Antitrust Law Daily Wrap Up, RICO—11thCir: Insurance Agent Fails to Plead RICO Claims Against Zurich American Insurance Company Over Alleged Conspiracy to Defraud Agents, (Jan 10, 2013)

By Tobias J. Gillett, J.D., LLM.

A life insurance agent failed to plead claims under Georgia’s Racketeer Influenced and Corrupt Organizations Act (RICO) against an errors and omissions insurance (E&O) company because he could not show the insurance company had the necessary intent to commit any predicate acts and because he could not show any cognizable harm to him from an alleged conspiracy to acquire and retain premiums from former insurance agents who were no longer eligible for E&O insurance, the U.S. Court of Appeals in Atlanta has ruled (Rosen v. American Guarantee & Liability Insurance Co., January 9, 2013, per curiam).

The agent previously sold life insurance as an agent for Protective Life Insurance. Protective required its agents to possess E&O insurance, which the agent obtained from American Guarantee and Liability Insurance, a wholly owned subsidiary of Zurich American Insurance Company (collectively, Zurich), through a Protective E&O Program under which only current Protective agents were eligible for coverage.

One of the agent’s clients sued the agent, alleging injuries sustained from one of his financial products. Zurich defended the claim, resulting in a settlement, but the agent claimed its defense was deficient, and the settlement too generous. The agent sued Zurich, asserting it handled the claim in bad faith. His lawsuit resulted in a settlement, with a settlement agreement with a clause that provided that the terms of the settlement would not be used to the detriment of the parties.

On February 26, 2008, the agent was mailed a renewal notice for the E&O insurance, and on February 27 the agent was mailed a notice terminating him as an agent for Protective. Protective had chosen to terminate him because Zurich had indicated its E&O Program premiums would rise significantly, in part due to the losses sustained from the agent’s claims. The agent paid for his coverage before he received the notice of termination. The agent later received a refund, but was refused the opportunity to enroll in another Zurich program because of the problems Zurich had had with him. The agent later obtained E&O insurance from another company, but paid significantly higher premiums, allegedly because of the other company’s knowledge of the previous claim and bad faith settlement.

The agent filed suit, asserting, among other claims, that Zurich had violated Georgia’s RICO Act. He claimed that Zurich had committed theft through deception of his bad faith cause of action by inducing him to sign the settlement agreement, and deception, mail fraud, and wire fraud when he was incorrectly billed for the February 2008 to February 2009 coverage period of his E&O insurance. He also claimed that the Zurich had engaged in a pattern of such activity by failing to partially refund premiums to former Protective agents who became ineligible for E&O insurance during a coverage period, and by renewing former Protective agents who were not eligible for insurance coverage.

The district court granted Zurich’s motion for summary judgment on all claims, including the RICO claim. On appeal, the Eleventh Circuit addressed the agent’s arguments that the district court erred in finding that Zurich did not breach the settlement agreement, that Zurich did not fraudulently induce him to enter into the settlement agreement, and that no reasonable juror could find that Zurich committed any predicate acts sufficient to support the agent’s claims that Zurich violated, or conspired to violate, Georgia’s RICO Act.

Settlement Agreement

The agent argued that Zurich had violated the “no detriment” clause of the settlement agreement by revealing the existence of the claim against him and the bad faith action. The clause provided that “the terms of this Release and the terms of the settlement of this claim shall not be used to the detriment of the Parties, shall remain confidential, and shall not be disclosed.” The agent claimed, using parol evidence, that this provision was intended to prevent disclosure of the existence of the claim and the bad faith action.

The court disagreed, finding the clause “not ambiguous.” The clause applied to the terms of the settlement only, and did not extend to “the underlying conduct that led to the Settlement Agreement.” Moreover, Zurich did not breach the settlement agreement by proposing the premium increase to Protective or by refusing to allow him to enroll in another Zurich E&O program, because there was “no evidence that those actions were based on the terms of the settlement agreement,” and therefore “Zurich did not violate the plain language of the no detriment provision.”

Fraudulent Inducement

The court also found that the district court did not err in finding that Zurich did not fraudulently induce the agent to enter into the settlement agreement. The court observed that a breach of a promise in a contract cannot generally amount to fraud, since otherwise any breach of contract would also involve committing fraud. The court did note an exception to this rule “where a promise as to future events is made with a present intent not to perform or where the promisor knows that the future event will not take place.” However, here the agent could not show that Zurich did not perform as promised under the settlement agreement.

RICO Claims

The court also agreed with the district court that no reasonable juror could have found that Zurich violated Georgia’s RICO Act. The court noted that the “intent necessary to support a finding that Zurich’s actions constituted the RICO predicate crimes of theft by taking, theft by deception, or mail and wire fraud, is more rigorous than the intent necessary to support a finding that Zurich committed civil fraud.” Since the agent could not provide sufficient evidence that Zurich had the intent to commit civil fraud, the agent could not demonstrate the intent required for the RICO predicate acts.

Moreover, the court noted that to plead a conspiracy to violate Georgia’s RICO Act, “a plaintiff must show a direct nexus between at least one of the predicate acts listed under the RICO Act and the injury [the plaintiff] purportedly sustained.” In the court’s view, as the agent could not demonstrate any cognizable harm from the conspiracy to him, as opposed to third parties, he did not have standing to bring his RICO conspiracy claim.

The case is No. 11-16176.

John E. Floyd (Bondurant Mixson & Elmore, LLP) for Jonathan Rosen. C. Bradford Marsh (Swift Currie McGhee & Hiers, LLP) for American Guarantee and Liability Insurance Company.

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