California Court Holds That the McCarran Ferguson Act Does Not "Reverse Preempt" Plaintiff's Rico Claims Against Insurer
In early March, Central District of California District Court Judge Christina Snyder issued a significant McCarran-Ferguson Act decision in Negrete v. Allianz Life Insurance. Siding with the Third, Fourth and Tenth Circuits on an issue that has split the circuits, Judge Snyder held that the plaintiffs’ class action RICO claims against Allianz were not barred by the McCarran-Ferguson Act’s “reverse preemption” principles.
While the McCarran-Ferguson Act is perhaps best known for the limited antitrust exemption that it provides to insurers in Section 1013(b) of the Act, the exemption from federal law provided to insurers by McCarran extends beyond just antitrust claims. Section 1012(b) of the Act provides that “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 . . . unless such [federal] Act specifically relates to the business of insurance.” As the courts have explained, under this provision, federal law is preempted by state law (thus “reverse preemption’) whenever (1) the federal law does not specifically relate to insurance; (2) the purpose of the state enactment is to regulate the business of insurance; and (3) the application of the federal law to the case might invalidate, impair or supersede the state law.
Numerous courts have considered whether the federal RICO statute is “reverse preempted” by McCarran, reaching conflicting conclusions. Because the RICO statute clearly does not “specifically relate to insurance,” the answer to that question typically turns on a court’s determination of whether permitting a RICO claim would “impair or invalidate” a state’s regulatory scheme for insurers. As Judge Snyder observed, some courts have held that where a state’s insurance laws do not expressly provide a private right of action for the conduct that forms the basis of the plaintiff’s claim, applying federal law to such conduct would “impair” a state regulatory scheme and therefore the federal law is preempted. Other courts, however, have held that the absence of a private right of action under state insurance laws is not dispositive, and the proper test is to see whether any state law proscribes the conduct challenged in the complaint. If so, the federal statute is not preempted and can be applied to the challenged conduct (either in addition to or instead of the state law claims).
Declaring that the “better view,” as adopted by the Third, Fourth and Tenth Circuits, is to find that the absence of a private right of action under state insurance law should not be dispositive of the issue, Judge Snyder examined whether the challenged conduct in Negrete – the making of allegedly fraudulent statements to prospective annuity purchasers by the defendant, Allianz – would violate any state law in each of the 17 states at issue in the case. Using Florida law as the model for her analysis, Judge Snyder held that under Florida law “plaintiffs would have numerous common law claims available to them” based upon Allianz’s alleged conduct, and thus that it would not “impair” Florida’s regulatory scheme over insurers to permit plaintiffs’ RICO claims to proceed. After ultimately concluding that a similar analysis yielded the same result in each of the other states as well, Judge Snyder denied Allianz’s motion for judgment based upon the McCarran-Ferguson Act, permitting the case to proceed into discovery.