Commercial Litigation and Arbitration

RICO — McCarran-Ferguson Preemption

The plaintiff insured in Weiss v. First Unum Life Ins. Co., 2007 U.S. App. LEXIS 7613 (3d Cir. April 3, 2007), filed a state law claim for wrongful denial of coverage in New Jersey state court. The insurer removed on ERISA preemption grounds, and the plaintiff added a RICO claim. The state common law claims were dismissed as pre-empted by ERISA, and the RICO claims were dismissed on the theory that the McCarran-Ferguson Act, 15 U.S.C. §§1011-1015, precluded the applicability of RICO given the regulatory scheme of the New Jersey Insurance Trade Practices Act, N.J. Stat. Ann. §§ 17:29B-1-19. After an exhaustive analysis, the Third Circuit reversed, concluding that ‛that RICO augments New Jersey's insurance regime; it does not impair it.“ One of the ironies of the analysis is that the Third Circuit was compelled to analyze, for RICO preemption purposes, the same state law claims that had independently been dismissed on ERISA preemption grounds.

Other issue of note: Damages were very expansively construed, at least on the pleadings. The Third Circuit held ‛that the losses alleged by Weiss (as a result of his having had to sell his home and personal property below the property's fair market value as well as having incurred fees and penalties from the IRS) were out-of-pocket expenses fairly traceable to First Unum's conduct, and thus qualify as an injury to property for RICO purposes.“ Query how compatible some of these damages are with a proximate vs. remoteness or loss causation analysis.

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