Barker v. Underwriters at Lloyd's, London, Civ. No. 82-73682.

• Decision Date: 01 June 1983
• Docket Number: Civ. No. 82-73682.
• Parties: James BARKER, et al., Plaintiffs, v. UNDERWRITERS AT LLOYD'S, LONDON, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

564 F. Supp. 352

James BARKER, et al., Plaintiffs, v. UNDERWRITERS AT LLOYD'S, LONDON, et al., Defendants.

Civ. No. 82-73682.

United States District Court, E.D. Michigan, S.D.

June 1, 1983.

COPYRIGHT MATERIAL OMITTED

Mark L. Dailey, Detroit, Mich., for Barker and BFH.

Harland E. Cohen, Southfield, Mich., for Rochmans, Gutmans and Argyle Bowl.

John McCloskey, Detroit, Mich., for Massolls.

Charles R. Tuffley, Southfield, Mich., for defendants.

MEMORANDUM OPINION

RALPH M. FREEMAN, District Judge.

This matter is before the Court on defendants' motion for partial summary judgment on three of the five counts of the first amended complaint. Because this motion is directed solely at the allegations of the complaint, the Court will treat the motion as a motion to dismiss for failure to state a claim upon which relief may be granted pursuant to Fed.R.Civ.Pro. 12(b)(6). It is well established that a motion to dismiss for failure to state a claim must not be granted unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. In ruling on this motion, the facts alleged in the complaint are assumed to be true. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Gibbs v. Buck, 307 U.S. 66, 59 S.Ct. 725, 83 L.Ed. 1111 (1938).

The complaint alleges that defendants Underwriters at Lloyd's, London and Lincoln Insurance Company issued an insurance policy for loss by fire covering premises in which each of the plaintiffs possessed substantial interests. On March 2, 1982, a fire occurred at the insured premises and plaintiffs filed a claim for insurance proceeds with defendants. Defendant denied the claims on the basis that the fire was set or procured to be set by one of the plaintiffs. Plaintiffs subsequently filed this action and defendants now move to dismiss Counts III, IV, and V of the first amended complaint.

Count III alleges that defendants have violated the Uniform Trade Practices Act (UTPA), M.C.L.A. § 500.2001-.2050, by refusing to timely pay plaintiffs' claims under the insurance policy and by attempting to compel plaintiffs to forego their claims or accept less than the amount to which they are entitled. Defendants argue that Count III fails to state a claim because remedies for the violations of the UTPA are to be enforced by the state and not individual plaintiffs. Plaintiffs contend that there is an implied private cause of action to enforce the UTPA.

The UTPA was enacted by 1976 Mich. Pub.Act No. 273 as an amendment to the Michigan Insurance Code of 1956, 1956 Mich.Pub.Act No. 218, M.C.L.A. § 500.100 et seq. Section 230 of the Insurance Code of 1956 provides:

Every penalty provided for by this code, if not otherwise provided for, shall be sued for and recovered in the name of the people by the prosecuting attorney of the county in which the insurer or the agent or agents so violating shall be situated; and shall be sued for and recovered in the name of the people, by the attorney general, and, when sued for and collected by him, shall be paid into the state treasury.

M.C.L.A. § 500.230. This provision has been held to preclude a private party from recovering penalties specified in the code. Dasen v. Frankenmuth Mutual Ins. Co., 39 Mich.App. 582, 197 N.W.2d 835 (1972). In light of the legislative history of the UTPA, the Court finds that section 230 of the Insurance Code of 1956 governs the enforcement of the UTPA. Although plaintiffs argue that they have an implied cause of action under the UTPA, the only section of the act they refer to is section 2006(1), which provides:

(1) A person must pay on a timely basis to its insured, an individual or entity directly entitled to benefits under its insured's contract of insurance, or a third party tort claimant the benefits provided under the terms of its policy, or, in the alternative, the person must pay to its insured, an individual or entity directly entitled to benefits under its insured's contract of insurance, or a third party tort claimant 12% interest, as provided in subsection (4), on claims not paid on a timely basis or to pay interest on claims as provided in subsection (4) is an unfair trade practice unless the claim is reasonably in dispute.

M.C.L.A. § 500.2006(1). The Michigan courts have indicated that a private party may directly recover this interest penalty in an action against the insurer. See Fletcher v. Aetna Casualty & Surety Co., 80 Mich. App. 439, 264 N.W.2d 19 (1978), aff'd on other grounds, 409 Mich. 1, 294 N.W.2d 141 (1980); Herring v. Golden State Mutual Life Ins. Co., 114 Mich.App. 148, 318 N.W.2d 641 (1982).

The Court finds that plaintiffs may assert a private cause of action to recover the interest penalty in section 2006 of the UTPA since that section provides that the insurer pay the interest penalty to the insured on claims not paid on a timely basis. In the absence of any authority supporting the maintenance of a private cause of action founded upon any other section of the UTPA, the Court concludes that section 230 of the Insurance Code of 1956, M.C.L.A. § 500.230, governs the enforcement of the UTPA and that plaintiff may not assert a private cause of action based on other alleged violations of the UTPA. See M.C. L.A. § 500.2028-.2050; Fitzgerald v. Aetna Casualty & Surety Co., Civ. No. 81-10049 (E.D.Mich. August 25, 1982). However, the Court notes that any alleged violations of the UTPA may be relevant to plaintiffs' breach of contract claim in count I since mandatory statutory provisions are read into insurance contracts in Michigan. See Galkin v. Lincoln Mutual Casualty Co., 279 Mich. 327, 272 N.W. 694 (1939); Dasen v. Frankenmuth Mutual Ins. Co., supra. Since the Court concludes that plaintiff may assert a claim for the interest penalty for the alleged failure to timely pay the claim, count III will not be dismissed.

Count IV of the first amended complaint alleges that defendants have violated the Racketeer Influenced and Corrupt Organization Act (RICO), Title IX of the Organized Crime Control Act, 18 U.S.C. § 1961 et seq., and injured plaintiffs in their business and property. Defendants assert that count IV fails to state a claim for three reasons. First, they argue that this count fails to assert that the alleged criminal acts were committed within ten years of each other. Second, defendants contend that plaintiffs fail to properly allege how the RICO violations impacted on their business or property. Third, they assert that count IV fails to specify the relationship between the persons conducting the racketeering activity and the enterprise.

Count IV of the first amended complaint alleges in pertinent part as follows:

40. Defendants have refused, and continue to refuse, to pay this loss for no valid reason.

41. Upon information and belief, Defendants purpose in refusing to pay this loss without valid reason is to force plaintiffs to compromise their claim for an amount less than they would otherwise be entitled to receive pursuant to the insurance policies.

42. Defendants' ulterior purpose for their refusal to pay this loss is fraudulent.

43. Upon information and belief, defendants have engaged in similar fraudulent activities in regard to other claims and losses.

44. Defendants' activities herein and in other instances amount to a pattern of racketeering activities as defined and prohibited in RICO by virtue of their having devised or intending to devise a scheme or artifice to defraud, or for obtaining money by means of false or fraudulent pretenses, representations or promises and using the U.S. Post Office in furtherance thereof, contrary to the provisions of Title 18 U.S.C. Section 1341.

45. Plaintiffs have been injured in their business and property by virtue of defendants' violation of Title 18 U.S.C. Section 1962 and are, therefore, entitled to recover threefold the damages they have sustained and the costs of this suit, including reasonable attorneys' fees.

In response to defendants' motion to dismiss, plaintiffs have advanced the following theory of how defendants have violated RICO. They assert that defendants are persons associated in an enterprise to fraudulently deny valid insurance claims in order to force the claimants to accept settlements for less than the amount they are entitled to under the policy.

Although RICO's criminal provisions were enacted to halt what Congress perceived to be a pattern of infiltration of legitimate business by organized crime, Congress expressly authorized a private right of action for litigants injured by a violation of RICO's broad criminal provisions. Section 1964(c) provides:

(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

In this case, plaintiffs assert that defendants violated section 1962(c), which provides in pertinent part:

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity....

The issue raised by defendants' motion is whether the allegations of Count IV of the complaint sufficiently state the elements of a claim under these sections. For the several reasons discussed below, the Court concludes that the allegations in count IV fail to state a claim under RICO.

The Court notes at the outset that civil liability under section 1964(c) is not limited to persons already convicted of or charged with criminal racketeering activity. USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94, 95 n. 1 (6th Cir.1982).

To allege a civil claim under RICO based upon a violation of section 1962...