Eighth Circuit Rules That RICO Claims Against Insurance Entities Are Reverse Preempted By State Insurance Regulations
05.31.17
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(Article from Insurance Law Alert, May 2017)
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The Eighth Circuit dismissed federal RICO claims against an insurance company and its affiliates, finding that allowing the claims to proceed would impair state regulation of insurance. Ludwick v. Harbinger Grp., Inc., 854 F.3d 400 (8th Cir. Apr. 13, 2017).
Ludwick sued Fidelity & Guaranty Insurance Company and several affiliates, alleging RICO violations. The complaint asserted that Fidelity misled her into overpaying for an annuity by disseminating inaccurate reports and marketing materials and by transferring billions of dollars of liabilities off its books to affiliate companies. According to Ludwick, if Fidelity had properly accounted for certain transactions, it would have had to report a negative balance instead of the billion dollar surpluses reported during the relevant time period. A Missouri federal district court granted Fidelity’s motion to dismiss, finding that the claims were reverse preempted under the McCarran-Ferguson Act. The Eighth Circuit affirmed.
The McCarran-Ferguson Act provides that federal law may not be construed to “invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance.” 15 U.S.C. § 1012(b). The court concluded that enforcement of federal RICO claims in this case would impair state insurance regulation because the claims involved transactions that were approved by state regulators. Further, the court reasoned that questions about an insurance company’s solvency fall squarely within the regulatory oversight of state insurance departments. In so ruling, the Eighth Circuit rejected the argument that the RICO claims were based on Fidelity’s bookkeeping rather than the propriety of the state-approved transactions. The court explained: “To decide whether F&G’s reported financials reflected a significant departure from the accounting principles it claimed to have followed, a federal court would need to ask what the result of the transactions should have been under those principles. That would drag the court right back into second-guessing state regulators’ oversight of F&G’s solvency and stability.”