Weiss v. First Unum Life Ins. Co.

• Decision Date: 03 April 2007
• Docket Number: No. 05-5428.,05-5428.
• Citation: 482 F.3d 254
• Parties: Richard D. WEISS, Appellant v. FIRST UNUM LIFE INSURANCE COMPANY, A New York Corporation; Lucy E. Baird-Stoddard; J. Harold Chandler, as Chairman, President and Chief Executive Office of Unumprovident; George J. DiDonna, M.D.; Kelly M. Smith; John and Jane Does 1-100.
• Court: U.S. Court of Appeals — Third Circuit

482 F.3d 254

Richard D. WEISS, Appellant v. FIRST UNUM LIFE INSURANCE COMPANY, A New York Corporation; Lucy E. Baird-Stoddard; J. Harold Chandler, as Chairman, President and Chief Executive Office of Unumprovident; George J. DiDonna, M.D.; Kelly M. Smith; John and Jane Does 1-100.

No. 05-5428.

United States Court of Appeals, Third Circuit.

Argued January 9, 2007.

Filed April 3, 2007.

Gail M. Cookson, Avrom J. Gold [Argued], Mandelbaum, Salsburg, Gold, Lazris & Discenza West Orange, NJ, for Appellant.

Steven P. Del Mauro [Argued], McElroy, Deutsch, Mulvaney & Carpenter, Morristown, NJ, for Appellees.

Before SLOVITER and RENDELL, Circuit Judges, and RUFE,^* District Judge.

OPINION OF THE COURT

RENDELL, Circuit Judge.

Richard Weiss brought suit under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), Pub.L. 91-452, 84 Stat. 941, as amended, 18 U.S.C. §§ 1961-1968, against his insurer, First Unum Life Insurance Co. ("First Unum"), claiming that First Unum discontinued payment of his disability benefits as part of First Unum's racketeering scheme involving an intentional and illegal policy of rejecting expensive payouts to disabled insureds. The District Court dismissed his claim, believing that the allowance of such a RICO claim would interfere with New Jersey's statutory regulation of insurers, and thus run afoul of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015. We disagree and will reverse.

FACTUAL AND PROCEDURAL HISTORY

The facts of the underlying RICO suit are straightforward. From July 1997 to August 2001, Weiss was employed by Tucker Anthony Sutro as an investment banker. He was insured by First Unum through a group insurance policy with Tucker Anthony Sutro. The policy provided long-term disability benefits when the insured is "`limited from performing the material and substantial duties of [his] regular occupation due to ... sickness or injury.'" Weiss v. First Unum Life Ins. Co., et al., No. 02-4249, slip op. at 3 (D.N.J. Aug. 27, 2003) (quoting policy). On January 2, 2001, Weiss suffered an acute heart attack requiring an emergency angioplasty. Id. On June 25, 2001, he was hospitalized again due to ventricular tachycardia. Weiss continues to suffer from severe left ventricular dysfunction and extremely low blood pressure, resulting in frequent lightheadedness, weakness, and shortness of breath. Id. After suffering the initial attack, Weiss filed a claim in May 2001 stating that he was totally disabled and seeking long-term disability benefits under the group disability plan issued by First Unum to Tucker. First Unum approved the claim and paid Weiss the maximum short-term disability benefit available under the plan from January 2, 2001 (the date of the infarction) to July 1, 2001. Weiss applied for and was paid long-term disability benefits from July 26, 2001, to October 23, 2001, at which point First Unum discontinued Weiss's benefits. The reason First Unum did so is at the heart of Weiss's federal RICO challenge.

Weiss claims the discontinuance did not result from consultation with any physician but from an illegal policy and scheme First Unum followed in order to reduce expensive payouts. After exhausting his administrative remedies, Weiss commenced litigation in New Jersey state court. Weiss initially brought only state-law claims against First Unum. First Unum then removed the case to federal court and filed a motion to dismiss, arguing that Weiss's state-law claims were preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq. (2000 ed. and Supp. III). While the case was in its early stages, and before Weiss added a RICO count to its suit against First Unum, First Unum resumed payment of Weiss's long-term disability benefits retroactive to October 23, 2001 (the date of the initial termination).¹

On November 26, 2002, Weiss filed claims based on violations of RICO and conspiracy to violate RICO; violation of New Jersey's state RICO Act; conspiracy to violate New Jersey's RICO Act; wrongful termination of insurance benefits; negligent and intentional infliction of emotional distress; and violation of New Jersey's Consumer Fraud Act ("CFA"), N.J. Stat. Ann. § 56:8-1-20. Specifically, Weiss alleges that his claim was targeted for termination because it exceeded $11,000 per month. He alleges that on October 3, 2001, defendants David Gilbert, Paul Keenan, George DiDonna, Lucy-Baird Stoddard, and others conspired at a roundtable meeting to terminate Weiss's benefits and devise a rationalization for doing so. Weiss claims that DiDonna did not receive or examine his hospital records until the termination decision was reached, and that tests that would make clear the severity of his injury were purposely never ordered. He avers not merely a bad-faith denial of benefits limited to his case, but rather that his denial is one instance in a pattern of fraudulent activity by First Unum aimed at depriving its insureds with large disability payouts of their contractual benefits.

The procedural history of Weiss's action is complex and we recount it only briefly, as the central issue before us does not hinge on it. The District Court initially dismissed the two state-law claims of consumer fraud and infliction of emotional distress as pre-empted by ERISA, but construed the claim for wrongful termination of insurance benefits as asserting a cause of action under ERISA. Thereafter, the District Court held that Weiss failed to allege the concrete financial loss compensable as damage to business or property required by RICO, and thus lacked standing to bring either his federal RICO claim or his New Jersey RICO claim (which required a similar harm to business or property). The Court also held that Weiss failed to plead with sufficient particularity the allegedly fraudulent activity, or differentiate between the defendants in describing their conduct. Weiss then attempted to cure these deficiencies but the District Court concluded that he had not done so and had still failed to allege the type of "concrete financial loss compensable as damage to business or property." Weiss v. First Unum Life Insurance Co., et al., No. 02-4249, slip op. at 9 (D.N.J. Feb. 25, 2004). Accordingly, the District Court dismissed the RICO claims, leaving only the ERISA claim in which Weiss sought a declaratory judgment that he was entitled to future benefits.

Weiss then appealed the orders of the District Court and on June 9, 2005, a panel of our Court heard oral argument. Although he had not raised the point in his brief (and it was only mentioned in Weiss's reply brief), counsel for First Unum urged that the McCarran-Ferguson Act "reverse pre-empts" federal civil RICO claims brought by claimants in states where "regulation of insurance in that state does not permit a private cause of action." Appellant's Appx. 16, Tr. 27. Upon inquiry as to why the issue had not been raised below, counsel replied that it "was just not an issue that was appreciated." Id. Counsel then suggested "a remand back to Judge Brown to develop a record for Your Honors on this particular issue," Appellant's Appx. 17, Tr. 32, and counsel for Weiss in her rebuttal stated that she was not opposed to a remand. On June 14, 2005, the panel issued a "Judgment Order" remanding for a "determination of what effect the McCarran-Ferguson Act, specifically section 1012(b) of Title 15 of the United States Code, may have on the disposition of this case." Weiss v. First Unum Life Ins. Co., No. 04-2021 (3d Cir. June 4, 2005).²

On remand, the District Court dismissed Weiss's First Amended Complaint,³ holding that the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, precluded its applicability given New Jersey's Insurance Trade Practices Act ("ITPA"), N.J. Stat. Ann. §§ 17:29B-1-19, because allowing RICO claims would "impair" New Jersey's regulatory scheme.⁴ Weiss v. First Unum Life Ins. Co., 416 F.Supp.2d 298, 301 (D.N.J.2005) (quoting 15 U.S.C. § 1102(b)). Weiss timely appealed.

DISCUSSION

In order to determine whether the District Court was correct, we must first explicate the purpose and contours of the McCarran-Ferguson Act. The McCarran-Ferguson Act, was enacted in 1945 in response to the decision in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), which held that Congress could regulate the business of insurance with its Commerce Clause authority. Section 1 of the Act, codified at 15 U.S.C. § 1011, expressed Congress's "Declaration of Policy."

The Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

15 U.S.C. § 1011.

Section 2 of the Act, codified at 15 U.S.C. § 1012, set forth Congress's attempt to explain the federal-state balance that was intended:

(a) State regulation. The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) Federal regulation. No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

15 U.S.C. § 1012.

Thereafter, in Prudential Insurance Co. v....