Antitrust Law Daily Wrap Up, RICO—D. Minn.: Insurer states RICO claims against roof repair company over alleged false storm damage claims, (Jul 30, 2013)

By Tobias J. Gillett, J.D., LL.M.

An insurance company has sufficiently alleged RICO claims against a roof repair business that allegedly intentionally damaged roofs and passed off the resulting harm as storm damage in submitting claims to the insurance company, the federal district court in St. Paul, Minnesota has ruled (Standard Fire Insurance Co. v. Erickson Building, Inc., July 26, 2013, Frank, D.).

Standard Fire Insurance Company insures buildings against losses, including damage caused by wind, hail, or rainstorm. According to its complaint, employees working for Erickson Building, Inc. would intentionally damage homeowners’ roofs while performing purported inspections of them, and would represent to the homeowners that the damage had been caused by a storm. After repairing the roofs, Erickson would submit a bill to Standard Fire Insurance, which would generally be paid to the homeowners, who would in turn pay the deductible to Erickson.

After becoming suspicious of some of the claims, Standard Fire Insurance allegedly hired an engineering company that found the damage to each of seventeen roofs inspected was either intentionally caused or inconsistent with storm damage. Standard Fire Insurance also conducted video and other surveillance that allegedly caught Erickson employees damaging roofs.

Standard Fire Insurance filed suit against Erickson and various individual defendants, asserting a variety of claims, including a claim for violation of the RICO Act. The defendants moved for partial judgment on the pleadings as to the RICO claim.

The court explained that a plaintiff must demonstrate “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”

Predicate acts. The court rejected the defendants’ argument that they did not commit mail or wire fraud because they did not utilize the mail or wires in furtherance of fraud. The court found that Standard Fire Insurance had identified at least five incidents in which the defendants had submitted purportedly fraudulent claims to Standard Fire Insurance by mail or wire, and in which Standard Fire Insurance had paid those claims by mail or wire. Therefore, Standard Fire Insurance sufficiently pled predicate acts of mail or wire fraud, according to the court.

Pattern of racketeering activity. The court also concluded that Standard Fire Insurance had sufficiently alleged a pattern of racketeering activity. The court explained that a RICO plaintiff must allege a series of predicate acts “extending over a substantial period of time,” or posing “a distinct threat of long-term racketeering activity.

Here, Standard Fire Insurance alleged fraudulent activity occurring over a period from at least June 17, 2011 to July 9, 2012, “a sufficient period of time to support closed-ended continuity.” Moreover, the court determined that Standard Fire Insurance had adequately pled both relatedness and continuity by alleging that the defendants carried out a scheme to defraud insurers through a common method that took place as part of the defendants’ regular business practices.

Causation and damages. Finally, the court determined that Standard Fire Insurance had adequately alleged that the defendants’ scheme had proximately caused its damages, declining to follow the defendants’ argument that the damages arose out of Standard Fire Insurance’s contracts with its insureds, not out of the alleged mail and wire fraud. The court explained that “[i]n the context of RICO, proximate causation requires some direct relation between the injury asserted and the injurious conduct alleged.” Here, Standard Fire Insurance sufficiently alleged that its losses were the direct result of the defendants’ mail or wire fraud, according to the court.

The case is Civil Action No. 12-3003 (DWF/SER).

Attorneys: Bradley L. Doty (Stempel & Doty, PLC) for Standard Fire Insurance Company. C. Alden Pearson (Acumen Legal Advisors, PLLC) for Erickson Building, Inc.

Companies: Standard Fire Insurance Company; Erickson Building, Inc.

Cases: RICO MinnesotaNews