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PHILADELPHIA--A policyholder in New Jersey can proceed with federal racketeering claims against his disability insurer, even though the state's statutory insurance laws contain no provisions for private rights of actions, the 3rd U.S. Circuit Court of Appeals has ruled.
In reversing a New Jersey district court ruling, a three-judge panel in Philadelphia ruled last week that--despite lack of clarity in New Jersey's insurance law as to the scope of remedies available to policyholders hurt by insurance fraud and corruption--claims under the federal Racketeer Influenced and Corrupt Organization Act will not impair New Jersey's state insurance scheme and, therefore, do not run afoul of the McCarran-Ferguson Act.
In ruling on Richard D. Weiss vs. First Unum Life Insurance Co., the appeals court panel expanded on the precedent established by the U.S. Supreme Court in Humana Inc. vs. Forsyth, which found that insurers could face federal RICO charges despite the McCarran-Ferguson Act. In that case, the Supreme Court found that RICO's private right of action and treble damages provision appeared to complement Nevada's statutory and common-law claims for relief.
The lower court ruled that the Weiss case differed from the Humana case because, unlike Nevada, neither New Jersey case law nor statutory law permits a private right of action for nonpayment of benefits, nor do they provide for punitive damages.
However, the appeals court in its opinion said: "It is logical to assume, as the Supreme Court did in Humana, that deeming federal civil RICO suits to be unavailable because they would impair the state scheme would deprive insurers of an important weapon of self defense" when they are fraud victims. "We find that depriving all players in the New Jersey insurance scheme of the right to sue under RICO is not part of the state's declared insurance policy, and we cannot simply presume such an atypical legislative aim from the structure of New Jersey's insurance laws."
The underlying case involves Richard Weiss, a former investment banker disabled in 2001 after suffering a heart attack. He sued First Unum after the disability insurer stopped paying his long-term disability benefits. Mr. Weiss alleges the move was part of a racketeering scheme involving an intentional and illegal policy of rejecting expensive payouts to disabled insureds.
First Unum could not be immediately reached for comment.
Richard D. Weiss vs. First Unum Life Insurance Co., No. 05-5428, 3rd U.S. Circuit Court of Appeals.