Antitrust Law Daily Wrap Up, RICO—DOre: Oregon Public Policy Prohibits Insurance Coverage for RICO Claims When Racketeering Scheme Involves Harmful Intent , (Oct 18, 2012)

By Mark Engstrom, J.D.

To the extent that an alleged racketeering scheme by a health care insurer (The Regence Group) was conducted with an intent to harm, Oregon public policy prohibited the insurer from recovering under its own insurance policy, which included coverage for RICO liability, the federal district court in Portland, Oregon, has ruled (The Regence Group v. TIG Specialty Insurance Co., October 12, 2012, Haggerty, A.). Because an issue of material fact existed as to Regence’s intent in carrying out the alleged scheme, summary judgment was denied.

Regence purchased a Managed Care Organizational Liability Insurance Policy that provided coverage for managed care errors, omission liability, and insurance company errors and omissions. Although the policy originally contained an exclusion for RICO claims, the defendant insurer (TIG Specialty Insurance Company) agreed to provide RICO coverage in exchange for an additional premium.

After it secured coverage for RICO claims, Regence was sued by a health care provider who alleged that Regence had violated RICO by conspiring with other health maintenance organizations to deny, delay, and diminish provider payments. Regence settled the suit and agreed to: (1) pay more than $9 million in damages and (2) change its business practices so that providers would receive full and prompt payment on future invoices.

Regence sought insurance coverage from TIG but TIG denied coverage for the business changes portion of the settlement. TIG further proposed that the parties discuss the funding of the monetary component of the settlement.

Insurability of RICO Claims

TIG argued that RICO was inherently a criminal statute that provided civil and criminal liability for intentional, wrongful conduct and thus should not be insurable as a matter of law. Regence argued that: (1) it specifically contracted for RICO coverage; (2) it paid an additional premium for that coverage; and (3) RICO claims were not necessarily based on intentional conduct. The court determined that genuine factual issues precluded summary judgment.

Oregon public policy. The court noted that Oregon had “long recognized” the principle that “a clause in a contract of insurance purporting to indemnify the insured for damages recovered against him as a consequence of his intentional conduct in inflicting injury upon another is unenforceable by the insured on the ground that to permit recovery would be against public policy.” It also noted that this rule precluded coverage only for “intentional acts whose purpose was to cause an injury of the kind giving rise to the insured's liability.” Therefore, an insured's intentional, albeit unlawful, acts that result in unintended harm were insufficient to preclude coverage; “the acts must have been committed for the purpose of inflicting the injury and harm before ... the public policy against insurability attaches.”

Analysis. TIG argued that Regence must have engaged in intentional criminal conduct if it agreed to the remedies that were provided in the settlement. The court disagreed. First, Regence could have been held vicariously liable for its co-conspirators’ intentional acts, or for its reckless conduct in aiding its co-defendants. Second, Regence was a sophisticated insurance company that was well aware of the potential for enormous damages and attorney fees, and could have settled for financial reasons. Finally, the evidence suggested that TIG had encouraged a settlement. The court declined to punish Regence for resolving the matter in a way that saved considerable judicial resources and promoted a public policy that favored settlements.

Even if the court assumed that Regence had indeed committed the alleged RICO violations, neither party established whether or not Regence had intended to injure the provider by entering into the alleged conspiracy. The provider’s allegations did not necessarily imply an intention to cause harm, according to the court.

Because a factual question of intent existed, the case could proceed to trial, where both parties could argue the issue of intent. If the jury concluded that Regence had acted with an intent to harm, Oregon's long standing public policy would preclude coverage for the monetary payment and the cost of the business changes that were included in the settlement.

The case number is 3:07-cv-01337-HA.

Joseph M. Saka (Dickstein Shapiro LLP) for The Regence Group. Beth Keller Stroup (Meckler, Bulger, Tilson, Marick, & Pearson LLP) for TIG Specialty Insurance Company.

Cases: RICO OregonNews