Thursday, June 24, 2010

$12 Million Damage Award Sustained in RICO Insurance Fraud Suit

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

Health care providers could not receive post-trial relief from a jury verdict that found them liable for RICO violations, the federal district court in Philadelphia has ruled.

The jury awarded complaining insurers more than $4 million in compensatory damages ($12.1 million after trebling) for participating in a racketeering scheme to defraud the insurers by prescribing unnecessary tests, treatments, and prescriptions for accident victims and then billing the insurers for those services.

The providers’ motion for judgment as a matter of law was denied because defense counsel’s “vague comments” at the close of the plaintiffs’ case in chief did not sufficiently specify the contested issues. Although defense counsel contended that he had made an “oral motion” to “incorporate [his] arguments into a request for judgment as a matter of law, a general incorporation of all stated arguments was insufficient to put the court and plaintiffs on notice of the deficiencies being asserted, the court explained.

Moreover, a renewed motion made at the charging conference was limited to arguments concerning a single issue: RICO distinctiveness. Those arguments, however, were deemed abandoned because they were no raised in post-trial briefs.

Reliance, Proximate Cause

Even if the health care providers had properly moved for post-trial relief, the jury’s finding of RICO liability could not be overturned based on lack of reliance because “ample evidence” of the insurers’ reliance on provider misrepresentations was presented at trial, according to the court.

Evidence that the providers had proximately caused the insurers’ injuries was sufficient in light of testimony by an expert witness who, after examining more than 200 medical claim files, identified “inappropriate patterns of treatment, prescriptions, and testing” by the providers, which billed the insurers for the inappropriate services.

To the extent that the insurers were third-party victims, proximate cause was present because the insurers were the “direct target” of the providers’ scheme, the court found.


Trial evidence was sufficient for the jury to conclude that an individual doctor had knowingly and willingly participated in the providers’ scheme. The trial record was not critically deficient of that minimum quantity of evidence from which a jury might reasonably afford relief, the court explained.

A doctor testified that (1) he was a full-time employee of a medical office, the administrative practices and procedures of which he was familiar; (2) he received 90 percent of his accident patient referrals from another defendant, with whom he had merged his practice; and (3) he wrote prescriptions for patients he had not seen or examined. Combined with similar testimony from other witnesses, these facts were sufficient to conclude that the doctor’s participation in the fraudulent billing scheme was knowing and willful.

Jury Instructions

Jury instructions on the insurers’ RICO conspiracy claims, taken verbatim from the Fifth Circuit’s Pattern Jury Instructions, were adequately stated. The defendants argued that the jury instructions should have included a separate instruction for multiple conspiracies, but the argument had no merit, according to the court.

The defendants also argued that they were entitled to a separate instruction on intra-corporate conspiracy (i.e., that employees of a corporate entity who were acting within the scope of their employment could not conspire with each other or with the corporate entity). However, the Third Circuit has not yet decided whether the intra-corporate conspiracy doctrine barred RICO conspiracy claims, the court observed. Of the five circuits that have addressed the issue, three have held that the doctrine did not bar those claims; two have held that it did.


Evidence supported the amount of the jury award ($4 million in compensatory damages), in the court’s view. A witness provided testimony and exhibits that identified payments that the insurers had made to the providers as a result of the providers’ fraud.

In addition, the jury had sufficient evidence to conclude that providers’ insurance claims were indeed fraudulent. In lieu of the jury’s $11.4 million punitive damage award, the insurers chose to treble their damages—to $12.1 million—under RICO.

Attorney fees of nearly $1 million and costs totaling nearly $220,000 were reasonable and appropriate to the nature, extent, and duration of the litigation, the court determined.

The decision is State Farm Mutual Automobile Ins. Co. v. Lincow, CCH RICO Business Disputes Guide ¶11,870.

Further information regarding CCH RICO Business Disputes Guide appears here on the CCH Online Store.

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