Prong 3: State Laws Regulating the Complained of Activities
The parties do not really dispute that this prong is satisfied.
There is no question that in Title 40 of the Pennsylvania statutes, the Commonwealth of Pennsylvania has enacted a comprehensive system of state insurance regulation, intended by the Commonwealth to "occupy the field of regulating the business of insurance as contemplated by . . . McCarran-Ferguson." Black v. Nationwide Mut. Ins. Co., 429 F. Supp. 458, 463 (W.D. Pa. 1977), aff'd without opinion, 571 F.2d 571 (3d Cir. 1978).
Conducting an insurance business in the Commonwealth includes the solicitation, issuance and delivery of policies to a person resident in Pennsylvania, such as plaintiff Wexco. 40 Pa. Stat. Ann. § 46(b) (1992). Pennsylvania insurance law defines and regulates the relationships between and duties of the parties involved in the captioned action. See, e.g., id. at § 231 (defining insurance agents in terms of representation of insurers); id. at § 251 (defining brokers as representatives of insureds); id. at § 256 (permitting brokers to solicit or negotiate contracts for insurance on property or risks), id. at § 273 (defining and prohibiting larceny by agents and brokers); id. at § 273.1 (making agents and brokers fiduciaries). In addition, the Pennsylvania Unfair Insurance Practices Act ("PUIPA") regulates those engaged in the business of insurance in Pennsylvania. See 40 Pa. Stat. Ann. § 1171.1 et seq. (1992). PUIPA prohibits the commission of unfair and deceptive trade acts and practices, including making or publishing of statements misrepresenting the terms and conditions of a policy, id. at §§ 1171.4, 1171.5(a)(1)(i); making or publishing a false statement with respect to the business of insurance, id. at § 1171.5(a)(2); permitting or offering an insurance contract to be made which is other than as expressed in the contract itself, id. at § 1171.5(a)(8); and making false or fraudulent statements or representations about or relative to an application for an insurance policy, id. at § 1171.5(a)(12).
PUIPA gives the Pennsylvania Insurance Commissioner authority to investigate the business affairs of those doing insurance business in the state in order to determine if any such prohibited practices have occurred, with administrative bearings provided for if good cause exists to suspect a violation. Id. at §§ 1171.7, 1171.8. In addition, it provides for the issuance of administrative cease and desist orders, court injunctions and, in certain circumstances, civil penalties of up to $ 5,000 per violation. Id. at §§ 1171.9, 1171.10, 1171.1. Hence, the Commonwealth has enacted laws regulating insurance, and they expressly reach the activities of Defendants in the captioned action.
Prong 4: Invalidation, Supersession or Impairment of State Regulatory Laws
The IMC Defendants have argued that the proper test under this prong is merely to determine whether the state has a comprehensive system of insurance laws--if so, state law is deemed invalidated, superseded or impaired by a federal statute as a matter of law. The IMC Defendants' approach is similar to the test utilized in McCarran-Ferguson cases involving the federal antitrust laws; this test for antitrust cases is reflected in the specific language used in McCarran-Ferguson.
The court concedes that, even though the wording of McCarran-Ferguson supports the use of a different test for antitrust cases, some courts have utilized the approach recommended by the IMC Defendants, without comment, in non-antitrust cases. See, e.g., Richart v. Metropolitan Life Ins. Co., Civil Action No. 89-1725, 1990 U.S. Dist. Lexis at*4-5 (E.D. Pa. March 30, 1990) (for McCarran-Ferguson to bar application of RICO, challenged activities must be business of insurance and regulated by state law; mere existence of a state regulatory scheme is sufficient, unless it is "mere pretense"). However, a number of courts have actually proceeded to an examination of whether the state regulatory law would be invalidated, impaired, or superseded by the application of the relevant federal law.
While the court's initial reaction is that this stricter approach is called for by the language of McCarran-Ferguson, it need not decide this issue, as it believes that even under the stricter test, preclusion of the RICO action by McCarran-Ferguson is warranted, as PUIPA would be impaired or superseded by the application of RICO.
As stated earlier, the Pennsylvania legislature chose to have PUIPA and other Pennsylvania insurance regulatory law enforced solely by the Commonwealth's Insurance Commissioner. There is no private cause of action available for violation of the PUIPA or any Pennsylvania insurance regulations. Wright v. North Am. Life Assurance Co., 372 Pa. Super. 272, 539 A.2d 434, 438 (Pa. Super. 1988); Hardy v. Pennock Ins. Agency, Inc., 365 Pa. Super. 206, 529 A.2d 471, 478 (Pa. Super. 1987). While Pennsylvania courts have held that common law causes of action available prior to the enactment of the PUIPA, such as common law fraud and deceit actions, continue to be viable options for aggrieved insureds, Wright, 539 A.2d at 438; Hardy, 529 A.2d at 476-77; Pekular v. Eich, 355 Pa. Super. 276, 513 A.2d 427, 430-431 (Pa. Super. 1986), allocatur denied, 533 A.2d 93 (Pa. 1987), such common law actions do not reward plaintiffs with the treble damages, costs and attorney fees mandated by RICO. See 18 U.S.C. § 1964(c). The availability of a federal private action under RICO would not merely nullify the state's chosen regulatory remedies for insurance entity misconduct.
Rather, this court believes that the availability of a federal private remedy which would reward successful business plaintiffs, such as the captioned parties, with treble damages, costs and attorney fees cannot help but upset the balance of relationships between insurance entities and insureds which are established and regulated by PUIPA and the other state laws to which this court has cited.
Given that the four prongs of the appropriate test for McCarran-Ferguson preclusion have been met, the court will dismiss Plaintiffs' RICO claims, as barred by McCarran-Ferguson.
Defendants contend that Plaintiffs' entire complaint should be dismissed, since the sole source of jurisdiction cited in the complaint is 28 U.S.C. § 1331 (jurisdiction over federal question) and all federal claims have now been dismissed. Normally, this court would decline to exercise supplemental jurisdiction over pendent state claims if the overlying federal issues were dismissed at the commencement of an action. However, in Plaintiffs' initial response brief, they remarked that diversity jurisdiction exists in this action. (Plaintiffs' original brief in opposition at 6.) While that may possibly be so, the court cannot tell from Defendants' remarks if they contest diversity jurisdiction. At this point, the court does not feel free to dismiss the entire complaint. On the other hand, if the parties plan to contest jurisdiction, the court does not feel it appropriate to move ahead and address the substantive state law issues.
Hence, the court will grant all Defendants' motions solely on the McCarran-Ferguson/RICO issue; the court will then allow Plaintiffs to amend their complaint asserting diversity jurisdiction. Once the amended complaint is submitted, Defendants may reassert state substantive arguments, attack jurisdiction, or do both via motions to dismiss.
An appropriate order will issue.
SYLVIA H. RAMBO, Chief Judge, Middle District of Pennsylvania
Dated: April 16, 1993.
ORDER - April 16, 1993, Filed
In consideration of the foregoing memorandum, IT IS HEREBY ORDERED THAT:
1. The four motions to dismiss submitted by (1) THE IIE DEFENDANTS: defendants Transco Syndicate No. 1, Ltd., Illinois Insurance Exchange, and Gary D. Hackley; (2) DEFENDANT NORDIC SPECIAL RISK AGENCY; (3) THE ALR DEFENDANTS: defendants ALR Risk Managers, Inc., Thomas A. Laffey, Thomas J. Lundon, Corroon & Black, Sven J. Grotrian and Sidney R. Blackman; and (4) THE IMC DEFENDANTS: defendants IMC, Inc. and Thomas P. Reusse, are GRANTED IN PART. Plaintiffs' claims against all Defendants under the Racketeer Influenced and Corrupt Organization Act ("RICO") are DISMISSED.
2. No later than April 28, 1993, Plaintiffs shall amend their complaint to assert jurisdiction under diversity of citizenship. If an amended complaint is not timely filed, the court will decline to exercise supplemental jurisdiction over the remainder of Plaintiffs' claims and dismiss their complaint in its entirety.
3. Once the amended complaint has been filed, Defendants are free to submit any appropriate motions under the schedules outlined in the Federal and Middle District Rules.
SYLVIA H. RAMBO, Chief Judge, Middle District of Pennsylvania
Dated: April 16, 1993.