Katherine W. Fairborn

I.

Introduction

The recent Supreme Court determination in Humana v. Forsyth expanded a policyholder’s ability to bring a RICO claim against his or her insurer.[1]  When this finding is viewed in light of the broad preemptive powers of ERISA legislation and the concomitant lack of ERISA remedies, it seems likely that growing numbers of disgruntled policyholders will turn to the federal RICO laws when suing insurers.  This article analyzes recent case law to determine whether and how the preemption of state law claims under ERISA encourages federal RICO claims against life and health insurers, while also permitting plaintiffs’ attorneys to artfully plead ERISA cases.  In one such case recently decided by the Supreme Court, plaintiff’s attorneys had even alleged that HMO cost-containment measures violated ERISA fiduciary standards when a patient later developed peritonitis following delayed diagnostic treatment.[2] 

To explore the legitimacy of the author’s premise, this article begins by exploring recent federal case law construing ERISA.  It next examines the substance of ERISA legislation; what Congress intended under ERISA; the types of insurance covered by ERISA;  and how the statute has been utilized in policyholder actions.  Of greatest significance to insurers, this article will explore how courts construe ERISA’s state law preemption language in the context of insurance litigation.

Finally, the article reviews the federal RICO statute, its history, and the impact of the Humana ruling on a plaintiff’s ability to plead RICO against insurers.  To better understand the potential for increased RICO litigation against ERISA-governed insurers, the article also examines recent applications of RICO to claims against life and health insurers.

II.

ERISA and Preemption Law

At the outset, it might be helpful to note that ERISA’s intentionally sweeping language engenders a great deal of litigation, and often yields conflicting decisions within the federal court system.  (This is ironic, of course, since ERISA was intended specifically to ensure uniformity of outcomes.)  In early 1997, Justice Scalia noted that since ERISA’s enactment in 1974, the Supreme Court had decided more than one dozen cases “to resolve conflicts in the Courts of Appeals regarding ERISA preemption of various sorts of state law.”[3]  By late 1999, the Supreme Court had decided at least a half-dozen more ERISA preemption cases, and stood poised to review yet another. 

As one expert observes, “ERISA is ‘an enormously complex and detailed statute,’ but even so, it does not regulate every aspect of employee benefit plans. Congress anticipated that a regulatory gap would occur and authorized courts to develop ‘a body of Federal substantive law’ to fill the gaps.”[4]  A review of the history and intent behind ERISA and its broad preemption provision may help explain why ERISA invites so much litigation against the insurance industry.
A. Legislative History and Intent

More than a quarter century ago, Congress enacted comprehensive legislation designed to offer federal protection to employees who participate in employee benefit plans; this legislation is known as the Employee Retirement Income Security Act (or ERISA).[5]  The intent of ERISA was to protect employee benefit plan participants and their beneficiaries, “[b]y requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to Federal courts.”[6]

In enacting ERISA, Congress’ primary concern was with the mismanagement of funds accumulated to finance employee benefits and the failure to pay employees benefits from the accumulated funds.  To that end, it established extensive reporting, disclosure, and fiduciary duty requirements to insure against the possibility that the employee’s expectation of the benefit would be defeated through poor management by the plan administrator. . . .[7]

Congress intended ‘to ensure that plans and plan sponsors would be subject to a uniform body of benefits law; the goal was to minimize the administrative and financial burdens of complying with conflicting directives among States or between States and the Federal Government . . . , [and to prevent] the potential for conflict in substantive law . . . requiring the tailoring of plans and employer conduct to the peculiarities of the law of each jurisdiction’ . . . Therefore, “[t]he basic thrust of . . . [ERISA’s] preemption clause . . . was to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans.”[8]

Congress drafted many ERISA provisions in broad terms, intending for courts to develop a federal common law of employee benefits.  By directing the courts to develop a federal common law addressing rights and obligations under ERISA plans, Congress hoped to avoid “the threat of conflicting or inconsistent state and local regulation, . . . laws hastily contrived to deal with some particular aspect of private welfare and pension plans.”[9]  The decision to provide limited remedies and forms of relief under ERISA emanated from a desire to balance the competing interests of participants and of potential employer-sponsors. 

Congress intended to provide ERISA plan participants with meaningful protections against plan abuses, yet Congress found it important to “avoid creating liability rules that would discourage employers either from establishing benefits plans, or [from] offering benefits that are stingy and of little value.”[10]  The intentionally broad sweep of ERISA has resulted in a great deal of complex litigation, some of which will be explored below.  For purposes of this article, one of the most significant elements of the ERISA legislation is the breadth of state law preemption included under Section 514.  Of greater significance is the judicial interpretation of this language when extended to life and health insurance plans under ERISA.[11]
B. Scope of ERISA Law: Defining an ERISA-Qualified Plan

Recently, one ERISA expert characterized the developing federal common law under ERISA as “the most significant and widespread change in the law of life, health, and disability benefits litigation.”[12] One reason for ERISA’s powerful influence may be its sheer pervasiveness:  in 1998, more than 125 million individuals belonged to an ERISA-qualified health plan,[13] and millions more belonged to ERISA-qualified retirement plans.

Indeed, the broad interpretation given ERISA by federal courts means that the statute today extends to most employees receiving insurance benefits through an employer.  Recent surveys indicate that as many as 75% of all managed care plans are ERISA-qualified.[14]  Moreover, ERISA covers millions of other Americans whose benefit plans are established or maintained by employee organizations which represent employees who are either engaged in commerce or in any industry or activity affecting commerce.[15] 

Controversy surrounds the breadth of ERISA’s statutory language, as Americans increasingly discover that ERISA covers litigation involving claims under an employer-sponsored life, health, or disability policy. In part, coverage results because creating an ERISA-qualified plan is not difficult.  Indeed, some cases indicate that creation of an ERISA plan was inadvertent.  In Parrino v. FHP Inc., for example, the plaintiff-participant brought numerous state law claims after his group health policy denied coverage of an experimental brain tumor treatment.  In finding the claims preempted under ERISA, the Ninth Circuit explained that an employer can establish an ERISA plan, “even if an employer does no more than arrange for a ‘group-type insurance program’ . . . unless [the employer] is a mere advertiser who makes no contributions on behalf of its employees.”[16] 

As a matter of law, courts generally will find an ERISA plan “if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.”[17]  When setting forth a test to determine whether a plan would qualify as an ERISA-qualified “employee welfare benefit plan,” the Fifth Circuit Court of Appeals suggested that a plan must meet the following criteria:  (1) the plan must exist; (2) the plan must comply with the Department of Labor’s safe-harbor provision; and (3) the plan must satisfy “the primary elements of an ERISA ‘employee benefit plan’—establishment or maintenance by an employer intending to benefit employees.”[18]  One final criterion requires that an employer must establish and maintain an “‘ongoing administrative program.’”[19]

Under section 3, a court may conclude that a plan is an ERISA welfare benefit plan only after finding five prerequisites:  “[1] a plan, fund, or program must be [2] established or maintained [3] by an employer or by an employee organization, or by both, . . . [4] for the purpose of providing [an enumerated benefit] [5] [to a participant or beneficiary.]”[20] As noted, ERISA requires that plans be “established or maintained by an employer or . . . employee organization.”[21]  Courts have construed this language to require “‘that the plan is part of an employment relationship . . . [This] requirement seeks to ascertain whether the plan is part of an employment relationship by looking at the degree of participation by the employer in the establishment or maintenance of the plan.’”[22]  That same federal court further explained that:

[This test] is designed to distinguish situations in which the employer merely acts as a conduit for the marketing of an insurance policy to individual employees (in which case no ERISA plan exists), from the situation in which the employer financially pays for some or all of the plan and/or is otherwise involved in its administration (e.g., defining and administering employee eligibility, or listing the plan as a benefit of employment).[23]

Consequently, merely purchasing insurance for employees will not qualify a health insurance plan for ERISA if the employer does not directly own, control, administer, or assume responsibility for the policy or the benefits provided under the plan.[24]

Similarly, no ERISA plan is established if an employer’s sole involvement in the benefit plan involves: (1) permitting several life insurance companies to present plan options to employees, and (2) collecting the plan contributions and remitting the payments to the various life insurers chosen by the employees.[25] So long as the insurer establishes and maintains the plans, rather than the employer, it will not avail the plaintiff to plead “that the [insurer’s] plan was covered by ERISA because the employer ‘entered into what may be called an enabling contract’ . . .”[26]  This conclusion is reached because the employer’s activities described above represent only “minimal, ministerial activities.”[27]

Applying this rule to a suit in which the plaintiff health insurers alleged that ERISA preempted the insurance commissioner from enforcing the Texas Healthcare Liability Act, the district court concluded:

The health plans provided by health insurance carriers, health maintenance organizations, or managed care entities . . . and the health care entities themselves cannot constitute ERISA plans because the third inquiry under the Fifth Circuit’s test—whether the plan satisfies the primary elements of an ERISA ‘employee benefits plan’—must be answered in the negative.[28] 

The court found that, while ERISA-qualified plans in fact purchased health insurance coverage from the plaintiff insurers, the insurers themselves were not employers capable of establishing or maintaining an ERISA plan.  In other words, because the benefit conferred under an ERISA plan is the provision of health insurance, and not health care, an insurer who provides a policy to cover health care cannot supply the plan benefit directly; only the employer may do so under ERISA.

Congress arguably has provided ERISA with a comprehensive reach by fashioning the statute to include all employers “engaged in commerce or any industry or activity affecting commerce.”[29] Courts construe this phrase to indicate a congressional intent to extend the scope of ERISA as far as the commerce clause allows.[30]  Thus, any employer or employee organization whose work touches upon interstate commerce could be deemed to fall within the broad sweep of ERISA.

Yet another indication of congressional intent to give ERISA a broad reach may be found in the language by which the term “employee benefit plans” has been defined.  Under ERISA, this term includes employer (or employee organization) programs which provide participants or their beneficiaries with “medical, surgical, or hospital care, or benefits in the event of sickness, accident, disability, death,” or unemployment, either through the purchase of insurance or through some other means.[31]

Consistent with congressional intent, courts have interpreted ERISA broadly when pleadings implicate insurance benefits.  One author suggests using the following four-part test to decide whether ERISA governs a particular piece of insurance litigation.  That test requires a determination: “(1) whether the insurance coverage is provided as part of an ‘employee benefit plan’; (2) whether the plan is established or maintained by an ‘employer’;  (3) whether the employer is engaged in ‘commerce’ or in any ‘industry or activity affecting commerce’;  and (4) whether the plan is a ‘governmental’ plan or a ‘church’ plan.”[32]  This final question is important because an affirmative answer would remove the plan from ERISA’s reach.[33]
C. Preemptive Powers under ERISA

Perhaps the greatest extension of ERISA’s scope derives from the vast preemptive authority Congress included in the legislation.  Characterized as “deliberately expansive,”[34] ERISA attempts to create uniform employee benefit plan laws by broadly preempting state laws[35] that relate to employee benefit plans.[36]  “A law ‘relates to’ a covered employee benefit plan if it has:  (1) a connection with or (2) a reference to such a plan.”[37]

A California district court has noted that, “[e]arly on in defining the scope of ERISA preemption, the key statutory phrase ‘relate[s] to’ was given its broad, common sense meaning such that a state law was held to relate to an ERISA Plan if it ‘had a connection with or reference to such a plan.’”[38]  This expansive reading was difficult to administer, however, and the Supreme Court subsequently narrowed the preemptive power of ERISA in cases where state law merely affected the cost of insurance held in an ERISA plan, or where the wrong-doing occurred prior to actual formation of the plan (as when an agent wrongfully induces a plaintiff to buy into an ERISA plan through deceptive sales practices).[39]

However simple the preemption test was intended to be, Justice Scalia concludes that “. . . applying the ‘relate to’ provision according to its terms was a project doomed to failure, since, as many a curbstone philosopher has observed, everything is related to everything else.”[40]  When asked to determine whether California's prevailing wage statute related to an employee welfare benefit plan within the meaning of ERISA's preemption clause, the Supreme Court remarked:

Since shortly after its enactment, we have endeavored with some regularity to interpret and apply the “unhelpful text” of ERISA’s pre-emption provision. We have long acknowledged that ERISA's pre-emption provision is “clearly expansive.” It has: “a ‘broad scope,’ and an ‘expansive sweep,’ and . . . it is ‘broadly worded,’ ‘deliberately expansive,’ and ‘conspicuous for its breadth.’”[41]

Often, this breadth means that tests for relatedness between a state law and ERISA will be inconclusive, requiring the courts to examine congressional intent and the effect of state law upon ERISA plans.[42] 

Under the “relate[s] to” test, if a court finds that a plaintiff’s state law claim depends upon a plan’s existence, ERISA preemption may be triggered.[43]  For instance, after a health insurer denied coverage of an ERISA participant’s surgical expenses, the plaintiff commenced a state law bad faith and breach of contract action. However, the claims were held to be preempted under ERISA, because plaintiff “must necessarily plead and the court must find that the Plan, governed by ERISA, existed and that [the insurer], in bad faith, breached the Plan’s terms in denying [Plaintiff] coverage.”[44]  In an extensive review of the Supreme Court’s treatment of ERISA’s language, a California federal court found that ERISA had “broad and sweeping” preemptive power over any state law related to covered benefit plans.[45]

The exact language that creates these broad, sweeping preemptive powers is set forth below:[46]

Except as provided in subsection (b) of this section [the saving clause], the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . § 514(a), as set forth in 29 U.S.C. § 1144(a) (preemption clause).

Except as provided in subparagraph (B) [the deemer clause], nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking or securities. § 514(b)(2)(A), as set forth in 29 U.S.C. § 1144(b)(2)(A) (saving clause).

Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies. § 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B) (deemer clause).[47]

In essence, these provisions are designed to ensure that state laws relating to employee benefit plans will be preempted by ERISA, unless such laws regulate the business of insurance (though the deemer clause demonstrates that Congress was wary of state attempts to skirt preemption by labeling employee benefit plans ‘insurance companies’).  Traditionally, regulation of the business of insurance has been the sole province of the states under McCarran-Ferguson.[48]  Consequently, if a plaintiff’s action implicates only the sale of insurance products to be used in an ERISA plan, courts are content to relegate such conduct to state regulation. 

The decision not to preempt state law often implies a significant policy consideration:  under ERISA, there would be no remedy for the plaintiff in a wrongful inducement suit, since there would be no benefit denial.  ERISA preemption thus would have “the effect of allowing fraud by benefit plan marketers to go unchecked.  This would be an odd result for legislation designed to protect the rights of employees and to encourage the creation of benefit plans.”[49]

Only in cases where an agent’s misconduct relates to the plan will ERISA’s civil enforcement scheme preempt state remedies.[50] Consequently, ERISA will not preempt state law fraud claims when the fraudulent conduct was independent of the benefit plan.  Therefore,  the misrepresentations may not relate to the plan itself or to benefits due under the plan.[51] Yet for each exception, there appear to be any number of state laws that are preempted.

Typical state laws subject to ERISA preemption include “common law claims based on breach of contract, breach of tort duties, fraud, estoppel, bad faith, or statutory violations . . . if the claims ‘relate to’ benefits provided under an employee benefit plan.”[52]  Just as state laws may be preempted, so may common law rules of contract interpretation.  Thus, in an ERISA suit, there is no place for state law principles requiring contracts to be strictly construed against an insurer, or other principles requiring that contracts comply with an insured’s reasonable expectations.[53]  Exclusion of these principles helps maintain uniformity in federal ERISA law.  Other state laws are likely to be preempted under ERISA as well.  These include:  “‘state laws providing alternative enforcement mechanisms’” for ERISA plan benefits, as well as “state laws that mandate[ ] employee benefit structures or their administration . . . [and] state causes of action based on alleged improper handling of claims for medical benefits under an ERISA plan.”[54]

Courts have established some limits on ERISA’s scope, however.  While ERISA’s expansive preemptive language enables it to “supersede any and all [s]tate laws insofar as they may now or hereafter relate to any employee benefit plan,”[55] courts have determined that “some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relates to’ the plan.”[56]  Consequently, ERISA does not preempt state laws which have “only an indirect economic effect on the relative costs of various health insurance packages”[57] available to ERISA-qualified plans.

Guided by congressional intent and by ERISA’s emphasis on providing uniform federal protection of employee benefits, courts are most likely to preempt state law when a plan participant or the participant’s beneficiary alleges wrongful denial of benefits due under an ERISA plan.  “A claim based on state law is more likely to relate to an ERISA plan if it falls within an area of exclusive federal concern and directly affects the relationship between the principal entities (the employer, the plan, the fiduciaries, and the participants and beneficiaries).”[58]  Thus, if a plaintiff-plan participant alleges that the ERISA-qualified HMO failed to treat a condition as the result of a benefits determination, the claim will be preempted.

However, if the plaintiff-plan participant sues an HMO for breaching the standard of care for the health care benefit delivered, some courts will find no preemption.  In such cases, the “[p]laintiff’s allegations are not based upon any mishandling or denial of claims under the health benefit plan, but rather are based upon the quality of care which [was] received.  ‘A claim about the quality of a benefit received is not a claim . . . to recover benefits due . . . under the terms of the plan.’”[59]

Courts recently have been asked to apply this distinction to a growing number of suits against ERISA-qualified HMO plans, in which the plaintiffs allege that cost-saving measures resulted in injury.[60]  As discussed later, one of these cases was decided recently by the Supreme Court.[61]  Claims have been lodged under various tort doctrines, contractual theories, commercial bribery statutes, deceptive trade practices acts, racketeering statutes, extortion, breach of fiduciary duties, and agency theories.  However, so long as the claim focuses on denial of benefits, courts are apt to find the state law claim preempted under ERISA, since  ERISA preemption is implicated when a plaintiff’s pleadings concern benefit determinations made under the plan.  Such a situation exists, for example, when “the HMO [makes] medical decisions due to a cost containment feature of the plan and thus ‘implicate[s] the management of plan assets.’”[62]

In at least one other recent case regarding the denial of certain medical treatments under a health insurance plan, the Fifth Circuit has similarly held, and other circuits have also held that claims regarding plan guidelines and utilization review procedures are preempted . . . In the instant case, Plaintiffs allege that Silva’s death resulted from Kaiser’s decisions and restrictions concerning plan benefits. . . These assertions amount to a claim for denial of ERISA plan benefits; therefore, Plaintiffs’ claims against Kaiser are preempted by ERISA.[63]

For many, the recent trend toward recognizing causes of action against HMOs for vicarious liability, respondeat superior, and medical negligence offers promise.  Since these theories do not implicate the administration of benefits, plaintiffs may be able to avoid ERISA preemption problems.  Nevertheless, ERISA’s broad preemptive powers remain a daunting hurdle for many litigants who wish to bring state law claims against qualified insurance plans.[64]
D. ERISA’s Enforcement Provisions

It is important to note that preemption of a state law claim will not leave an ERISA participant or beneficiary entirely without recourse.  Under Section 1132, the participant may bring an action for benefits, allowing him “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan . . .”[65] Remedies are limited to those enumerated in the statute, and courts have construed this limitation strictly. 

In one such case, Massachusetts Mutual Life Ins. Co. v. Russell, the Supreme Court held that a participant who brought suit alleging breach of fiduciary duty under ERISA was not eligible for extra-contractual compensatory or punitive damages.[66]  “Several courts . . . have interpreted the decision in Russell, broadly, and have held that extra-contractual compensatory or punitive damages are not available in any ERISA action, including an action brought by a participant for benefits due under the terms of the plan.”[67] 

One consequence of the scant relief available under ERISA is that some courts have been frustrated in their efforts to assign a remedy:  “‘Under traditional notions of justice, the harms alleged—if true—should entitle [the plaintiff] to some legal remedy.’  ERISA, however, does not always vindicate traditional notions of justice, either for the plan or for its participants.”[68] Additionally, because most courts view ERISA actions as equitable in nature, the parties have no right to a trial by jury.[69]

In fact, before a claimant can even be heard in court, he or she must first contend with the congressional mechanism for abating ERISA suits: administrative review under Section 503.  All plans formed under ERISA must establish and maintain administrative procedures (and remedies) for handling benefit claims made by plan participants and beneficiaries.[70]  Should a participant fail to seek such review in a timely fashion, courts are likely to deny the claimant any right to be heard.[71]  Furthermore, “[w]hile the statute is silent with respect to whether participants are required to exhaust their administrative remedies before seeking relief in the courts, the federal courts of appeal unanimously have held that a participant must exhaust whatever avenues of administrative review exist under the plan before commencing a legal action challenging a denial of benefits.”[72]

This strict application of the “exhaustion requirement” is designed not only to reduce the number of claims brought under ERISA, but also to improve consistency in disposition, to minimize settlement costs, and to provide an alternative dispute-resolution methodology.[73]  Notwithstanding the importance of these goals, however, courts acknowledge that administrative review is not always feasible and have carved out four exceptions to the exhaustion requirement:

1.      FUTILITY:  Construed narrowly, the test is whether the claimant had an opportunity to avail himself of a review—not whether his claim would have succeeded.  The standard is “a clear and positive showing of futility.”

2.      ACCESS DENIED:  Here, a claimant must demonstrate that he tried to access the review procedure, but was denied meaningful access by those controlling the review process.

3.      IRREPARABLE HARM:  Rarely used, this requires a claimant to establish that judicial review is necessary to avoid irreparable harm to his career or to his ability to exercise his rights under the plan.

4.      NOTICE FAILURE:  In one district court case, a plan’s deficient denial letter so failed to give the participant notice that the court held the claimant was excused from employing administrative remedies.  “However, most courts hold that deficiencies in the denial letter do not absolve a claimant from exhausting administrative remedies;” they only toll the time considered reasonable for seeking review.[74]

III.
Litigation Alleging Violation of ERISA Fiduciary Duties

One final area of ERISA litigation that affects insurers, especially as it relates to RICO claims, involves the alleged breach of fiduciary duty.  Title I of ERISA both delineates general standards of conduct for plan fiduciaries and disallows certain transactions.[75]  The section also requires that every plan designate one named fiduciary who bears responsibility for operating and administering the plan.[76]  However, fiduciary status is not determined solely by designation.  Courts also may apply ERISA’s characteristically broad functional test to conclude that an undesignated person is a plan fiduciary, to the extent the person:

(i)                  exercises any discretionary authority or control with respect to management of the plan,

(ii)                exercises any authority or control (whether or not discretionary) concerning management or disposition of the plan’s assets,

(iii)               renders investment advice concerning plan assets for which he receives direct or indirect compensation, or

(iv)              has any discretionary authority or responsibility for administration of the plan.[77]

Due to the breadth of this functional definition (which far exceeds traditional trust law concepts of fiduciary status), a plan might have many fiduciaries, including trustees, investment committee members, the Board of Directors (or any group charged with selecting the investment committee), investment advisors, and “all individuals active in the administration of the plan who have discretionary authority.”[78] 

Indeed, the definition is broad enough to justify the characterization that, “under ERISA, the persons with the ultimate responsibility to determine whether a benefits plan will cover a claim are cloaked with fiduciary status.”[79]  Consequently, a plan is likely to have multiple fiduciaries, though each one’s duties will extend only to those aspects of the plans over which the person exercises authority or control.[80] 

These rules generally mean that ERISA codifies an expanded version of the common law definition of fiduciary duty.  Nevertheless, courts tend to consider this expansion in light of “the special nature of employee benefit plans” when defining an ERISA fiduciary’s duties.[81]  This viewpoint generally results in an evolving definition of duties which commentators characterize as strict.[82]  The duties an ERISA fiduciary owes to the plan include:

(i)                  THE DUTY OF LOYALTY: Discharge duties solely in the interest of plan participants and their beneficiaries exclusively for the purpose of efficiently providing benefits to these individuals.

(ii)                THE DUTY OF PRUDENCE:  Act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”  This “prudent expert” rule often sets a higher standard than state trust law.

(iii)               THE DUTY TO ACT IN ACCORDANCE WITH THE PLAN’S GOVERNING DOCUMENTS:  However, fiduciaries must ensure there is no conflict between these documents and ERISA, because if ERISA provisions conflict with these instruments, ERISA controls.

(iv)              THE DUTY TO MONITOR THOSE TO WHOM FIDUCIARY RESPONSIBILITIES WERE DELEGATED:  Delegate only if the plan explicitly allows it and describes the procedure for delegation.  Fiduciaries who delegate responsibility must monitor the delegate’s conduct and will remain jointly and severally liable. [83]

It should be noted that breach of a fiduciary duty may result in personal liability, requiring the fiduciary to “make good to the plan, any loss incurred by reason of his breach.  Additionally, such a fiduciary must ‘restore to such plan’ any profits made by him through the improper use of plan assets.”[84]  Though punitive and extracontractual damages are generally unavailable, injunction, removal, and other forms of equitable relief may be granted against the breaching parties.[85]
A. Herdrich: A Challenge for the Supreme Court

Plaintiffs increasingly are bringing suit against HMOs that have sold policies to ERISA-qualified plans, alleging that the HMO’s cost-containment methods violate ERISA’s fiduciary duties.  In one recent Supreme Court case, the plaintiffs alleged that their HMO breached its fiduciary duty to ERISA plan participants by employing typical HMO cost-control measures.  These efforts at cost containment allegedly violated ERISA fiduciary duties because they were not “solely in the interest of participants and beneficiaries.”[86]

In a two-to-one decision, hotly contested on motion for rehearing, the Seventh Circuit Court of Appeals determined that HMO cost-containment measures violated ERISA.[87]  “A fiduciary breaches its duty of care under section 1104(a)(1)(A) whenever it acts to benefit its own interests . . . The requirement that an ERISA fiduciary act ‘with an eye single to the interest of the participants and beneficiaries,’ is the most fundamental of his or her duties, and must be enforced with uncompromising rigidity.”[88]   Likewise, in language criticized by the dissent, the court remarked: “with a jaundiced eye focused firmly on year-end bonuses, it is not unrealistic to assume that doctors rendering care under the Plan were swayed to be most frugal when exercising their discretionary authority to the detriment of their membership.”[89]  Thus, the court concluded that HMO cost-saving incentives may rise to the level of a breach if the court suspects that doctors have delayed necessary care for “the sole purpose of increasing their bonuses.”[90]

In a unanimous decision reversing the Seventh Circuit Court of Appeals, however, the United States Supreme Court determined that an HMO, whose plan was part of an employer’s ERISA benefits package, did not qualify as a plan fiduciary to the extent that such an HMO (acting through its physicians) made mixed eligibility and treatment decisions.  The Seventh Circuit had concluded that when an HMO’s Board of Directors is also composed of the doctors who make the benefit determinations, there is a sufficient level of “discretionary control and authority” over plan assets to justify imposition of ERISA fiduciary duties on the HMO.  The court found particularly compelling plaintiffs’ allegation that their HMO retained “the exclusive right to decide all disputed and non-routine claims under the plan.”[91]

On the other hand, the dissenting members of the Seventh Circuit had made an equally compelling argument against the decision. Judge Easterbrook argued that an HMO could not retain the requisite discretion “in the administration of the plan;” discretion could only lie in the provision of medical services: 

Perhaps this issue boils down to a matter of characterization.  If one conceives of particular medical services as the “benefits” under the plan, then Carle [the defendant HMO] serves as the gatekeeper to those benefits, and handling claims for medical benefits defined by a plan is a fiduciary role under ERISA. But if instead one conceives of the CarleCare HMO system as the benefit promised by the ERISA plan, then Carle is not a “fiduciary.”  It is just the supplier of medical care . . . [T]o the extent there is uncertainty about the right way to characterize Carle’s role, the court should . . . [treat] the Carle HMO as the benefit, rather than treating Carle as the administrator of the ERISA plan.  If the HMO system is the benefit, then Carle is not acting as a fiduciary. [92]

Dissecting the policy implications of the majority’s opinion, the dissent explained:

The choice between these characterizations is important . . . Most medical care these days is furnished under ERISA plans.  Most contemporary welfare benefit plans provide for managed care, through HMOs or other devices, at least as an option.  The panel’s opinion thus implies that the principal organizational forms through which medical care is delivered today are unlawful.  If this conclusion is correct, then the cost?saving achieved by managed care must be abandoned, and the cost of medical care will rise, perhaps substantially. [93]

This subtlety has been largely ignored by lower courts in cases addressing HMO fiduciary status under ERISA, but it was not ignored by the United States Supreme Court.  In fact, the subtlety was enhanced.

Traditionally, once a court found that a health insurer administered benefits or retained discretionary control or authority to make benefits determinations, the court declared the insurer a fiduciary.[94]  In Weiss v. Cigna Healthcare, the New York district court summarily concluded that an HMO properly could be deemed an ERISA fiduciary when it exercises discretionary power in management or administration.[95]  Thus, to the extent the HMO “exercises discretionary control over the communication of medical information to Plan participants,” imposing a “gag order” on HMO physicians would be a fiduciary breach.[96] In contrast to the Seventh Circuit’s Herdrich decision, however, the Weiss court found that no fiduciary duty is breached when an HMO offers financial incentives to physicians as part of a cost-control measure.[97]  The distinguishing feature between the two decisions might be that the Herdrich HMO doctors were also the owner-operators of the defendant HMO, while Weiss’ HMO doctors were more independent.  As the Weiss court explains, “[t]he profit motive created by the HMO does not make [violations of the ERISA fiduciary duty] ‘inevitable.’”[98]

            In a more detailed finding of fiduciary status, the New Hampshire district court concluded that because an HMO in an ERISA plan has discretionary control and authority over the plan (in part because the HMO has the right to exercise final control over benefit appeals), “it plainly qualifies as a fiduciary under ERISA.”[99] The court relied in part on precedent, stating that a benefits determination under the terms of plan documents is a fiduciary act.[100]  The court also cited relevant language: “When an insurance company administers claims for [a plan] and has authority to grant or deny the claims, the company is an ERISA ‘fiduciary’ . . . ."[101]

            When analyzing this same issue of fiduciary status in Herdrich, the United States Supreme Court first defined a “plan” within the meaning of ERISA.  Utilizing a broad definition derived from common understanding, the Court defined an ERISA plan as a “scheme decided upon in advance.”[102]  The Court then described the structure of an HMO scheme or “plan:”

            Here the scheme comprises a set of rules that define the rights of a beneficiary and provide for their enforcement.  Rules governing collection of premiums, definition of benefits, submission of claims, and resolution of disagreements over entitlement to services are the sorts of provisions that constitute a plan . . . Thus, when employers contract with an HMO to provide benefits to employees subject to ERISA, the provisions of documents that set up the HMO are not, as such, an ERISA plan, but the agreements between an HMO and an employer who pays the premiums may, as here, provide elements of a plan by setting out rules under which beneficiaries will be entitled to care.[103]

Moreover, since fiduciary obligations can apply to managing, advising and administering an ERISA plan, the HMO may be a fiduciary if it administers the plan, notwithstanding its status when it administers or exercises discretionary authority over its own business.          

Having made that determination, the Supreme Court acknowledged that an ERISA fiduciary is not entirely governed by the common law of trusts, as noted earlier.  At this juncture, however, the Supreme Court drew a critical distinction.  Whereas the common law trustee acts as fiduciary whenever that trustee takes action to affect a beneficiary, the ERISA fiduciary may act in different capacities with respect to its beneficiaries, only some of which carry traditional fiduciary responsibilities.  For example, an ERISA fiduciary may have financial interests adverse to plan beneficiaries.  Specifically, employers can be ERISA fiduciaries and still act to the disadvantage of employee beneficiaries when they act as employers or plan sponsors.[104]  Notwithstanding this distinction, ERISA does require that the ERISA fiduciary wear “only one [hat] at a time, and wear the fiduciary hat when making fiduciary decisions.”[105] Thus, a plan administrator is an ERISA fiduciary “only ‘to the extent’ that he acts in such a capacity in relation to a plan.”[106]  In that context, the threshold question must be whether the plan administrator “was acting in a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.”[107]

Given the specific breach of duty alleged by Ms. Herdrich, the Supreme Court observed that there was no ERISA violation when incorporators of the Carle HMO provided for a year-end payment to physicians, since the HMO was not the ERISA plan and the incorporation of the HMO preceded the HMO contract with the employer’s plan.  The pivotal issue thus concerned whether the Carle HMO became a plan fiduciary, acting through its physicians, when Carle contracted with the employer.  When deciding this issue, however, the Court noted that it was important to further distinguish between two administrative acts: “eligibility decisions” (those turning on the plan’s coverage of a particular condition or medical procedure) and “treatment decisions” (choices about how to diagnose and treat a patient’s condition).[108] Although Congress arguably intended that fiduciary status would extend to eligibility decisions about managing assets and distributing property to beneficiaries, it did not intend Carle or any other HMO to be treated as a fiduciary to the extent it makes mixed eligibility and treatment decisions, e.g., “physicians’ conclusions about when to use diagnostic tests; about seeking consultations and making referrals to physicians and facilities other than Carle’s; about proper standards of care, the experimental character of a proposed course of treatment, the reasonableness of a certain treatment, and the emergency character of a medical condition.”[109]  The power to reform HMOs lies with Congress and not the federal judiciary. Borrowing the rationale of the Seventh Circuit dissent in Herdrich, the Supreme Court remarked that “the Federal Judiciary would be acting contrary to the congressional policy of allowing HMO organizations if it were to entertain an ERISA fiduciary claim portending wholesale attacks on existing HMOs solely because of their structure, untethered to claims on concrete harm.”[110]  At least in this respect, plaintiffs’ lawyers have been unable to achieve through the courts what Congress allegedly has failed to do through legislation: reform the HMOs.[111]

IV.
RICO:  The Racketeer Influenced and Corrupt Organizations Act

Having thus reviewed the breadth of ERISA’s coverage, it is not surprising that those familiar with this area of law might consider ERISA litigation to be among the most significant and far-reaching forces in life, health and disability benefits litigation.  However, another federal law has begun to assert a growing influence on the insurance industry—the Racketeer Influenced and Corrupt Organizations Act (RICO).  Since 1985, more than forty-five lawsuits alleging that an insurer breached both ERISA and RICO have been heard in the nation’s federal courts.[112]  Unfortunately for the insurance industry, RICO claims are likely to increase as a result of the Supreme Court’s recent pronouncement in Humana v. Forsyth.[113]  In a departure from precedent, the Court decided to construe McCarran-Ferguson’s preemptive authority narrowly, based on a finding that RICO provided a nice complement to state anti-fraud measures against the insurers.

Nearly one decade ago, a perspicacious attorney predicted that RICO claims against insurers would swell, since the Supreme Court had promulgated a ruling effectively lowering the threshold for establishing a RICO claim.[114]  Until the Humana ruling, however, courts remained reticent to apply RICO to suits against insurers.  The 1999 Humana decision changed all that, removing one of the most effective defenses to RICO from the insurers’ armory. As a result, leading members of the plaintiffs’ bar met late in 1999 to assemble a strategy for suing the nation’s largest health maintenance organizations under RICO. Shortly thereafter, they began their campaign by launching a weighty salvo against Aetna on behalf of 18.3 million enrollees.[115]

One aspect of RICO that makes it so attractive to contemporary plaintiffs is the range of penalties. Though violators face criminal penalties ranging from imprisonment to fines and forfeitures,[116]  that is not what most interests today’s insurance plaintiffs.  Instead, it is the statutory language allowing private actions: “any person injured in his business or property by reason of a violation of § 1962 of this Chapter may sue therefore in any appropriate United States District Court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.”[117] 

As may be expected, the mandatory treble-damages language (“shall recover”) makes RICO a popular, if not irresistible, legal theory for many.  Combined with the impressive preemptive power ERISA exerts over a large number of health and life insurance claims, it is not surprising that RICO’s popularity would grow.  Furthermore, within the insurance context, the fact that RICO is not a state law subject to ERISA preemption makes it a useful tool for plaintiffs facing such a limitation.
A. Legislative History and Intent

Congress enacted the Racketeer Influenced and Corrupt Organizations Act (known as RICO) nearly thirty years ago, as part of the Organized Crime Control Act of 1970.  Though many RICO defendants have attempted to argue that the statute should be read narrowly to address only “organized crime,” the Supreme Court has rejected this line of argument. [118]  Instead, the Court has relied on RICO’s legislative history to conclude:

that even though “[t]he occasion for Congress’ action was the perceived need to combat organized crime, . . . Congress for cogent reasons chose to enact a more general statute, one which, although it had organized crime as its focus, was not limited in application to organized crime.”[119]

Summarizing its review of RICO’s legislative history, the Court emhasized the heavy ammunition Congress intended to level at all types of organized crime:

The federal RICO statute was passed to eradicate the infiltration of legitimate business by organized crime. Earlier steps to combat organized crime were not successful, in large part because traditional penalties targeted individuals engaged in racketeering activity rather than the criminal enterprise itself. Punishing racketeers with fines and jail terms failed to break the cycle of racketeering activity because the criminal enterprises had the resources to replace convicted racketeers with new recruits. In passing RICO, Congress adopted a new approach aimed at the economic roots of organized crime: “What is needed here . . . are new approaches that will deal not only with individuals, but also with the economic base through which those individuals constitute such a serious threat to the economic well-being of the Nation. In short, an attack must be made on their source of economic power itself, and the attack must take place on all available fronts.” Criminal liability under RICO is premised on the commission of a “pattern of racketeering activity,” defined by the statute as engaging in two or more related predicate acts of racketeering within a 10-year period. A RICO conviction subjects the violator not only to traditional, though stringent, criminal fines and prison terms, but also mandatory forfeiture under § 1963.[120]

Though racketeering is apt to evoke images of gangster activity for many, in truth, RICO “has become a favorite – and lucrative – weapon of attorneys who claim health insurance providers are ripping off their policyholders.”[121]  Indeed, the Supreme Court has acknowledged that many legitimate businesses are subject to RICO:

It is true that private civil actions under the statute are being brought almost solely against [respected businesses], rather than against the archetypal, intimidating mobster. Yet this defect—if defect it is—is inherent in the statute as written and its correction must lie with Congress.  We nonetheless recognize that, in its private civil version, RICO is evolving into something quite different from the original conception of its enactors.[122] 

Such an evolution is due largely to the rather expansive definition afforded to the term, “racketeering.”
B. Applying RICO

As defined under RICO, racketeering involves “any act ‘chargeable’ under several generically described state criminal laws, and any act ‘indictable’ under numerous specific federal criminal provisions including mail and wire fraud . . .”[123]  Within the general classes of crimes enumerated in 18 U.S.C. §1961(1), there is no specific mention of insurance practices.[124]  However, courts consistently find that various other provisions of the statute support actions both by and against insurers.

Among the RICO provisions most relevant to the instant inquiry is the section of RICO styled, “Prohibited Activities.”  Under its Prohibited Activities section, RICO makes it illegal to apply money derived from a “pattern of racketeering activity” to an enterprise engaged in or affecting interstate commerce; to acquire or maintain an interest in an enterprise “through” a pattern of racketeering activities; to conduct or participate in the conduct of an enterprise through a pattern of racketeering activities; or to conspire to violate any of the above provisions.[125]  

A “pattern of racketeering activity” may be found only if the defendant engaged in “at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.”[126] In insurance litigation, establishing this “pattern of racketeering activity” often proves a decisive element in a plaintiff’s claim.

Indeed, to properly state an action under RICO’s civil liabilities section, plaintiffs “must plead the conduct of an ‘enterprise’ through a pattern of racketeering activity, as well as injury to the plaintiff, his business or his property.”[127] As one court has summarized the requisites, “[t]o state a claim under RICO, the plaintiffs must allege: (1) that a person; (2) conducted the affairs; (3) of an enterprise; (4) through a pattern of racketeering activity.”[128]  To understand how these requirements affect RICO litigation against insurers, it is necessary to examine the requisites of an “enterprise.”
C. RICO Enterprise Defined

Under Section 1962(c), RICO makes it “unlawful for any person employed by or associated with any enterprise engaged in . . . interstate commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.”[129]  Consequently, a plaintiff’s RICO count will be dismissed if it fails both “to identify the enterprise and each defendant’s role in the pattern of racketeering activity.”[130] After all, “it is the existence of an enterprise that distinguishes a RICO conspiracy from other conspiracies.  A RICO conspiracy claim cannot stand absent an allegation of the involvement of an enterprise.”[131]  As the Seventh Circuit has explained:

[A] prototypical RICO enterprise is a criminal gang not incorporated under the laws of any state or compliant with the provisions of the Uniform Partnership Act. But we do not see how the acts complained of in this case can be thought the work of an organization, however loose-knit. . . . [The action before us constitutes] a conspiracy, but it is not an enterprise unless every conspiracy is also an enterprise for RICO purposes, which the case law denies.[132]

Generally speaking, RICO enterprises must exhibit three characteristics: “(1) a common or shared purpose; (2) some continuity of structure and personnel; and (3) an ascertainable structure distinct from that inherent in a pattern of racketeering.” [133] In light of the perpetual ingenuity of the criminal mind, however, courts are apt to take an adaptive approach to the definition of enterprise.  Fortunately, even under this approach, some RICO enterprises are easier to identify than others:

When a    “Legal” entity is the enterprise under consideration, “there is little difficulty in proving the existence of the enterprise. Proof that the entity in question has a legal existence satisfies the enterprise element.” In contrast, proving the existence of an association-in-fact enterprise requires showing that “a group of persons associated together for a common purpose of engaging in a course of conduct.”[134]

Nevertheless, “a group of persons associated together for a common purpose of engaging in a course of conduct” may be more difficult to prove than it sounds, as one plaintiff discovered.  When this RICO plaintiff attempted to show that his insurer participated in an association-in-fact enterprise, the court noted that RICO required him to demonstrate that the defendant insurer “participated in the conduct of an enterprise’s affairs through a pattern of racketeering activity.”[135]  In order to establish the existence of a RICO enterprise, the plaintiff had to allege more than just the predicate acts.  The plaintiff had to show that “the enterprise [had] an independent structure, separate and apart from the structure inherent in the conduct of the pattern of racketeering activity.”[136]  Thus, a plaintiff wishing to establish an enterprise must  show some connection between it and the predicate acts:

[A]ll that is required [to delineate between the enterprise and the predicate acts] is a “nexus” or “connection” between the enterprise and the racketeering activity in which the activity in some way stems from the enterprises’ activities or otherwise has some relationship to the enterprise . . .[A] nexus exists “when (1) one is enabled to commit the predicate offenses solely by virtue of his position in the enterprise or involvement in or control over the affairs of the enterprise, or (2) the predicate offenses are related to the activities of that enterprise.”[137]

Plaintiffs are also likely to encounter difficulty establishing the existence of an enterprise when their litigation implicates the relationship between company and agent.  Because a corporation cannot conspire with itself, the issue of whether an agent is a separate person is pivotal, involving concomitant issues of intracorporate immunity.  However, courts may easily dispense with this argument under the “personal gain” exception, if they find evidence that either the agent or the insurer had an individual stake in achieving the illegal objective (e.g., the agent stood to personally gain through illegally-attained commissions).[138]

Questions of this nature frequently appear in RICO litigation.  In Davis v. Mutual Life Ins. Co. of New York, a policyholder defrauded by a corrupt life insurance agent sued MONY under RICO.[139]  The jury found that MONY had participated in the agent’s mail and wire fraud, forming the requisite RICO enterprise.[140]  MONY challenged the finding on the grounds that, “a corporation cannot be both the ‘enterprise’ and the ‘person’ conducting or participating in the affairs of that enterprise . . . Under the . . . ‘distinctness’ requirement, a corporation may not be liable under section 1962(c) for participating in the affairs of an enterprise that consists only of its own subdivisions, agents, or members.”[141] However, because the court found that the agent’s fraudulent business was sufficiently distinct from MONY, and that MONY continued to participate in the agent’s scheme even after notice of its fraudulent nature, it affirmed the jury’s findings and allowed RICO liability to attach.[142]

In litigation against HMOs, the problem is similar: how to meet the distinctness requirement between the insurer and its subsidiaries or affiliated doctors.  Plaintiffs must show that a parent and its subsidiaries are an “enterprise” if there is an association-in-fact, in which “the defendants are not distinct from the enterprise.”[143] For example, no RICO enterprise can exist if Aetna and each of its subsidiary HMO operations is not sufficiently distinct and separate.  Nor may a plaintiff establish an enterprise between an HMO and its independent doctors when the plaintiff admits that the doctors and HMO share no common purpose and, indeed, are at odds with one another.[144]  If a plaintiff succeeds in establishing the distinctness and enterprise requirements, an insurer must be prepared to defend against allegations that they engaged in a “pattern of racketeering activity.”
D. Pattern of Racketeering Activity Defined

Recognizing the increasing frequency with which attorneys use RICO against insurers, the Seventh Circuit in one case has remarked: “At last we arrive at AAP’s RICO claims, which these days seem to be tacked onto securities and ERISA complaints as a matter of course.  They should not be.”[145]  Language of this sort seems apt when a plaintiff is unable to meet RICO’s requirement that he or she establish a “pattern” of racketeering activity with “proof of at least two of the felonies the statute specifies as predicate acts.”[146]

Under RICO, these plaintiffs must allege at least two predicate acts because RICO is not directed toward isolated offenders; instead, it aims to punish those who threaten to engage in a continuous criminal enterprise.[147]  Moreover, merely alleging two acts may not be enough to establish the requisite pattern: “[t]he predicate acts must be sufficiently related to constitute an ongoing and continued enterprise;  but they must also be sufficiently distinct to comprise a pattern, as opposed to a single fraudulent act perpetrated in a series of steps.”[148]

To determine whether a defendant’s activities are sufficiently continuous, courts test the facts alleged against the following factors:  the number of independent victims; the number of participants; the purpose of the activity; the result of the activity; the method of commission; the number of transactions; whether the scheme is ongoing and open-ended; and the duration of the activity.[149] Dismissing a plaintiff’s RICO suit against an insurer who allegedly dropped small, unprofitable group plans, one court explained that a proper RICO complaint must allege the requisite continuity.  Without a sufficient showing of continuity, the plaintiff (who alleged two acts of mail fraud and one act of wire fraud) could not support a RICO claim.[150] According to the court, a “closed-ended scheme lasting only a few months” is insufficient under RICO’s “pattern of racketeering activity” requirement.[151] “Rather, the RICO pattern requires plaintiff to show ‘that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.’”[152] Thus, continuity requires either a “closed period with repeated conduct, or . . . past conduct that by its nature projects into the future with a threat of repetition.”[153]

[A] party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time.  Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement:  Congress was concerned in RICO with long-term criminal conduct.[154] 

Because mail and wire fraud are commonly the “pattern of racketeering activity” of choice for plaintiffs suing insurers, it is important to understand the elements of mail or wire fraud.  These elements include: “(1) a scheme or artifice to defraud, and (2) use of the Postal Service or interstate wires [e.g., telephone or facsimile] for the purpose of executing the scheme or artifice.”[155]  Both statutes also require a specific intent to deceive or defraud, though the requirement is met so long as the plaintiff can demonstrate “the existence of a scheme which was ‘reasonably calculated to deceive persons of ordinary prudence and comprehension,’ and this intention is shown by examining the scheme itself.”[156] Once this requirement is satisfied, the plaintiff’s complaint must plead the predicate acts of mail or wire fraud with particularity, alleging “the time, place, and specific content of the false representations as well as the identities and the parties to the misrepresentation.”[157]

Applying these rules to allegations that a life insurer had violated RICO by failing to adequately disclose the interest rate risk of a single premium whole life product, the court upheld dismissal of the RICO claims.[158]  Because the insurance company’s sales literature did not contain “misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension,” no scheme and thus no pattern of racketeering was established.[159] Ultimately, the court found only that the plaintiffs had misinterpreted the plain meaning of the defendant insurer’s promotional literature -- a misfortune not covered under RICO.
E. Timing:  The Statute of Limitations

The statute of limitations is another defense insurers might raise in a RICO suit.  In one such case, plaintiff provided an employee retirement plan to its employees.  Among the group benefits available was one of the defendant’s fixed annuity contracts.[160]  Following a dispute over the calculation and award of interest credit to the plaintiff’s ERISA-qualified benefit plan, plaintiff brought suit under ERISA and RICO.  Under the RICO claim, plaintiff alleged that, “‘Defendant’s knowing and intentional misrepresentations and omissions of material facts’ concerning the reporting of credited interest and the assessment of the management fee violated [RICO].”[161]

The principal issue under consideration in this case was the four-year limitations period.  Ultimately, the court determined that, “the near universal consensus among circuit courts is that the claim accrues from the time the plaintiff discovered or should have discovered the injury.” This means that the statute of limitations will not begin to run until the plaintiff discovered or should have discovered the pattern of racketeering activity (requiring that she recognize her injury is part of a pattern of defendant’s behavior).[162] 
E. RICO Preemption under McCarran-Ferguson

A new frontier in insurance litigation arose from the Supreme Court’s decision in Humana v. Forsyth in 1999.[163]  Prior to that decision, insurers successfully argued that RICO claims were preempted under the McCarran-Ferguson Act.[164]  Under this Act, federal legislation affecting the business of insurance would apply only if it did not “‘invalidate, impair, or supersede’ the state’s regulation.”[165]  McCarran-Ferguson was enacted by Congress in 1945.  It responded to a Supreme Court decision that, for the first time, declared the business of insurance to be commerce, subject to federal regulation and to the Sherman Act.[166]  Congress was concerned that the Court’s ruling would undermine state regulatory efforts, since each state operates a Department of Insurance to regulate the business of insurance (unlike banking and securities, insurance currently has no federal regulatory framework), and states also hold the right to tax insurers.[167]

To protect state regulation of insurance, Congress ensured that federal statutes not identified in the Act or not yet enacted would not automatically override state insurance regulation. Section 2(b) provides that when Congress enacts a law specifically relating to the business of insurance, that law controls. See §  1012(b). The subsection further provides that federal legislation general in character shall not be “construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance.”[168]

Today, however, the Supreme Court interprets this to mean that, so long as a federal law does not directly conflict with state regulation, McCarran-Ferguson has no preemptive power unless the federal law interferes with state regulatory schemes or frustrates a declared state policy.[169]

V.
Humana v. Forsyth:  The New Frontier

With this narrowed reading of McCarran-Ferguson’s preemptive authority, the Supreme Court unanimously simplified the process of filing RICO claims against insurers.  As one group of plaintiff’s attorneys quickly announced, “In light of [Humana], lawyers representing policyholders or claimants victimized by the fraud of an insurance company, broker, or agent should very seriously consider bringing RICO claims.  These lawyers should take note that courts across the country as well as the United States Supreme Court are reining in the McCarran-Ferguson Act.”[170] 

In Humana, the Supreme Court determined that under the plain meaning of McCarran-Ferguson, RICO claims asserted by a group of health insurance purchasers against their insurer were not barred.[171]  The Court rejected the notion that Congress may have intended to “cede the field of insurance regulation to the States, saving only instances in which Congress expressly orders otherwise.”[172]  Instead, the Court concluded that RICO complements the state regulatory framework for fighting insurance fraud, and advances the state’s interest.  Indeed, according to the Court, allowing RICO claims against insurers neither impairs state regulation nor interferes with an insurer’s compliance with state law.[173] 

Consequently, RICO suits are no longer precluded under McCarran-Ferguson.  The Supreme Court has declared that no impairment of state insurance law is present, so long as the new test for impairment is met.  The test now provides that, “when federal law is applied in aid or enhancement of state regulation, and does not frustrate any declared state policy or disturb the State’s administrative regime, the McCarran-Ferguson Act does not bar the federal action.”[174]

According to one expert, lower courts that addressed this McCarran-Ferguson issue prior to Humana “were split both as to the standard of analysis of impairment of state law and as to allowance or preclusion of RICO claims against insurers.”[175]  While some courts had applied a liberal “direct conflict” test,[176]  other courts “applied a kind of ‘upset the balance’ test, appearing to scrutinize possible conflicts between RICO and state remedies in order to preclude RICO claims against insurance companies.”[177]   Because these tests each focus on the similarities or compatibility between state insurance law and RICO claims, insurers must still scrutinize applicable state laws.  Arguments will need to address whether application of RICO would interfere with existing state remedies or state policies.  As one attorney explains, “Among other things, of importance to such arguments may be whether a state has an insurance code that provides a private right of action for insurance fraud, recognizes tort claims for contractual bad faith, or has serious limitations on punitive damages.”[178]

VI.
Concluding Remarks

Soon after Humana opened the door for an increased number of RICO claims against insurers by lowering the threshold for McCarran-Ferguson impairment findings, plaintiffs’ attorneys announced their intention to increase RICO filings against life and health insurers.[179]  In particular, filings against HMOs increased dramatically in the final months of 1999, due in large part to activity among the nation’s most prominent members of the plaintiffs’ bar.  Forming a group they call REPAIR (RICO and ERISA Prosecutors Advocating for Insurance Industry Reform), the attorneys are using sizable war-chests from tobacco settlements to fund class action suits against the nation’s largest HMOs.  Their claims focus on ERISA and RICO violations.[180]

It is hard to imagine that ERISA preemption of most state tort and contract remedies does not increase the frequency of federal RICO claims which are not preempted, but which afford recovery to both plaintiffs and their attorneys that far surpasses remedies available under ERISA.  How many of these suits prevail, and how many continue to be filed, will depend greatly on interpretations of the Herdrich distinctions.  As the Trial Lawyers for Public Justice wrote in their Humana amicus brief,

[RICO] is tailor-made for rooting out frauds occurring in the health, life, and property and casualty insurance industries.  In cases of health insurance fraud . . . state law claims against health insurance plans covered by ERISA are preempted.  Remedies under ERISA are limited . . . even when state law claims are available and not preempted by ERISA . . . they lack RICO’s powerful remedies and are not as effective in eradicating fraud.[181]

The powerful effect ERISA has in driving RICO litigation seems evident in the sheer number of suits where both claims are raised against insurers.  Legal databases indicate that more than forty-five have been decided since 1985.  The problem has not gone unnoticed in Congress, where Representative Charlie Norwood (R-Georgia) is looking to include language in his Norwood-Dingell health reform bill to protect managed care companies from punitive damages (so long as they meet standards of care mandated in the bill), and to prohibit class-action lawsuits under ERISA. Citing the rising use of RICO against insurers, Representative Norwood says he hopes the bill also will serve to limit the use of RICO, which was intended to fight organized crime.[182]

From a policy perspective, the current use of ERISA and RICO is questionable, resulting in many calls for congressional reform.  For employers and insurers, the uniform system of laws under ERISA remains beneficial.  However, its extension to employer-sponsored health insurance and to many of the other areas that courts have labeled “welfare benefit plans” holds dubious value.

As for RICO litigation, the Supreme Court has acknowledged that the law no longer conforms to its original intent, and has called upon Congress to reform the law.  Perhaps it is time for the insurance industry to press for such a change, supporting a version of Representative Norwood’s proposed language.  While the plaintiffs’ bar may view RICO’s large awards as a powerful weapon for change, the insurance industry justifiably could argue that RICO damages are dispensed in an unpredictable manner, driving up the cost of insurance without providing clear guidance on how to behave.

 
Endnotes

[1]      Humana v. Forsyth, 525 U.S. 299, 303 (1999).

[2]            Herdrich v. Pegram, 154 F.3d 362 (7th Cir. 1998), rev’d, Pegram v. Herdrich, 68 U.S.L.W. 4501 (June 12, 2000) (mixed medical treatment and eligibility decisions by HMOs and their physicians are not fiduciary acts within the meaning of ERISA).

[3]            California Div. of Labor Std. Enforcement v. Dillingham Constr., 519 U.S. 316, 334-35 (1997) (per curiam) (Scalia, J., concurring).

[4]           Jayne E. Zanglein, 5 A.B.A. Preview S. Ct. Cases 278 (Feb. 12, 1999) (citing Mertens v. Hewitt Associates, 508 U.S. 248, 251 (1993), 120 Cong. Rec. 29,942 (1974) (remarks of Senator Javits)).

[5]           Joseph R. Simone, et al, Fiduciary Responsibility and Prohibited Transactions Under ERISA, 421 P.L.I./Tax 513 (1998).

[6]           Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44 (1987) (citing 29 U.S.C. § 1002(1)).

[7]            Dillingham Constr., 519 U.S. at 326-27 (citations omitted).

[8]            Corporate Health Ins. Inc. v. Texas Dept. Ins., 12 F. Supp. 2d 597, 611 (S.D. Tex. 1998) (citations and quotations omitted).

[9]           ERISA Preemption: Hearings Before the Subcomm. on Labor, Health and Human Services and Education of the Senate Comm. on Appropriations, 105th Cong. (1998) <http://www.appwp.org/testimony/testimony-gallagher.htm>(statement by Robert Gallagher, Principal Groom Law Group, on behalf of the Assoc. of Private Pension and Welfare Plans)  (citing 120 Cong. Rec. 29933 (Aug. 22, 1974)(remarks of Sen. Javits))[hereafter Gallagher].

[10]          Id.

[11]          29 U.S.C. § 1144.

[12]            Elizabeth J. Bondurant, et al, A New Look at Old Problems in Life Insurance, 1999 Conference on Life Ins. Lit., SD65 ALI-ABA 333, 353.

[13]            American Psychological Association, Poll Finds Overwhelming Public Support for Legal Accountability of All Managed Care Health Plans, (May 1998) <http://www.apa.org/releases/parcarelease.html>.

[14]            Barry R. Furrow, et al.  Health Law: Cases, Materials and Problems 304 (3d Ed. 1997).

[15]            Bondurant , supra note 12, at 353 (citing 29 U.S.C. § 1003).

[16]          Parrino v. FHP Inc., 146 F.3d 699, 703 (9th Cir. 1998) (finding that ERISA preempted all claimant’s state law claims).

[17]          Id. (citing Carver v. Westinghouse Hanford Co., 951 F.2d 1083, 1086 (9th Cir. 1991)).

[18]            Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir. 1993).

[19]            Corporate Health, 12 F. Supp. 2d at 608 (S.D. Tex. 1998) (citing Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987)).

[20]            Jayne Zanglein, ERISA draft at 9 (citing Dillingham Constr., 688 F.2d at 1371).

[21]          29 U.S.C.A. § 1002(1) (West Supp. 1998).

[22]            Corporate Health, 12 F. Supp. 2d at 608.

[23]          Id.

[24]          Id.

[25]          Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127, 1134-5 (7th Cir. 1986).

[26]          Id. at 1135 (quoting plaintiff).

[27]          Id. at 1135.

[28]          Corporate Health, 12 F. Supp. 2d at 609.

[29]          29 USC § 1003(a)(1).

[30]            Bondurant, supra note 12, at 355 (citing Winterrowd v. David Freedman & Co., 724 F.2d 823, 825 (9th Cir. 1984)).

[31]          Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44 (1987) (citing 29 U.S.C. § 1002(1)).

[32]            Bondurant, supra note 12, at 353-54 (terms in quotations marks are defined in the ERISA statute).

[33]          Id. at 353.

[34]            Dedeaux, 481 U.S. at 46.

[35]          State law includes “all laws, decisions, rules, regulations, or other State action having the effect of law of any State.” 29 USC § 1144(c)(1).

[36]            Midwest Security Life Ins. Co. v. Stroup, 706 N.E.2d 201, 204 (Ind. Ct. App 1999).

[37]          Id. (citing several Supreme Court decisions).

[38]          Camp v. Pacific Fin. Group, 956 F. Supp. 1541, 1544 (C.D. Cal 1997) (citing Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985)).

[39]          Id. at 1544-49.

[40]            California Div. of Labor Std. Enforcement v. Dillingham Constr., 519 U.S. 316, 334-35 (1997) (Scalia, J., concurring).

[41]          Id. at 324 (citing New York State Conference of Blue Cross and Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739  (1985); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47  (1987); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990); Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992); FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990)).

[42]          Id. at 325.

[43]            Midwest Security Life Ins. Co. v. Stroup, 706 N.E.2d 201, 204-05 (Ind. Ct. App 1999).

[44]          Id.

[45]          Camp v. Pacific Fin. Group, 956 F. Supp. 1541, 1544 (C.D. Cal 1997).

[46]            Dedeaux, 481 U.S. at 44-45 (“Congress capped off the massive undertaking of ERISA with three provisions relating to the pre-emptive effect of the federal legislation.”).

[47]          Id. at 45.

[48]            McCarran-Ferguson Act, § 2(b), 15 U.S.C.A. § 1012(b).

[49]          Camp, 956 F. Supp. at 1546.

[50]          Id. at 1550.

[51]            Moreland v. Behl, No. C-92-1238 MHP, 1995 U.S. Dist. LEXIS 15353, at *8 (N.D. Cal. Oct. 4, 1995).

[52]            Bondurant, supra note 12, at 358.

[53]          Id. at 359.

[54]          Parrino v. FHP Inc., 146 F.3d 699, 705 (9th Cir. 1998) (citations omitted).

[55]          29 U.S.C. § 1144(a).

[56]            Phommyvong v. Muniz, No. CIV.A. 3:98-CV-0070-L, 1999 WL 155714, at *2 (N.D.Tex. Mar. 11, 1999).

[57]          New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 662 (1995).

[58]            Phommyvong, 1999 WL 155714, at *2 (citing Sommers Drug Stores v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1467 (5th Cir. 1986), cert. denied, 479 U.S. 1034 (1987)).

[59]          Id. at *3-4 (citing Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 357 (3d Cir. 1995), cert. denied, 516 U.S. 1009 (1995)).

[60]          See, e.g., Armand v. Kaiser Found. Health Plan of Texas, 12 F. Supp.2d 556 (N.D.Tex. 1998); Giles v. NYLCare Health Plans, Inc., 172 F.3d 332 (5th Cir. 1999); Herdrich v. Pegram, 154 F.3d 362 (7th Cir. 1998); Ries v. Humana Health Plan, Inc., 1995 WL 669583, at *7 (N.D. Ill. 1995); Silva v. Kaiser Permanente, 59 F. Supp.2d 597 (N.D.Tex. 1999); Anderson v. Humana, Inc., 24 F.3d 889 (7th Cir. 1994); Phommyvong, 1999 WL 155714 *1.

[61]          Pegram v. Herdrich, 68 U.S.L.W. 4501 (June 12, 2000).

[62]          Silva, 59 F. Supp.2d at 599.

[63]          Id at 599. (citing Hubbard v. Blue Cross & Blue Shield Assn., 42 F.3d 942 (5th Cir.), cert. denied, 515 U.S. 1122 (1995) (claim regarding denial of cancer treatments deemed “experimental” by plan guidelines was preempted by ERISA); Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th Cir. 1996) (negligence claim arising out of utilization review program’s denial of physical therapy was preempted as a “denial of benefit” claim under ERISA).

[64]          One court has characterized ERISA preemption of claims against an HMO as “slam[ming] the courthouse doors in [the plaintiff’s] face and leav[ing] her without any remedy  . . . This case, thus, becomes yet another illustration of the glaring need for Congress to amend ERISA for the changing realities of the modern health care system.  Enacted to safeguard the interests of employees and their beneficiaries, ERISA has evolved into a shield of immunity that protects health insurers, utilization review providers, and other managed care entities from potential liability for the consequences of their wrongful denial of health benefits.” Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49, 53 (D. Mass. 1997). See also Tolton v. American Biodyne, Inc., 48 F.3d 937, 943 (6th Cir.1995) ("One consequence of ERISA preemption, therefore, is that plan beneficiaries or participants bringing certain types of state actions--such as wrongful death--may be left without a meaningful remedy."); Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1338-39 (5th Cir. 1992) ("The result ERISA compels us to reach means the [Plaintiff has] no remedy, state or federal, for what may have been a serious mistake."); Turner v. Fallon Community Health Plan, 953 F.Supp. 419, 424 (D.Mass.1997) (Gorton, J.), aff'd, 127 F.3d 196 (1st Cir.1997) ("An unfortunate consequence of ERISA preemption is, therefore, that plan beneficiaries or participants who bring certain kinds of state actions, e.g., wrongful death, may be left without a meaningful remedy . . . . Sadly, the case at bar compels a like result. Plaintiff's state common law claims are preempted by the broadly sweeping arm of ERISA. Plaintiff is left without any meaningful remedy even if he were to establish that [the insurer] wrongfully refused to provide the [bone marrow transplant] his wife urgently sought.").

[65]            Bondurant, supra note 12, at 359 (citing 29 U.S.C. § 1132(a)(1)(B)).

[66]          Id. at 360 (citing Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985)).

[67]          Id.

[68]            Metropolitan Life Ins. Co. v. Socia, 16 F. Supp. 2d 66, 73 (Mass. 1998) (internal citations omitted).

[69]            Bondurant, supra note 12, at 360.

[70]          Id. at 361.

[71]          Id. at 361 (citing Graham v. Federal Express Corp., 725 F. Supp. 429, 437 (W.D. Ark. 1989) (holding that “the failure to comply with reasonable time constraints prescribed by the plan’s review procedure precludes judicial review of a claim for benefits.”).

[72]          Id. (citations omitted).

[73]          Id. at 362.

[74]          Id.

[75]            Simone, supra note 5, at 517.

[76]          Id. at 518.

[77]          29 U.S.C. § 1002(21)(A).

[78]            Simone, supra note 5, at 519.

[79]            Gallagher, supra note 9.

[80]            Simone, supra note 5, at 519.

[81]          Id. at 519-20.

[82]          Id. at 520.

[83]          Id. at 521-22.

[84]          Id. at 533-34.

[85]            Although punitive damages generally are not available under ERISA, a defendant found guilty of embezzling funds from an ERISA-qualified pension fund was assessed treble damages of almost $2 MM under RICO. Simone, supra note 5, at 100 (citing Crawford v. La Boucherie Berndard, Ltd., 815 F.2d 117 (D.C.Cir. 1987), cert. denied, 484 U.S. 943 (1987)).

[86]            Herdrich v. Pegram, 154 F.3d 362, 372 (7th Cir. 1998) (citing Ries v. Humana Health Plans, Inc., 1995 WL 669583 *7 (N.D.Ill. 1995)).

[87]          Id. at 372.

[88]          Id. at 371 (citations omitted).

[89]          Id. at 372.

[90]          Id. at 373.

[91]          Id. at 370.

[92]          Id. at 380 (citing Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)).

[93]          Id.

[94]          See IT Corp. v. General American Life Ins. Co., 107 F.3d 1415 (9th Cir. 1997); Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mut. of Ohio, 982 F.2d 1031 (6th Cir. 1993); Weiss v. Cigna Healthcare, Inc., 972 F. Supp. 748 (S.D.N.Y. 1997); Drolet v. HealthSource, Inc., 968 F. Supp. 757 (D.N.H. 1997).

[95]          Weiss, 972 F. Supp. at 751 (citing O’Reilly v. Ceuleers, 912 F.2d 1383, 1385 (11th Cir. 1990); Morales v. Health Plus Inc., 954 F. Supp. 464, 468-69 (D.P.R. 1997)).

[96]          Id.

[97]          Id. at 752-53.

[98]          Id.

[99]          Drolet, 968 F. Supp. at 761 (citing Varity Corp. v. Howe, 516 U.S. 489, 511 (1996) (noting that "a plan administrator engages in a fiduciary act when making a discretionary determination about whether a claimant is entitled to benefits under the terms of the plan documents"); Libbey?Owens?Ford Co., 982 F.2d 1031, 1035  ("When an insurance company administers claims for [a plan] and has authority to grant or deny the claims, the company is an ERISA 'fiduciary' . . ."); American Fed'n of Unions v. Equitable Life Assurance Soc'y, 841 F.2d 658, 663 (5th Cir.1988).

[100]        Id. (citing Libbey?Owens?Ford Co., 982 F.2d 1031, 1035).

[101]        Id. (citing American Fed'n of Unions, 841 F.2d at 663).

[102]            Pegram v. Herdrich, 68 U.S.L.W. at 4504 (citing Webster’s New International Dictionary 1879 (2d ed. 1957)).

[103]            Id.

[104]            Id. at 4505.

[105]            Id.

[106]            Id.

[107]            Id.

[108]            Id. at 4506.

[109]            Id.

[110]            Id. at 4507.

[111]        See press release by Richard Scruggs regarding his filing of a class action against AETNA:  “Our class action is designed to transform the entire system so that no patient is ever again harmed by an HMO.” Oct. 7, 1999, “National Class Action Lawsuit Filed Against the Nation’s Largest HMO Charging, RICO, ERISA Violations,” <http://wwwprnewswire.com.>

[112]            METHODOLOGY:  On Oct. 28, 1999, the author ran several keyword searches in the Federal case law databases of Lexis and Westlaw, looking for suits against life and health insurers involving both RICO and ERISA claims.  After a cursory examination of the results, it appears that more than 45 of the cases address issues similar to those reviewed in this paper.

[113]            Humana v. Forsyth, 525 U.S. 299, 302 (1999).

[114]        Ernest W. Irons, RICO: Get Ready For the Onslaught, ABA 16-Fall Brief 24 (1986).

[115]        P.R. Newswire, National Class Action Lawsuit Filed Against Nation’s Largest HMO Charging, RICO, ERISA Violations (released Oct. 7, 1999) <http://www.prnewswire.com >.

[116]        Ernest W. Irons, supra note 114, at 24.

[117]        Id. at 25 (quoting 18 U.S.C. § 1964(c)).

[118]        Sutton v. United Airlines, 527 U.S. 471, 119 S. Ct. 2139, 2157-58 (1999) (citing H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229 (1989)).

[119]        Id.

[120]            Alexander v. United States, 509 U.S. 544, 562 (1993) (citing Pub.L. 91-452, Title IX, 84 Stat. 941, as amended, 18 U.S.C. §§ 1961-1968 (1988 ed. and Supp. III), S.Rep. No. 91-617, p. 79 (1969), 18 U.S.C. § 1961(5)).

[121]        Patrick Strawbridge, Insurer Faces Lawsuit: Class Action Under a Racketeering Law Accused United Healthcare of Overcharging Customers, Omaha World-Herald, Apr. 23, 1999, available in 1999 WL 449674.

[122]        Irons, supra note 114, at 25-26, (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985)).

[123]        Id. at 24.

[124]        Sabo v. Metropolitan Life Ins. Co., 137 F.3d 185, 193 (3d Cir. 1998), cert. denied, 119 S.Ct. 918 (1999).

[125]        Irons, supra note 114, at 24-25.

[126]        Id. at 33 (quoting 18 U.S.C. § 1961(5)).

[127]        Maio v. Aetna, Inc., No. 99-1969, 1999 U.S. Dist. LEXIS 15056, at *4 (E.D. Pa. Sep. 29, 1999) (citing 18 U.S.C. § 1964).

[128]            Framingham Union Hosp. v. Travelers Ins. Co., 721 F. Supp. 1478, 1484 (D.Mass. 1989) (citing Norman v. Brown, Todd & Heyburn, 693 F. Supp. 1259, 1263 (D.Mass 1988)).

[129]            Cunningham v. PFL Life Ins. Co., 42 F. Supp. 2d 872, 881 (N.D. Iowa 1999).

[130]        Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127, 1136 (7th Cir. 1986).

[131]        Id. at 1137.

[132]            Bachman v. Bear-Stearns & Co., 178 F.3d 930, 932 (7th Cir. 1999).

[133]        Lisa Pritchard Bailey et al, Racketeer Influenced and Corrupt Organizations, 36 Am. Crim. L.Rev. 1035, 1051 (Summer 1999) (citing Handeen v. Lemaire, 112 F.3d 1339, 1351 (8th Cir. 1997)).

[134]        Id. (citing Handeen v. Lemaire, 112 F.3d 1339, 1351 (8th Cir. 1997)).

[135]            Moreland v. Behl, No. C-92-1238 MHP, 1996 WL 193843, at *23 (N.D.Cal. Apr. 17, 1996).

[136]        Id. at *23 (citing Chang v. Chen, C-94-555583, 1996 WL 155015 (9th Cir. 1996)).

[137]        Id. (citing Sun Sav. and Loan Ass’n v. Dierdorff, 825 F.2d 187, 195 (9th Cir. 1987)).

[138]            Cunningham v. PFL Life Ins. Co., 42 F. Supp. 2d 872, 884 (N.D. Iowa 1999).

[139]        Davis v. Mutual Life Ins. Co. of New York, 6 F.3d 367 (6th Cir. 1993).

[140]        Id. at 376-7.

[141]        Id. at 377.

[142]        Id. 377-80.

[143]        Maio v. Aetna, Inc., No. 99-1969, 1999 U.S. Dist. LEXIS 15056, at *8 (E.D. Pa. Sep. 29, 1999).

[144]        Id.

[145]            Associates in Adolescent Psychiatry v. Home Life Ins. Co., 941 F.2d 561 (7th Cir. 1991).

[146]        Id. at 570 (citing 18 U.S.C. § 1961(1)).

[147]            Framingham Union Hosp. v. Travelers Ins. Co., 721 F. Supp. 1478 (D.Mass. 1989).

[148]        Id. at 1484.

[149]        Id.

[150]            Robinson v. Hawkins, 942 F. Supp. 1234 (E.D.Mo. 1996).

[151]        Id. at 1235, 1237-38.

[152]        Id. at 1238 (quoting H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989)).

[153]        Id. (quoting H.J. Inc., 492 U.S. at 241 (1989)).

[154]        Id. (quoting H.J. Inc., 492 U.S. at 242 (1989)).

[155]        Berent v. Kemper Corp., 973 F.2d 1291, 1294 (6th Cir. 1992).  See also Moreland, 1996 WL 193843, at *22.

[156]            Moreland v. Behl, No. C-92-1238 MHP, 1996 WL 193843, at *22 (N.D.Cal. Apr. 17, 1996) (citing United States v. Green, 745 F.2d 1205, 1207 (9th Cir. 1984), cert. denied, 474 U.S. 925 (1985)).

[157]        Camp v. Pacific Fin. Group, 956 F. Supp. 1541, 1550-51 (C.D. Cal 1997) (citing Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1399-1400 (9th Cir. 1986)).

[158]        Berent, 973 F.2d at 1295.

[159]        Id.

[160]            Harper-Wyman Co. v. Connecticut Gen. Life Ins. Co., No. 86 C 9595, 1991 WL 285746, at *1 (N.D.Ill. Dec. 23, 1991).

[161]        Id.  at *8.

[162]        Id. at *9.

[163]            Humana v. Forsyth, 525 U.S. 299, 302 (1999).

[164]        15 U.S.C. § 1012(b).

[165]            Humana, 525 U.S. at 302.

[166]        Id. at 306 (citing United States v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944)).

[167]        Id.

[168]        Id.

[169]        Id. at 308.

[170]        Eugene R. Anderson, et al, Fighting Insurance Company Fraud with RICO:  The Supreme Court Clears the Way Under the McCarran-Ferguson Act, 22 Am.J. Trial Advoc. 267, 294 (1998).

[171]            Humana v. Forsyth, 525 U.S. 299, 307 (1999).

[172]        Id. at 308.

[173]        Id. at 307.

[174]        Id. at 303.

[175]        Robert B. Lowry, Supreme Court RICO Decision Against Health Insurer Changes Scene For Insurance Fraud Claims, Bullivant, Houser & Bailey Web Site, http://www.bullivant.com/news-pubs-I99a.htm .

[176]        See Forsyth v. Humana, Inc., 99 F.3d 1504, 1515-16 (9th Cir. 1996); Merchants Home Delivery Serv. Erv., Inc. v. Frank B. Ball & Co., 50 F.3d 1486 (9th Cir. 1995).

[177]        Lowry, supra note 175 (citing DOE v. Norwest Bank Minnesota, N.A., 107 F.3d 1297, 1307 (8th Cir. 1997) (RICO found to "impair" Minnesota insurance regulatory program because of RICO’s substantially different damage provisions); Kenty v. Bank One Columbus, N.A., 92 F.3d 384, 392 (6th Cir. 1996) (RICO would "impair" Ohio regulatory scheme having different liability and damage provisions and different standards of proof)).

[178]        Id.

[179]        See REPAIR Team Strikes Again,  Business & Health, Jan. 1, 2000, available in 2000 WL 9502213; Money Talks in HMO Class Action Lawsuits, Business & Health, Dec. 1, 1999, available in 1999 WL 10663563;  Plaintiff’s Lawyers Step Up Pressure Against HMOs, Liability Week, Nov. 29, 1999, available in 1999 WL 13960687; Norwood Seeks Amendment Barring HMO Class-Action Suits, Best's Ins. News, Jan. 12, 2000, available in 2000 WL 4084395.

[180]            REPAIR Team Strikes Again,  Business & Health, Jan. 1, 2000, available in 2000 WL 9502213.

[181]        More Amici Briefs Filed in Policyholders’ RICO Claims Against Humana, 4 Andrews Health Care Fraud Litig. Reporter (Rep. 10), Jan. 1999 (no page numbers avail.).

[182]            Norwood Seeks Amendment Barring HMO Class-Action Suits, Best's Ins. News, Jan. 12, 2000, available in 2000 WL 4084395.

(Author’s bio)

            Katherine W. Fairborn graduated from Texas Tech School of Law this past Spring summa cum laude, and was inducted in Phi Kappa Phi and the Order of the Coif. She will begin work as an associate in the Insurance Law section of the Austin office of Akin, Gump, Strauss, Hauer & Feld in the Fall. Before she returned to law school, Mrs. Fairborn received her B.A. and M.B.A. from the University of Texas, Austin. She has eight years of experience working in the workers’ compensation and life insurance industries.