A recent federal decision out of the United States District Court for the Eastern District of New York highlights both the appeal and the difficulty of using federal RICO statutes to combat alleged systemic fraud in construction accident claims.
Roosevelt Road Re, Ltd. and Tradesman Program Managers, LLC v. John Haggar, M.D., et al. involved allegations that a network of attorneys and medical providers orchestrated a scheme to inflate workers’ compensation and personal injury claims tied to construction accidents. The plaintiffs – a reinsurer and a claims management agency – asserted that workers were recruited to report accidents, directed to certain medical providers, and ultimately used as the foundation for exaggerated medical claims and inflated insurance recoveries.
The defendants all moved to dismiss the plaintiffs’ claims. Although the court held that the plaintiffs had standing to bring the case in federal court and that the claims did not conflict with state law, the defendants ultimately prevailed. The case was dismissed because the plaintiffs failed to establish that the defendants’ alleged conduct was the proximate cause of their injury. In addition, the court further agreed with the defendants in finding that the plaintiffs failed to adequately plead a Civil RICO enterprise or a Civil RICO conspiracy claim.
Why Construction Accident Claims in New York Attract Scrutiny
New York remains one of the most active jurisdictions in the country for construction accident litigation. Much of that activity stems from New York Labor Law §§ 200, 240(1), and 241(6) – particularly Labor Law §240, commonly known as the Scaffold Law.
Because these statutes often impose strict liability on owners and contractors, construction accident claims can produce significant verdicts and settlements. As a result, insurers and reinsurers frequently scrutinize these cases for potential fraud or claim inflation.
In Roosevelt Road Re, the plaintiffs alleged a coordinated scheme involving:
- Recruiting workers to report construction accidents;
- Directing those workers to particular medical providers;
- Producing diagnoses and treatment plans that allegedly exaggerated injuries; and
- Using those medical records to support higher-value claims.
The plaintiffs framed this conduct as a racketeering enterprise under the federal Civil RICO statute, alleging numerous predicate acts of mail and wire fraud tied to the submission and processing of insurance claims.
Standing and Federal Jurisdiction: Reinsurers Can Bring Fraud Claims
One of the defendants’ threshold arguments was that the plaintiffs lacked standing under Article III of the U.S. Constitution to bring the case in federal court, primarily because the reinsurer did not directly pay the claims at issue. Instead, the reinsurer reimbursed primary insurers for losses.
The court rejected that argument and held that the plaintiffs sufficiently alleged a concrete financial injury tied to the payment of claims. The ruling confirms that reinsurers may, in appropriate circumstances, pursue fraud-related claims when their losses arise from reimbursing allegedly fraudulent claims.
For reinsurers operating in New York’s insurance market, this aspect of the decision reinforces that standing alone will not bar such litigation. But clearing the standing hurdle does not guarantee a viable Civil RICO case.
McCarran–Ferguson Does Not Automatically Bar RICO Claims
The defendants also argued that the case was barred by the McCarran–Ferguson Act, which protects state regulation of insurance from conflicting federal statutes. The court rejected that argument as well.
Federal claims are precluded under McCarran–Ferguson only when they directly interfere with state insurance regulation. Here, the court found no such conflict between federal RICO claims and New York’s insurance laws.
In principle, therefore, RICO remains available as a potential tool for insurers pursuing systemic fraud allegations. However, the plaintiffs ultimately ran into a far more significant obstacle.
The Central Issue: Proximate Causation
Despite surviving several jurisdictional challenges, the plaintiffs’ RICO claims failed because the court found their allegations of proximate causation insufficient.
Under the federal Civil RICO statute, a plaintiff must show injury caused “by reason of” the alleged racketeering activity, which courts interpret to require a direct relationship between the misconduct and the injury.
Here, the alleged losses were several steps removed from the defendants’ conduct. The court noted the chain of events:
- Claimants filed personal injury and workers’ compensation claims.
- Primary insurers evaluated and paid those claims.
- The reinsurer reimbursed the insurers for certain losses.
Because the plaintiffs’ damages depended on intervening decisions by third parties – insurers, claims administrators, and potentially courts – the court concluded that the alleged injuries were too remote.
This reasoning reflects a broader trend in federal courts: Civil RICO liability generally does not extend to downstream financial losses that arise indirectly from alleged fraud against another party.
For reinsurers and excess carriers, this presents a significant challenge, since their losses often arise only after primary insurers pay claims.
The Enterprise Requirement: Referral Networks Are Not Enough
The court also dismissed the claims because the complaint failed to adequately plead a Civil RICO enterprise.
To establish an association-in-fact enterprise, plaintiffs must demonstrate:
- A shared purpose;
- Relationships among participants; and
- Longevity sufficient to pursue the enterprise’s objectives.
The complaint described a pattern of interactions between attorneys and medical providers, largely in the form of referrals and treatment relationships. But the court found that these allegations did not demonstrate a coordinated organization with a common purpose. Instead, the defendants appeared to be independent actors pursuing their own financial interests.
The court characterized the alleged structure as a “rimless hub-and-spoke” arrangement, where multiple parties interact with a central figure but lack meaningful coordination among themselves. Courts have consistently held that such structures do not satisfy the statute’s enterprise requirement.
Conspiracy Allegations Require Specific Facts
The plaintiffs’ Civil RICO conspiracy claim also failed.
To plead a Civil RICO conspiracy, plaintiffs must allege specific facts showing that defendants agreed to participate in racketeering activity. The complaint relied primarily on generalized assertions that the defendants worked together. It did not identify:
- When any agreement was formed;
- Which parties entered into the agreement; or
- How the alleged conspiracy operated.
Without those details, the court concluded that the conspiracy claim could not survive.
What Happened to the Remaining Claims
The court:
- Dismissed the Civil RICO and Civil RICO conspiracy claims without prejudice, allowing the plaintiffs the opportunity to seek leave to amend;
- Dismissed the federal declaratory judgment claim with prejudice; and
- Declined to exercise supplemental jurisdiction over the state law claims, including fraud and unjust enrichment.
At this stage, the case is effectively terminated unless the plaintiffs successfully seek leave to amend their complaint. Even if they do so, defendants will likely argue that amending the complaint would be futile given the court’s analysis of causation and enterprise structure.
The Bigger Picture for New York Insurance Litigation
New York remains one of the most active venues in the country for construction accident litigation and insurance fraud investigations.
Insurers continue to explore aggressive litigation strategies – including RICO – to address suspected systemic fraud. But the decision in Roosevelt Road Re illustrates that courts will closely scrutinize such claims at the pleading stage.
For carriers considering Civil RICO litigation, the message is clear: success depends on building a detailed factual record demonstrating direct causation, coordinated enterprise activity, and explicit agreements among participants. Without those elements, even substantial allegations of wrongdoing may not survive a motion to dismiss.
If your business insurance company has denied or is challenging your claim, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
