Supreme Court to Hear Insurance Firms' Arguments over RICO

Article excerpt

WASHINGTON (Bloomberg) -- Insurance companies will argue before the U.S. Supreme Court that they shouldn't have to face lawsuits under a tough federal racketeering law.

The justices Monday agreed to consider an appeal by Humana, which seeks to derail a class-action lawsuit charging the health insurer got secret discounts from one of its hospitals in Nevada that were not passed on to policyholders.

Insurance companies want to avoid the heavy penalties under the federal Racketeer Influenced and Corrupt Organizations Act, or RICO. In Humana's case, the company says it can face charges only under a Nevada racketeering law, which is virtually identical to its federal counterpart except for its lighter penalties. The key legal question is whether application of the federal law would usurp the traditional authority of the states over the insurance industry. A 1945 federal law, the McCarran-Ferguson Act, gives states primary responsibility for insurance regulation and says most federal laws must give way if they conflict with state rules. Humana argues that the stricter RICO penalties violate the 1945 law. A San Francisco-based federal appeals court disagreed and allowed a class-action lawsuit by individuals covered by Humana health-insurance plans and employers who purchased those policies. The appeals court said that, because allegations that Humana cheated policyholders would violate both RICO and Nevada state laws, the statutes are in "symmetry," not conflict and RICO's tougher penalties don't undermine the state regulations. Other regional federal appeals courts say stiffer RICO penalties do create a conflict with state laws and have barred federal racketeering lawsuits against insurers. …