Since the enactment of the Racketeer Influenced and Corrupt Organizations (RICO) Act, it has been invoked in civil litigation with mixed results. Congress did not intend for RICO to become a surrogate for plaintiffs’ state law fraud and breach of contract claims. As the Third Circuit Court of Appeals observed in Annulli v. Panikkar, “if garden-variety state law crimes, torts, and contract breaches were to constitute predicate acts of racketeering (along with mail and wire fraud), civil RICO law, which is already a behemoth, would swallow state civil and criminal law whole.” For this reason, RICO claims are carefully scrutinized, and many courts have declined to apply RICO to consumer disputes, such as class actions alleging racketeering in the unfair, deceptive, or fraudulent sales and marketing of financial products. Although RICO claims are difficult to prove, their broad scope and the potential for treble damages and attorneys’ fees continue to attract plaintiffs, who bring these claims in life insurance and annuity litigation despite limited success.
One such RICO complaint was recently filed in the U.S. District Court for the District of Vermont, alleging that the defendant life insurance companies and a parent company breached contracts and engaged in “racketeering through the use and control of an enterprise of marketing agencies that duped consumers” by including two index funds that “were not what was promised.” The defendants are accused of operating a RICO enterprise involving independent marketing organizations, broker general agencies, and independent agents.
The two challenged indices are proprietary interest crediting strategies available to policyholders in three separate indexed universal life policies offered by the defendants. The plaintiff claims that the policy illustration contained misleading descriptions of the two indices and fraudulently misrepresented their “historical performance” and crediting rates.
The plaintiff seeks to certify a class of individuals who purchased any of the three indexed universal life policies and allocated some or all of the accumulated value under those policies to one of the two indices. However, since the plaintiff only purchased one of the policies and allocated 100% of her value to a single index, she may face procedural challenges to her standing as a representative of policyholders who purchased the other two policies or allocated funds to the second index, among other substantive
defenses.
Time will tell whether the plaintiff’s RICO claim survives or if the court determines that the claim is little more than a hyped-up version of the plaintiff’s state law breach of contract claim.
