forced the United States Department of Transportation to

impose mandatory automatic restraint standards upon the

automobile industry. Insurance Information Institute, [II

Insurance Issues Update (Sept. 1998) at 7.”

Within the past month, Insurance Industry Amicus HIAA

applauded the involvement of the federal Health Care Financ-

ing Administration (“HCFA”) in helping insurance companies

to combat insurance fraud and abuse. HIAA termed insurance

fraud a “very important national issue.” Statement of Chip

Kahn, CEO and President-Designee, HIAA at 1.% An HIAA

publication noted that the HIAA “offers representation

before Congress and other bodies to influence federal legisla-

tion and regulation” and drafts federal “legislation, amend-

ments, floor statements, and testimony.” HIAA, About HIAA

at 1.

The HIAA similarly lauded the federal Health Insurance

Portability and Accountability Act of 1996 (“HIPAA”):

Federal laws affecting health care and the health insur-

ance marketplace ensure a certain degree of regulatory

uniformity for consumers, particularly multi-state

employers. HIAA believes that responsible federal

15. This document is publicly available on the Internet at

16. This document is publicly available on the Internet at

17. This document is available on LEXIS.

18. This document is publicly available on the laternet at

19. This document is publicly available on the Internet at

i

24

reform can assure a stable, affordable, and responsive

health care system that lasts well into the next century.

HIAA, Federal Perspectives (July 31, 1997) at 1.”

The HIAA also called for federal involvement in control-

ling health care litigation: “HIAA supports federal legislation

that would impose limits on punitive damage awards and on

joint and several liability for non-economic damages. /d. at 4.

“HIAA also supports federal legislation to limit extra-

disputes and for malpractice and other medical liability

awards.” Id. The HIAA even championed federal insurance

In a statement to Congress, the Reinsurance Association

of America (“RAA”) noted that “federal involvement is a

trophe exposure and insurance.” Statement of Franklin W.

Nutter, Pres., RAA Before the U.S. House of i

should only be employed as a last resort.” Id. Indeed, the

RAA criticized one bill, H.R. 219, because it “will encourage

of state government into the private

insurance market ....” Jd. at 6 (emphasis in original). Insur-

ance Industry Amicus NAII also strongly supported federal

disaster relief legislation. “NAII Member Urges Congress to

Hp

tat

20. This document is publicly available on the Internet at

21. This document is publicly available on the Internet at

42398 html.

22. This document is publicly available on LEXIS.

25

Although the insurance industry has supported these fed-

eral initiatives, when it comes to federal legislation combating

racketeering in the insurance industry, the weather vane

changes direction, and the insurance industry recoils from its

ee ee ee

RICO is an important tool in combating insurance fraud.

It is used by federal prosecutors, the nation’s insurance com-

missioners, insurance companies, policyholders, and injured

claimants. Insurance industry company fraud is of no lesser

national concern than is policyholder fraud. The Model Act

and the various state insurance codes do not comprehensively

or exclusively attempt to regulate private remedies for policy-

holders. Instead, the Model Act and the insurance codes

expressly provide that, in addition to any regulatory remedies

or penalties, insurance companies will remain liable under any

other applicable non-insurance statute or common law. In

large part, this feature of the state insurance regulatory system

is a direct result of the insurance industry's strenous efforts to

avoid having the nation’s insurance commissioners exercise

comprehensive control, let alone exclusive control, over pri-

vate remedies for insurance company fraud. For these reasons,

RICO does not “invalidate, impair or supersede” the Nevada

Insurance Code or other state insurance codes.

26

For the reasons set forth herein, the Court of Appeals’

opinion should be affirmed.

September 18, 1998

New York, New York 10020-1182

(212) 278-1000

John A. MacDonald

Timothy P. Law

ANDERSON KILL & OLICK, PC.

1600 Market Street

PA 19103

(215) 568-4202

Amy S. Bach

United

110 Pacific Avenue, No. 262

San Francisco, CA 94111

(415) 343-9990

Counsel of Record

Dated