Court Opinion

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Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

4-3-2007

Weiss v. First Unum Life Ins
Precedential or Non-Precedential: Precedential

Docket No. 05-5428

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http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1176

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                                      PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT

                   No. 05-5428

              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

   Appeal from the United States District Court
            for the District of New Jersey
            (D.C. Civil No. 02-cv-04249)
  District Judge: Honorable Garrett E. Brown, Jr.

             Argued January 9, 2007
    Before: SLOVITER and RENDELL, Circuit Judges,
               and RUFE,* District Judge.

                   (Filed: April 3, 2007)

Gail M. Cookson
Avrom J. Gold [ARGUED]
Mandelbaum, Salsburg, Gold,
Lazris & Discenza
155 Prospect Avenue
West Orange, NJ 07052
  Counsel for Appellant

Steven P. Del Mauro [ARGUED]
McElroy, Deutsch, Mulvaney & Carpenter
1300 Mount Kemble Avenue
P.O. Box 2075
Morristown, NJ 07962
  Counsel for Appellees

               OPINION OF THE COURT

*Honorable Cynthia M. Rufe, District Judge for the Eastern
District of Pennsylvania, sitting by designation.

                              2
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,

                                3
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

                               4
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

   1
     First Unum paid interest on the amount and also paid an
amount for attorneys’ fees. First Unum continues to pay a
monthly disability benefit to Weiss. But First Unum did not
make Weiss whole with respect to fees and penalties he incurred
while deprived of his long-term benefits, nor did First Unum
account for the fact that Weiss sold real estate and various
properties at a loss in order to obtain medical care while his
benefits were being withheld. First Unum states that this
repayment was due in part to representations by Weiss’s counsel
that Weiss was in desperate condition, and that the litigation was
harming Weiss. Weiss states that before he officially added the
RICO claim, he made clear to First Unum in a pre-trial joint-
discovery plan that he would be adding that claim to his
allegations. Accordingly, Weiss argues that the reinstatement of
benefits was an attempt to “pick off” his case before it could
gather momentum and seek treble damages.

                                5
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

                                6
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

  2
   The order also stated that the “August 27, 2003, Order of the
District Court dismissing Appellant’s First Amended Complaint
is VACATED,” and that the “February 13, 2004, Order of the
District Court denying Appellant leave to file a
Second-Amended Complaint is VACATED except with regard
to Appellant’s ERISA amendment.” Weiss v. First Unum Life
Ins. Co., No. 04-2021 (3d Cir. June 4, 2005). Although we need

                                7
       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.

not concern ourselves with the import of these aspects of the
previous order, we will do so only to comment on a
jurisdictional matter, namely, whether Weiss had alleged a loss
of a type that satisfies RICO standing. We believe that our order
vacating the previous decision of the District Court recognized
that the losses alleged by Weiss (as a result of his having had to
sell his home and personal property below the property’s fair
market value as well as having incurred fees and penalties from
the IRS) were out-of-pocket expenses fairly traceable to First
Unum’s conduct, and thus qualify as an injury to property for
RICO purposes. See Maio v. Aetna, Inc., 221 F.3d 472, 483 (3d
Cir. 2000) (injury to business or property exists where the
plaintiff suffered “concrete financial loss” such that “actual
monetary loss, i.e., an out-of-pocket loss” occurred).
      3
    Weiss in his instant appeal includes allegations from his
Second Amended Complaint which First Unum claims should
not be heard, given the District Court’s reliance on the First
Amended Complaint. In light of our disposition of this case, we
need not resolve this issue.
  4
   We note that § 17:29B-1 et seq. is not expressly entitled the
“Insurance Trade Practices Act,” and that there is a similar trade

                                8
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 (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.”

practices regulatory act specifically regulating the life insurance,
health insurance, and annuities businesses. See N.J. Stat. Ann.
§ § 17B:30-1-22. The existence of this additional provision in
the New Jersey code, and the lack of clarity as to the names of
both acts, has been the source of some confusion in the case law.
See, e.g., Yourman v. People’s Sec. Life Ins. Co., 992 F. Supp.
696, 700-01 (D.N.J. 1998); Pierzga v. Ohio Cas. Group of Ins.
Cos., 504 A.2d 1200, 1204 (N.J. Super. Ct. App. Div. 1986). As
the New Jersey Supreme Court refers to § 17:29B-1 et seq. as
“ITPA” in its recent decisions, see, e.g., R.J. Gaydos Ins.
Agency, Inc. v. Nat’l Consumer Ins. Co., 773 A.2d 1132, 1145-
46 (N.J. 2001); Lemelledo v. Benefit Mgmt. Corp., 696 A.2d
546, 554 (N.J. 1997), we use that convention herein.

                                 9
       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

                               10
       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. Benjamin, 328
U.S. 408 (1946), the Supreme Court explained the legislative
intent behind the statute. It wrote that Congress’s purpose

       was broadly to give support to the existing and
       future state systems for regulating and taxing the
       business of insurance. This was done in two ways.
       One was by removing obstructions which might
       be thought to flow from its own power, whether
       dormant or exercised, except as otherwise
       provided in the Act itself or in future legislation.
       The other was by declaring expressly and
       affirmatively that continued state regulation and
       taxation of this business is in the public interest
       and that the business and all who engage in it
       “shall be subject to” the laws of the several states
       in these respects.

Id. at 429-30.

      Years later in the comprehensive opinion in Sabo v.
Metropolitan Life Insurance Co., 137 F.3d 185 (3d Cir. 1998),
a case involving the relationship between RICO and
Pennsylvania’s Unfair Insurance Practices Act (“UIPA”), 40 Pa.
Cons. Stat. Ann. §§ 1171.1-.15 (1999), we canvassed the

                               11
different features of the Act and parsed the terms of Section
2(b), including what constituted the “business of insurance.”
There, as here, the case turned on the initial portion of Section
2(b)–“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 . . . .”–as RICO
clearly is not a law “specifically relating to the business of
insurance.” In Sabo we noted that the “phrase ‘invalidate,
impair, or supersede’ is not defined anywhere in the Act,” and
we were thus “faced with the considerable task of grappling
with its construction.” Sabo, 137 F.3d at 193. We reasoned that
“invalidate, impair, or supersede” included both the situation
where federal law was in “direct conflict” with the state scheme,
and the situation where federal law would frustrate state policy.
See Sabo, 137 F.3d at 194 (“The federal policies embodied in
RICO, namely, the grant of a liberal federal remedy to those
who have been victimized by organized crime, are in no way
inconsistent with the stated purpose of the UIPA . . . .”) (citation
omitted). However, the absence of direct conflict or frustration
did not end the inquiry; a violation of Section 2(b) could also be
shown through intentionally divergent policies or evidence of a
desire for exclusive administrative enforcement. Id. at 194-95.
Looking for such an intent in Sabo, however, Judge Seitz,
writing for the Court, stated that we could discern “no
indication, through legislative intent or judicial interpretation,
that Pennsylvania’s non-recognition of a private remedy under
the UIPA represents a reasoned state policy of exclusive
administrative enforcement or that the vindication of UIPA
norms should be limited or rare.” Id. at 195.

       One year later, the Supreme Court in Humana Inc. v.

                                12
Forsyth, 525 U.S. 299 (1999), provided an authoritative
explanation of the phrase “invalidate, impair, or supersede,” as
once again RICO was the basis for a McCarran-Ferguson Act
challenge. At issue in Humana was the impact civil RICO
would have on the Nevada state insurance system. The Court
noted that in Section 2(b) of the Act Congress was attempting to
control the interplay between the federal and state laws not yet
written. “In § 2(b) of the Act . . . Congress ensured that federal
statutes not identified in the Act or not yet enacted would not
automatically override state insurance regulation. Section 2(b)
provides that when Congress enacts a law specifically relating
to the business of insurance, that law controls.” Id. at 307. In
charting the scope of Section 2(b), the Court rejected the view
that “Congress intended to cede the field of insurance regulation
to the States, saving only instances in which Congress expressly
orders otherwise.” Id. at 308. At the same time that it rejected
any notion of field preemption, it also rejected “the polar
opposite of that view, i.e., that Congress intended a green light
for federal regulation whenever the federal law does not collide
head on with state regulation.” Id. at 309. With those extremes
rejected, the Supreme Court established the following
formulation for applying § 1012(b): “When federal law does not
directly conflict with state regulation, and when application of
the federal law would not frustrate any declared state policy or
interfere with a State’s administrative regime, the
McCarran-Ferguson Act does not preclude its application.” Id.
at 310.

        Noting that there was no direct conflict with Nevada’s
state regulation, the Supreme Court then examined a variety of
factors to assess the impact of RICO. The Court began by

                               13
noting that “Nevada provides both statutory and common-law
remedies to check insurance fraud.” Humana, 525 U.S. at 311.
In addition to the administrative penalties that could be imposed
on violators, “[v]ictims of insurance fraud may also pursue
private actions under Nevada law.” Id. at 312. “Moreover, the
Act is not hermetically sealed; it does not exclude application of
other state laws, statutory or decisional. Specifically, Nevada
law provides that an insurer is under a common-law duty to
negotiate with its insureds in good faith and to deal with them
fairly.” Id. at 312 (quotations omitted).

       The Supreme Court also cited both the availability of
punitive damages, id. at 313, and the scope of those damages.
The Court noted that “plaintiffs seeking relief under Nevada law
may be eligible for damages exceeding the treble damages
available under RICO.” Id. Concluding, the Court wrote that it
saw

       no frustration of state policy in the RICO
       litigation at issue here. RICO’s private right of
       action and treble damages provision appears to
       complement Nevada’s statutory and common-law
       claims for relief. In this regard, we note that
       Nevada filed no brief at any stage of this lawsuit
       urging that application of RICO to the alleged
       conduct would frustrate any state policy, or
       interfere with the State's administrative regime.
       We further note that insurers, too, have relied on
       the statute when they were the fraud victims.

Id. (citation omitted).

                               14
        In sum, the Humana analysis explored the specific
interplay between RICO and the state insurance scheme. As
described above, the non-exclusive list of factors the Court
examined in Humana included the following: (1) the availability
of a private right of action under state statute; (2) the availability
of a common law right of action; (3) the possibility that other
state laws provided grounds for suit;5 (4) the availability of
punitive damages; (5) the fact that the damages available (in the
case of Nevada, punitive damages) could exceed the amount
recoverable under RICO, even taking into account RICO’s

   5
     A feature of the procedural history in this case raises an
oddity regarding the role of other state laws in the Humana
framework. As noted supra, Weiss originally brought state-law
claims in New Jersey state court, including claims under the
CFA. His suit was removed to federal court based on ERISA
preemption and Weiss did not challenge the removal. In light of
ERISA, the state-law claims were dismissed, and eventually the
ERISA claims were also dismissed, leaving only the federal
RICO claims. We find ourselves resorting to state-law theories
and claims as justification for the application of civil RICO,
despite the fact that those claims would be preempted by
ERISA. As this quirk did not trouble the Court in Humana, we
will not explore it further. See Humana, 525 U.S. at 304 n.4
(“The complaint also presented claims under the Employee
Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829,
as amended, 29 U.S.C. § 1001 et seq., and § 2 of the Sherman
Act, 26 Stat. 209, as amended, 15 U.S.C. § 2. The disposition of
those claims is not germane to the issue on which this Court’s
review was sought and granted.”).

                                 15
treble damages provision; (6) the absence of a position by the
State as to any interest in any state policy or their administrative
regime; and (7) the fact that insurers have relied on RICO to
eradicate insurance fraud. Humana, 525 U.S. at 311-314.

       In Highmark, Inc. v. UPMC Health Plan, 276 F.3d 160
(3d Cir. 2001), we relied on those same factors in holding that
the McCarran-Ferguson Act did not bar a false advertising claim
under Section 43(a) of the Lanham Act, 15 U.S.C. §
1125(a)(1)(B), by an insurer against another insurer in
Pennsylvania. Canvassing the same Pennsylvania insurance
scheme at issue in Sabo–the UIPA–we noted the availability of
a common law right of action and that no private right of action
was provided under the UIPA. Highmark, 276 F.3d at 168. We
noted that suit could be brought under other state
laws–specifically the Pennsylvania Unfair Trade Practices
Consumer Protection Law, id.,–and that punitive damages were
available. We also found that “[p]unitive damages can easily
meet, if not exceed, Lanham Act damages.” Id. at 170. No brief
by the Commonwealth was made part of the record, and
“although the cases did not discuss possible McCarran-Ferguson
preclusion, this Court, and the District Courts in this Circuit,
have routinely exercised jurisdiction over Lanham Act claims
involving the insurance industry.” Id. at 170 n.2. The balance of
these factors confirmed that the state insurance scheme was not
intended to be exclusive, that the allowance of the Lanham Act
claim would not frustrate any state policy, nor would the
Lanham Act interfere with the administrative scheme. Indeed,
we found that “[n]ot only does the Lanham Act not invalidate,
impair, or supersede the UIPA, or interfere with the State
Commissioner’s enforcement of its provisions, it also supports

                                16
the State’s efforts to correct such practices by allowing private
actions in the federal courts.” Id. at 59.

       With this background and these principles in mind, we
turn now to the case before us. The District Court concluded
that the New Jersey scheme was far more limited than the
Nevada scheme that the Supreme Court had found compatible
with RICO in Humana, and accordingly held that the RICO
claims were barred by Section 2(b). The District Court
reviewed the New Jersey regulatory scheme and found several
reasons why RICO would “frustrate . . . declared state policy or
interfere with [New Jersey’s] administrative regime.” Weiss v.
First Unum Life Ins. Co., 416 F. Supp. 2d 298, 301 (D.N.J.
2005). New Jersey’s Insurance Trade Practices Act (“ITPA”)
regulates the business of insurance in New Jersey, and ITPA has
no private right of action for insureds. Nor does ITPA provide
for punitive damages.

        The District Court acknowledged that a “common law
cause of action sounding in contract has been recognized by the
New Jersey Supreme Court for bad-faith failure to pay an
insured’s claim.” Weiss, 416 F. Supp 2d at 302. However, it
found that the presence of the common-law cause of action did
not tip the scales in favor of allowing RICO claims because the
New Jersey Supreme Court had fashioned the claim in the
absence of any statutory remedy. The District Court hinted that
the fact that the New Jersey legislature did not respond to the
decision by the New Jersey Supreme Court by adding a new
statutory apparatus reflected a desire to limit private remedies.
The District Court did not address whether insurers rely on
RICO to vindicate their interests when they are fraud victims.

                               17
The District Court concluded its analysis by stating:

       It is clear that neither New Jersey case law nor
       statutory law permits a private right of action for
       nonpayment of benefits, nor do they provide for
       an award of punitive damages. The differences in
       New Jersey’s ITPA from the Nevada statute thus
       distinguish this case from Humana where the
       Supreme Court found that ‘RICO’s private right
       of action and treble damages provision appears to
       complement Nevada's statutory and common-law
       claims for relief.’ Humana, 525 U.S. at 313. As a
       result, application of the federal RICO statute
       would frustrate the stated policies of New Jersey’s
       ITPA and interfere with the State’s administrative
       regime         .

Weiss, 416 F. Supp. 2d at 303.

        The District Court added a footnote: “Although, to the
Court’s knowledge, New Jersey has filed no brief at any stage
of the suit arguing that application of RICO would frustrate any
state policy, the Supreme Court’s citation of Nevada’s failure to
do so in Humana was clearly not the dispositive factor.” Id. n.2.

       Weiss urges on appeal that the District Court erred as a
matter of law in failing to recognize that New Jersey has “long
favored and approved cumulative private and public remedies to
combat unfair insurance practices and insurance fraud.”
Appellant’s Br. 14. Weiss argues that there is no state policy
mandating the exclusivity of the ITPA as a remedy for insurance

                               18
frauds, and that the absence of a statutory right of action is not
dispositive under Humana. Moreover he argues that ITPA is
complemented, not impaired, by the presence of civil RICO.
Weiss also relies on our pre-Humana decision in Sabo where we
found “no indication, through legislative intent or judicial
interpretation, that Pennsylvania’s non-recognition of a private
remedy under the UIPA represents a reasoned state policy of
exclusive administrative enforcement or that the vindication of
UIPA norms should be limited or rare.” Sabo, 137 F.3d at 195.

        First Unum urges that allowing RICO claims such as
Weiss’s would frustrate New Jersey’s comprehensive system of
laws regulating the insurance industry. First Unum’s reading of
Humana is that the “McCarran-Ferguson Act precludes a RICO
action in a case such as this unless the applicable state insurance
law permits an aggrieved policy holder or beneficiary to seek
recovery of damages similar in nature to those permitted under
RICO.” Respondents’ Br. 19-20. Similarly it argues that
McCarran-Ferguson “precludes a Federal RICO action unless
the law of the state in which the RICO action is filed provides
for recovery of damages analogous to those provided by RICO,”
Respondents’ Br. 14, and that analogous damages are not
available in New Jersey.

       We review the District Court’s decision de novo,6 see

  6
   The McCarran-Ferguson inquiry is not a state-law question.
Rather, it is a question about the interaction between a federal
law and a state insurance system. The analysis as to whether the
state system is invalidated, impaired, or superseded by the

                                19
Highmark, 276 F.3d at 166, and as we did in Highmark, we
must assess the impact of the federal law in question in light of
the Humana factors. The District Court’s decision relied
principally on four of the Humana factors: whether a private
right of action was available under state statute; whether other
state laws provided grounds for suit; whether punitive damages
were available; and whether punitive damages available
exceeded the amount recoverable under RICO. The District
Court conceded that there was a common law right to sue, but
it found dispositive the fact that New Jersey’s regime lacked a
private right of action. It relied on the fact that no punitive
damages were available, and on the fact the scope of damages
under RICO was far greater than under the state regime. In
addition, it noted that it believed that another state law, the
Consumer Fraud Act (CFA), did not apply to payment or
nonpayment of insurance benefits under existing New Jersey
Law. Weiss, 416 F. Supp. 2d at 302. Finally, it noted in a
footnote that New Jersey had filed no brief at any stage of the
litigation. As we set forth below, we believe the proper analysis
leads to a different conclusion. We begin with an overview of
ITPA, and will examine the component parts of the New Jersey
regulatory scheme as they relate to claims such as this.

       ITPA empowers a Commissioner to “examine and
investigate into the affairs of every person engaged in the
business of insurance in this State in order to determine whether
such person has been or is engaged in any unfair method of

federal law is a question of federal law. See Humana, 525 U.S.
at 311-14.

                               20
competition or in any unfair or deceptive act or practice
prohibited by . . . this act.” N.J. Stat. § 17:29B-5. This includes
unfair claim-settlement practices, such as “[r]efusing to pay
claims without conducting a reasonable investigation based
upon all available information,” § 17:29B-4(9)(d), and “[n]ot
attempting in good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear,” N.J. Stat. § 17:29B-4(9)(f). If after conducting a hearing
the commissioner concludes that the business practice violates
ITPA’s provisions, the commissioner “shall make his findings
in writing and shall issue and cause to be served upon the person
charged with the violation an order requiring such person to
cease and desist from engaging in such method of competition,
act or practice.” § 17:29B-7(a). The commissioner may also
“order payment of a penalty not to exceed $ 1,000.00 for each
and every act or violation unless the person knew or reasonably
should have known he was in violation of this chapter, in which
case the penalty shall be not more than $ 5,000.00 for every act
or violation.” Id.

       The powers to investigate violations are not entirely
within the Commissioner’s discretion. “A person aggrieved by
a violation of this act may file a complaint with the
Commissioner of Banking and Insurance. Upon receipt of the
complaint, the commissioner shall investigate an insurer to
determine whether the insurer has violated any provision of this
act.” § 17:29B-18 (emphasis added). After such investigation,
the Commissioner may “order an insurer that is in violation to
pay a monetary penalty of $ 5,000 for each violation,” §
17:29B-18b(1), “order the insurer to make restitution to the
aggrieved person,”§ 17:29B-18b(2), or “obtain equitable relief

                                21
in a State or federal court of competent jurisdiction against an
insurer, as well as the costs of suit, attorney’s fees and expert
witness fees,” § 17:29B-18b(3). Aside from these forms of
relief available, ITPA explicitly notes that its penalties are not
intended to be exclusive.        “The powers vested in the
commissioner by this act shall be additional to any other powers
to enforce any penalties, fines or forfeitures authorized by law
with respect to the methods, acts and practices hereby declared
to be unfair or deceptive.” § 17:29B-12. In sum, the New
Jersey system is best seen as limited, regulating without setting
forth private remedies yet not explicitly or implicitly excluding
other remedies.

              (1) Statutory Private Right of Action.

        The parties agree that there is no private right of action
under ITPA, but differ as to the implications of this conclusion.
First Unum urges that this absence is the legislature’s intention;
Weiss urges that the lack of the provision is simply the product
of a legislative impasse. (The New Jersey Supreme Court in
Pickett v. Lloyd’s, 621 A.2d 445 (N.J. 1993), noted that “on the
score of whether we should recognize a [common law] remedy
for the wrong, we realize that legislation has been proposed to
provide such a remedy, but has not yet passed.” 621 A.2d at 452
(citing New Jersey legislative record)). The parties do agree,
however, that the “absence of a private cause of action under the
ITPA does not end the inquiry,” Respondents’ Br. 43, and First
Unum acknowledges that ITPA itself conceives of its penalties
working in tandem with others. See § 17:29B-12 (“The powers
vested in the commissioner by this act shall be additional to any
other powers to enforce any penalties, fines or forfeitures

                               22
authorized by law with respect to the methods, acts and practices
hereby declared to be unfair or deceptive.”). Accordingly, we
view the absence of a private right of action in ITPA as an
obstacle to Weiss’s claim, but by no means an insurmountable
one.

       (2) Common Law Right.

        The parties agree that New Jersey provides a common
law right of action against insurers for the recoupment of
wrongly withheld benefits. In Pickett v. Lloyd’s, 621 A.2d 445
(N.J. 1993), the New Jersey Supreme Court “recognize[d] a
remedy for bad-faith refusal” of benefits, despite the absence of
New Jersey statutory law that would provide such a remedy. Id.
at 452. The fact that this is one of the few recognized methods
for recoupment of benefits outside the administrative apparatus
is urged by the parties as pointing to opposite conclusions.
Weiss claims this shows that RICO would not disturb the
administrative regime, while First Unum argues that the
legislature’s decision not to enact a statutory right of action after
Pickett reflects a desire for a limited remedial scheme.
Nevertheless, it is undisputed that a common-law right of
recovery is available in New Jersey.

       (3) Other State Laws.

       We noted in Sabo that treble damages were available
under other Pennsylvania statutes, and that this undercut the
argument that the insurance scheme was intended to be
exclusive. “Pennsylvania courts have held that the state’s
general consumer protection statute . . . provides a private

                                 23
remedy and treble damages for victims of insurance fraud. This
certainly undercuts any purported balance struck by the
Pennsylvania legislature favoring administrative enforcement to
the exclusion of private damages actions and we see no reason
why a federal private right of action cannot coexist with the
UIPA in these circumstances.” Sabo, 137 F.3d at 195 (citation
omitted).

       Similarly, the New Jersey Consumer Fraud Act (CFA)
makes treble damages available to redress violations. By its
terms, the CFA prohibits:

       The act, use or employment by any person of any
       unconscionable commercial practice, deception,
       fraud, false promise, misrepresentation, or the
       knowing concealment, suppression, or omission
       of any material fact with intent that others rely
       upon such concealment, suppression or omission,
       in connection with the sale or advertisement of
       any merchandise or real estate, or with the
       subsequent performance of such person as
       aforesaid, whether or not any person has in fact
       been misled, deceived or damaged thereby . . . .

N.J. Stat. Ann. § 56:8-2 (emphasis added).

       The only question is whether the scheme Weiss alleges
is covered by the CFA. If it is, that would likewise undercut any
purported objection by the New Jersey legislature to the award
of treble damages under RICO. The CFA states that the term
“‘merchandise’ shall include any objects, wares, goods,

                               24
commodities, services or anything offered, directly or indirectly
to the public for sale.” N.J. Stat. § 56:8-1(c). In Lemelledo v.
Benefit Management Corp., 696 A.2d 546 (N.J. 1997), the New
Jersey Supreme Court applied the CFA to the practice of “loan
packing,” a “practice on the part of commercial lenders that
involves increasing the principal amount of a loan by combining
the loan with loan-related services, such as credit insurance, that
the borrower does not want,” 696 A.2d at 548. In Lemelledo,
the New Jersey Supreme Court found that the “CFA simply
complements” other New Jersey statutes, including ITPA. Id.
at 555. In so doing, the Court discussed whether allowing a
cause of action for fraud in the sale of insurance would conflict
with the New Jersey regulatory scheme regarding insurance,
undertaking an inquiry into whether “because lenders offering
credit insurance are regulated by several State agencies, to
subject them to CFA liability would run counter to our
traditional reluctance to impose potentially inconsistent
administrative obligations on regulated parties.” 696 A.2d at
552. It concluded that it would not, stating that in “the modern
administrative state, regulation is frequently complementary,
overlapping, and comprehensive. Absent a nearly irreconcilable
conflict, to allow one remedial statute to preempt another or to
co-opt a broad field of regulatory concern, simply because the
two statutes regulate the same activity, would defeat the
purposes giving rise to the need for regulation.” Id. at 554. In
speaking specifically about the nature of the “conflict,” it stated
that courts must be “convinced that the other source or sources
of regulation deal specifically, concretely, and pervasively with
the particular activity, implying a legislative intent not to subject
parties to multiple regulations that, as applied, will work at
cross-purposes. We stress that the conflict must be patent and

                                 25
sharp, and must not simply constitute a mere possibility of
incompatibility.” Id. This was because if “the hurdle for
rebutting the basic assumption of applicability of the CFA to
covered conduct is too easily overcome, the statute’s remedial
measures may be rendered impotent as primary weapons in
combatting clear forms of fraud simply because those fraudulent
practices happen also to be covered by some other statute or
regulation.” Id.      The Lemelledo Court noted that two
decisions by the Superior Court of New Jersey, e.g. Nikiper v.
Motor Club of America, 557 A.2d 332 (N.J. Super. Ct. App.
Div. 1989), Pierzga v. Ohio Cas. Group of Ins. Cos., 504 A.2d
1200 (N.J. Super. Ct. App. Div. 1986), suggested that the CFA
did not apply to the denial of insurance benefits, but the
Lemelledo Court expressly took no position about this issue, or
as to the continued viability of these cases. See Lemelledo, 696
A.2d at 551 n.3.7 Though Lemelledo dealt only with fraudulent
sale of insurance as part of loan packages as opposed to the
defrauding of benefits themselves, the District Court derived
from Lemelledo the conclusion that the defrauding of benefits
was not covered by the CFA.

  7
   Only Pierzga is truly on point, and to the extent that Pierzga
relied on Daaleman v. Elizabethtown Gas Co., 390 A.2d 566
(N.J. 1978), for the proposition that the CFA should not apply
in the face of extensive regulation by a state agency (there, the
state utility commission), we think it is clear from the expansive
language and reasoning in Lemelledo that the New Jersey
Supreme Court would view the instant situation differently.
Neither case discusses the concept of fraud in connection with
“performance” under the CFA that we discuss infra.

                               26
       We are not so sure. We do not share the District Court’s
conviction that the CFA and its treble damages provision are
inapplicable to schemes to defraud insureds of their benefits.
The CFA prohibits the “act, use or employment by any person
of any unconscionable commercial practice . . . in connection
with . . . the subsequent performance of such person as
aforesaid.” N.J. Stat. Ann. § 56:8-2. Here, Weiss has alleged
that First Unum embarked on a fraudulent scheme to deny
insureds their rightful benefits, clearly an unconscionable
commercial practice in connection with the performance of its
obligations subsequent to the sale of merchandise, i.e. payment
of benefits. The CFA covers fraud both in the initial sale (where
the seller never intends to pay), and fraud in the subsequent
performance (where the seller at some point elects not to fulfill
its obligations).8 We conclude that while the New Jersey
Supreme Court has been silent as to this specific application of
CFA, its sweeping statements regarding the application of the
CFA to deter and punish deceptive insurance practices makes us
question why it would not conclude that the performance in the

  8
   The former scenario involves “a true con artist [who]. . . does
not intend to perform his undertaking, the contract or whatever;
he means to pocket the entire contract price without rendering
any service in return.” United States v. Schneider, 930 F.2d 555,
558 (7th Cir. 1991). The latter “involv[es] no deceit in the
initial contract procurement, but fraud in its performance, as a
party trying to protect its profit margin stops complying with
certain contract specifications while at the same time falsely
representing strict compliance.” United States v. Canova, 412
F.3d 331, 353 n.22 (2d Cir. 2005).

                               27
providing of benefits, not just sales, is covered, so that treble
damages would be available for this claim under the CFA.

      (4)-(5) Availability of Punitive Damages and Scope of
Possible Damages.

       New Jersey law also appears to be unclear as to whether
punitive damages are available against insurance companies on
facts such as these. Weiss contends that Pickett left the door
open for punitive damages to be awarded in a suit based on
common law. While Pickett stated that “wrongful withholding
of benefits . . . does not thereby give rise to a claim for punitive
damages,” 621 A.2d at 455, it nonetheless indicated that on
some fact patterns a cause of action independent from the bad-
faith denial of benefits could be sustained: “Carriers are not
insulated from liability for independent torts in the conduct of
their business. For example, ‘[d]eliberate, overt and dishonest
dealings,’ insult and personal abuse constitute torts entirely
distinct from the bad-faith claim.” Id. (quoting Farr v.
Transamerica Occidental Life Ins. Co., 699 P.2d 376, 383 (Ariz.
1984)). Further, the Pickett Court added that “in order to sustain
a claim for punitive damages, a plaintiff would have to show
something other than a breach of the good-faith obligation as we
have defined it.” Id. The parties have argued whether a
racketeering scheme constitutes conduct so wrongful as to
warrant punitive damages. We think it is at the very least
arguable that a racketeering scheme by an insurer against its
insureds would constitute a distinct and egregious tort under
New Jersey law.

       (6) Presence or Absence of State Brief.

                                28
        Although the State of New Jersey has not informed us of
any “declared state policy,” the District Court found a limiting
policy implicit in the structure of the New Jersey scheme, and
found it would be frustrated and impaired by RICO. First
Unum, taking a cue from the District Court, argues that the
decision by the state legislature not to amend the ITPA to
provide a statutory right of action after Pickett was decided
weighs against allowing the RICO suit. “The absence of such
a [statutory] claim . . . is the product of a reasoned and declared
public policy of the state of New Jersey.” Respondents’ Br. 24
(citing Pickett). We conclude that the inferences to be drawn
from legislative action (and inaction) are not so clear. Further,
one would have assumed that such a “reasoned and declared
public policy” would have led to New Jersey’s voicing its
interest at every stage of the instant litigation. That has not
happened. The fact that ITPA was not amended after Pickett
could mean that the state legislature believed the common law
remedy adequate; it could also mean that it assumed that RICO
would apply and therefore that remedy was adequate as well.
Or, other legislative priorities could have taken precedence. In
short, there is no “declared state policy” conspicuous from the
structure of New Jersey law or the pattern of legislative history.
We can draw no specific conclusion from New Jersey’s silence;
if anything, it weighs against First Unum.

       (7) Reliance by State Insurers.

        There is no evidence in the record as to the reliance by
state insurers on federal civil RICO provisions in New Jersey.
But it is logical to assume, as the Supreme Court did in
Humana, that deeming federal civil RICO suits to be

                                29
unavailable because they would impair the state scheme would
deprive insurers of an important weapon of self-defense. See
Humana, 525 U.S. at 314 (“We further note that insurers, too,
have relied on the statute when they were the fraud victims.”);
see also Eric Beal, Note, It’s Better to Have Twelve Monkeys
Chasing You Than One Gorilla: Humana Inc. v. Forsyth, the
McCarran-Ferguson Act, RICO, and Deterrence, 5 C ONN. INS.
L.J. 751, 776 (1998-99) (“Paradoxically, if Humana Inc. had
prevailed [insurers] might have hampered the insurance
industry’s ability via RICO to ‘fight back’ against fraud
committed by policyholders. RICO has been described as being
‘the single most valuable tool available to insurers through the
American jurisprudence system.’ Insurers have brought RICO
actions for fraud against policyholders, attorneys, and other
insurance companies.”) (citations and footnotes omitted). We
find that depriving all players in the New Jersey insurance
scheme of the right to sue under RICO is not part of the state’s
declared insurance policy, and we cannot simply presume such
an atypical legislative aim from the structure of New Jersey’s
insurance laws.

       Examining the above factors in this case as compared to
Humana, it is clear that the aspects of the Nevada scheme
presented a clearer case, and it might even be said that the
finding by the unanimous Court that the two schemes
“complement[ed]” each other, Humana, 529 U.S. at 313, was
not subject to serious debate. Here, the allowance of treble
damages, or punitive damages analogous to the treble damages
available under RICO, is not as clear. The issue, then, is
whether the absence of extensive legislative regulation of claims
against insurers or provision of remedies, coupled with judicial

                               30
sanctioning of certain remedies for bad faith denials of benefits,
indicates that RICO would impair the state regulatory scheme.
We think not. There is nothing in the regulatory scheme that
indicates that allowing other remedies as part of its regulation of
insurance would frustrate or interfere with New Jersey’s
insurance regime. To the contrary, the legislation permits
additional remedies, see § 17:29B-12, and the New Jersey courts
have felt free to fashion them. Moreover, the New Jersey
Supreme Court’s reasoning in Lemelledo in connection with the
CFA points to encouraging, rather than limiting, other remedies
in this area.

       Furthermore, as Judge Seitz noted in Sabo, RICO
embodies federal policies of an expansive nature. See Sabo, 137
F.3d at 194 (discussing “federal policies embodied in RICO,
namely, the grant of a liberal federal remedy”); see also Sedima
v. Imrex Co., 473 U.S. 479, 498 (1985) (“RICO was an
aggressive initiative to supplement old remedies and develop
new methods for fighting crime.”). The need for this type of
regulation was not contemplated when McCarran-Ferguson was
enacted. We should be wary of underestimating the significance
of these federal policies and should not go out of our way to find
impairment of a state scheme when such impairment is not clear.

       Also, we find nothing in cases from other Courts of
Appeals dealing with different state schemes governing insurers
that would cause us to alter our view in this case. In American
Chiropractic v. Trigon Healthcare, 367 F.3d 212 (4th Cir.
2004), cert. denied, 543 U.S. 979 (2004), the Fourth Circuit
upheld the application of RICO in Virginia despite the absence
of a private right of action in the state insurance regime for

                                31
reasons corresponding closely to those we rely on. While the
Tenth Circuit in Bancoklahoma Mortgage Corp. v. Capital Title
Co., 194 F.3d 1089 (10th Cir. 1999), followed a similar path and
upheld the application of RICO in Missouri despite the absence
of a private right of action under the state regime, the Eighth
Circuit has held that RICO would impair Minnesota’s insurance
system. In Doe v. Norwest Bank Minn., N.A., 107 F.3d 1297
(8th Cir. 1997), the Eighth Circuit discussed the absence of a
private right of action under Minnesota’s scheme, as well as the
severe civil RICO penalties, and concluded that “[Appellee]
makes a compelling case that the extraordinary remedies of
RICO would frustrate, and perhaps even supplant, Minnesota’s
carefully developed scheme of regulation.” Id. at 1307-08. The
Eighth Circuit concluded on the basis of evidence before it that
the “state of Minnesota . . . determined that its insurance market
can best be regulated by the Commissioner’s pursuit of fines and
injunctive relief.” Doe, 107 F.3d at 1307.9 We do not find that
true of New Jersey. Here we have no stated fear of
“extraordinary” remedies, or declaration that the insurance
market or economic policy–as it pertains to insurance premiums,
benefits, and the allocation of risk–would be adversely affected.
There is nothing of record in this case that suggests that the
availability of RICO would disrupt the playing field in the state
insurance regime beyond what was clearly intended by state law.

       After canvassing the Humana factors, we are left with the

   9
    That approach was reaffirmed with little discussion post-
Humana in LaBarre v. Credit Acceptance Corp., 175 F.3d 640
(8th Cir. 1999).

                               32
firm conviction that RICO does not and will not impair New
Jersey’s state insurance scheme. Though RICO is a powerful
tool, we conclude as the Supreme Court did in Humana that “we
see no frustration of state policy in the RICO litigation at issue
here.” 525 U.S. at 313. Indeed, in light of the common law and
statutory remedies available, we do not read New Jersey’s
scheme as intended to be exclusive. Nor do we find that RICO
will disturb or interfere with New Jersey’s state insurance
regime. RICO’s provisions supplement the statutory and
common-law claims for relief available under New Jersey law.
We conclude that RICO augments New Jersey’s insurance
regime; it does not impair it.

                        CONCLUSION

       For the reasons set forth above, and in light of the facts
described, we find that the McCarran-Ferguson Act does not bar
Weiss’s civil RICO claim. The decision of the District Court
will be reversed and the case remanded for proceedings not
inconsistent with this opinion.

                               33