Supreme Court May Address RICO Litigation, Claims Handling Practices

Can employers, claims administrators, and workers' compensation carriers be sued under federal racketeering laws for their questionable claims handling practices? Or do state workers' comp laws preempt such suits? The U.S. Supreme Court may address those questions if a Michigan trucking company and its claims administrator get their way.

In a surprising decision by the 6th U.S. Circuit Court of Appeals last October, the court held that an employer who allegedly colluded with its doctors and claims administrator to deny workers' comp claims to six employees may be targeted under the Racketeer Influenced and Corrupt Organization Act. The federal statute became law in 1970, seeking to eradicate organized crime in the United States. However, the application of RICO has been widespread and has included several civil claims involving workers' comp claims handling. RICO allows for treble damages, which permit a court to triple the amount of the actual/compensatory damages for a prevailing plaintiff, and attorney's fees.

The case, Brown v. Cassens Transport Co., was filed in 2004 by a group of truck drivers who submitted workers' comp claims. The plaintiffs alleged that Cassens Transport Co., which was self-insured for purposes of paying benefits under the Michigan Workers' Disability Compensation Act, conspired with Crawford & Co., a claims administrator, and Dr. Saul Margules, a physician who conducted independent medical examinations, to deny their claims.

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Specifically, the plaintiffs alleged that Cassens and Crawford deliberately selected and paid unqualified doctors, including Margules, to give fraudulent medical opinions that would support the denial of workers' comp benefits and that the defendants ignored other medical evidence in denying benefits. The suit alleged that the defendants made fraudulent communications amongst themselves and to the plaintiffs by mail and wire in violation of the law, which served as the predicate acts for their RICO claims.

The U.S. District Court, Eastern District of Michigan dismissed the case in 2005. It eventually reached the U.S. Supreme Court, which reversed the earlier decision to dismiss the RICO case. The 6th Circuit then ruled that Michigan state comp law does not preempt the RICO claims. The unanimous appeals panel also ruled that the employees had adequately pleaded a pattern of racketeering activity under RICO. The 6th Circuit sent the case back to the trial court for further proceedings.

As of press time, Cassens and Crawford were filing a petition for certiorari to seek review from the U.S. Supreme Court on the matter.

Expert calls case 'surprising.' Although some have deemed Brown the workers' comp case of the century, one expert believes it is too early to forecast the potential implications.

"I tend not to overreact to these types of things," said Jim Pocius, shareholder and workers' comp legal specialist at Marshall, Dennehey, Warner, Coleman & Goggin in Scranton, Pa. "I do, however, find this case somewhat surprising."

Pocius said it is important to remember that the 6th Circuit did not rule on the validity of the RICO allegations.

"There are not a lot of facts that have been established yet, just a lot of allegations," he said. "We don't know specifically what the doctors said. The burden now goes back to the claimants to show facts to support the RICO allegations. However, if the employer had some influence over the doctor, then I agree that there may be a conspiracy" that could violate the RICO law.

Experts from Sedgwick CMS said the case should raise a red flag for employers who meddle with the claims review process. In guidance issued to its clients, the claims management organization encouraged employers to review their patterns of usage of independent medical examiners. Sedgwick said employers and their claims service providers must assure that "dependence on a limited number of resources does not create circumstantial suspicion of a pattern of collusion or selective utilization."

Sedgwick also warned that the RICO complaint could open the door to similar litigation across the country and create a "new incentive for plaintiffs and their attorneys to challenge the current parameters of state workers' compensation systems."

Pocius isn't convinced that the case will have a far-reaching impact in workers' comp. However, he said it certainly will serve as a lesson and a deterrent for employers and claims administrators who communicate too closely with the doctors they hire to do workers' comp medical exams. If their discussions center on how workers' comp claims can be denied, they may be open to RICO conspiracy litigation.

March 9, 2009

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