amNY: Is New York the epicenter of civil RICO insurance cases? A civil liability lobby group says yes

By: Max Parrott

The American Tort Reform Association, the insurance-backed lobby to change civil liability laws, is raising alarms about an increasing trend of using civil racketeering actions to combat alleged litigation fraud, and has targeted New York as an epicenter of this litigation.

ATRA released a report this month, titled “Turning the Tables?” that highlights numerous cases in which businesses and insurers have turned to the federal Racketeer Influenced and Corrupt Organizations (RICO) Act to combat alleged litigation fraud and coordinated personal injury schemes.

The report alleges that, in more than two dozen cases, businesses and insurers have invoked RICO statute originally designed to combat organized crime—to challenge what they allege are coordinated plans to commit litigation fraud. New York, the report claims, is an epicenter of the practice.

“New York is in a league of its own. Every kind of scheme shows up here: staged construction accidents, trip-and-falls, auto accidents, even fraud-driven class actions,” said Tiger Joyce, ATRA’s president.

One area of New York City law which the report zeroes in on is the city’s “Scaffold Law,” the statute that holds property owners and contractors liable for gravity-related construction injuries — a battleground between plaintiff-side and defense-side trial attorneys. 

The New York State Trial Lawyers Association (NYSTLA), as well as worker advocacy organizations such as the New York Committee for Occupational Safety and Health, vigorously defends the statute as a worker-protection statute that can be used to hold property owners and general contractors accountable for dangerous working conditions.

The report raised nine instances in which contractors, insurers and reinsurers filed RICO suits alleging that law firms staged falls to trigger a claim. It further refers to an ABC series of investigations that uncovered a scaffolding law scam, and in another case found a Bronx apartment that was repeatedly listed as the home address for plaintiffs in 30 construction injury lawsuits.

At least four of those nine RICO suits referenced by the report, however, have been dismissed. Tradesman Program Managers, who were the first to file RICO actions in response to ABC’s reporting, had its case dismissed in the Eastern District of New York, where a judge ruled that Trademan’s co-plaintiff, Roosevelt Road, was a reinsurer rather than a primary insurer, and thus lacked standing to bring a RICO suit.

In multiple cases, defamation suits have been filed against the insurers, according to a NYSTLA spokesperson.

NYSTLA also disagreed with the report’s characterization of the law as strict liability, and pointed out several scaffolding law decisions that outline where workers’ conduct is considered.

For instance, the New York Court of Appeals held that Scaffold Law does not impose automatic liability where adequate safety equipment is provided and the worker’s own conduct is the sole proximate cause of the accident.

“Every few years, the insurance industry needs a new boogeyman, and this year they’ve picked injured workers,” wrote NYCOSH director Charlene Obernauer in response to the report’s findings. “Behind the talk of ‘fraud rings’ and ‘tort tax’ is a simple goal: to create suspicion around anyone who gets hurt on the job. Falls are still the leading killer on construction sites, and immigrant workers and workers of color are disproportionately represented among people who die on the job.”

Trip-and-fall suits are another area of New York law in which Insurers have filed multiple RICO lawsuits in the EDNY alleging runners staged falls on cracked sidewalks in Brooklyn, Queens, and the Bronx and then allegedly recruit claimants and medical clinics to generate false diagnoses and perform unnecessary spinal surgeries.

Last week, the New York City Law Department filed a RICO lawsuit against a Manhattan law firm that it argues conducted a similar system of personal injury fraud.

The changes that the report claims could push back on some of New York’s personal injury suits involve more scrutiny on plaintiff-side personal injury lawyers and stricter rules for limiting frivolous claims.For instance, ATRA wants to remove the caps on sanctions for frivolous actions. In New York, sanctions cap out at $10,000. It also recommended eliminating “safe harbors” that allow law firms to drop dubious cases without penalty.

“What is already clear, however, is that businesses and insurers are increasingly turning to a statute enacted to combat organized crime because they view traditional safeguards as inadequate. That reality alone should concern courts, policymakers, regulators, disciplinary authorities, and prosecutors,” wrote the authors of the ATRA report in its conclusion.