he district court concluded that the WDCA reverse preempts RICO under the McCarran-Ferguson Act because RICO does not “relate to the business of insurance,” the WDCA was enacted to regulate the business of insurance, and RICO would impair the WDCA. Brown, 409 F. Supp. 2d at 808-11. The plaintiffs appeal this conclusion, arguing that WDCA was not enacted to regulate the business of insurance and that RICO will not “invalidate, impair, or supersede” the WDCA.

Brown v. Cassens, 2008 U.S. App. LEXIS 21990, *; 2008 FED App. 0385P (6th Cir.), (October 23, 2008)

This Sixth Circuit opinion raises several important points in the context of RICO claims, and also addresses the issue of “reverse preemption” under the McCarran-Ferguson Act.  As noted below, RICO claims are occasionally asserted along with ERISA claims in complex employee benefits litigation. Thus, the treatment of the reverse preemption argument in Cassens has relevance for benefits practitioners.

The Facts

The plaintiffs’ employer, Cassens, was self-insured for purposes of paying benefits under Michigan Worker’s Disability Compensation Act (”WDCA”). Cassens contracted with Crawford & Company to serve as a claims adjuster for the worker’s compensation claims of Cassens’s employees.

The plaintiffs’ contended that Cassens, Crawford, and a group of doctors, engaged in a pattern of racketeering activity that denied the plaintiffs’ worker’s compensation claims.

Specifically, the plaintiffs alleged that Cassens and Crawford deliberately selected and paid unqualified doctors, including Margules, to give fraudulent medical opinions that would support the denial of worker’s compensation benefits, and that defendants ignored other medical evidence in denying them benefits. The plaintiffs claimed that the defendants made fraudulent communications amongst themselves and to the plaintiffs by mail and wire in violation of 18 U.S.C. §§ 1341, 1343, which serve as the predicate acts for their RICO claims.

The Reverse Preemption Argument

The defendants, among other defenses, argued that the plaintiffs’ RICO claims ran counter to the purposes of the McCarran-Ferguson Act, 15U.S.C. § 1012.

In other words, if the state workers’ compensation scheme was, in effect, “insurance”, then the argument becomes one of whether it would be consistent with the McCarran-Ferguson Act to allow RICO claims to intrude upon the remedial scheme contained in the state workers’ compensation statutes.

The Sixth Circuit unhinged the argument by dismissing the underlying premise – in the Court’s view, the state workers’ compensation plan was not “insurance”.

Because worker’s compensation benefits are not a form of insurance and the insurance-policy provisions are a minor element of the WDCA that was not part of the purpose for enacting the law, the WDCA was not “enacted . . . for the purpose of regulating the business of insurance,” and thus it does not reverse preempt the plaintiffs’ RICO claims.

The reverse preemption argument can arise in the context of health insurance disputes. The Supreme Court addressed the issue in the seminal case, Humana, Inc. v. Forsyth, 525 U.S. 299, 307 (1999), relied upon by the Sixth Circuit in Cassens.

In Humana, beneficiaries of group health insurance policies issued Humana sued Humana and a hospital, alleging a scheme under which discounts for hospital services were secured but wrongfully withheld from the plaintiffs. In addition to ERISA claims, the case included state law claims under Nevada insurance law.

The Supreme Court ruled that:

Because RICO advances the State’s interest in combating insurance fraud, and does not frustrate any articulated Nevada policy, we hold that the McCarran-Ferguson Act does not block the respondent policy beneficiaries’ recourse to RICO in this case.

The issue can go the other way as well.

In LLC v. Medical Mut. of Ohio, 2008 U.S. Dist. LEXIS 75723 (September 30, 2008), for example, a district court held that a RICO action was reverse preempted, stating:

Unlike the regime analyzed in Humana, a RICO action would frustrate the administrative regime of the state of Ohio. Ohio has created an administrative regime to oversee the insurance industry and demands exhaustion of this regime’s remedies before allowing one to pursue a private action. See Pappas & Associates Agency, Inc. v. State Auto. Mut. Ins. Co., 1998 Ohio App. LEXIS 22, 1998 WL 15605, 2 (Ohio App. 1998) (”[A Plaintiff] may file his request for review with the superintendent of insurance, or, [the Plaintiff] may forgo taking any further action on the matter. Because of the doctrine of administrative exhaustion, [the Plaintiff] may not by-pass administrative review and file his claim directly in the common pleas court.”). Thus, all pertinent case law directs this Court to dismiss Plaintiffs’ RICO claims.

Note: When plaintiffs assert federal claims against plan administrators and affiliated parties which touch upon insurance law issues, defendants have potential recourse to reverse preemption of those federal claims under the McCarran-Ferguson Act.