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From Antitrust Law Daily, September 22, 2016

Insurance broker could have violated antitrust, RICO laws through alleged bid rigging scheme

By E. Darius Sturmer, J.D.

A provider of insurance brokerage and consulting services could have violated federal antitrust and racketeering law by facilitating a scheme among its insurance carrier partners to rig bids, limit competition, and fix prices for excess casualty insurance products, the federal district court in Newark has ruled, in a not-for-publication opinion. The complaining insurance purchasers sufficiently alleged a plausible scheme amounting to a horizontal agreement not to compete that was per se illegal under Sec. 1 of the Sherman Act and also stated claims against the defendants under Sec. 1962(c) of the Racketeer Influenced and Corrupt Organizations (RICO) Act, the court found (In re Insurance Brokerage Antitrust Litigation, September 20, 2016, Cecchi, C.).

According to the insurance purchasers, the defending broker solicited fictitious quotes and rigged bids to carry out an agreement among the carriers to allocate customers and protect one another’s incumbent business in the excess casualty insurance marketplace. With respect to their RICO claims, the plaintiffs charged that the broker and its insurer-partners composed an association-in-fact enterprise that committed mail fraud in furtherance of that enterprise.

Antitrust violation. The complaint provided multiple allegations regarding the horizontal agreement between the insurers, in the court’s view. Moreover, the controlling federal appellate court, addressing the very conduct at issue, had already found the broker’s alleged bid rigging to be "quintessentially collusive behavior subject to per se condemnation under Section 1 of the Sherman Act. The plaintiffs plausibly alleged an antitrust violation under a rule of reason analysis as well, the court added. They adequately identified a relevant product and geographic market and alleged anticompetitive effects.

A contention by the defending broker that the antitrust claim was subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b) because they sounded in fraud was rejected. It was the cooperation among the broker’s insurance carrier partners that allowed the alleged customer allocation/incumbent protection scheme to be successful, the court noted. Thus, concerted action formed the basis of the claims, which were "classic bid rigging subject to Rule 8(a) pleading standards." However, even if the antitrust claim fell under the purview of Rule 9(b), it was pleaded with sufficient specificity to survive the broker’s motion to dismiss, the court determined.

RICO allegations. Although the Rule 9(b) standard did govern the RICO claims, the plaintiffs pleaded each of the elements of their Sec. 1962(c) claims with the requisite degree of particularity, the court added. Their second amended complaint "injected precision" into the claims, satisfying RICO’s "enterprise" and "conduct" requirements by describing the specifics of a broker-centered enterprise and the workings of the bid rigging scheme that furthered that enterprise. The pleading alleged the reasons why insurers agreed to provide sham bids, including statements demonstrating cooperation in the conspiracy. In addition, the purchasers’ allegations of the existence of a scheme to defraud, and of the broker’s specific intent to engage in that fraud through acts of mail fraud, met the "pattern of racketeering activity" element of a RICO claim.

Finally, the court rejected an argument that the plaintiffs lacked standing to assert the RICO claim. Their alleged overpayment for insurance as a result of the bid rigging scheme sufficed to plead RICO injury and thereby to confer standing upon them, the court concluded.

The case is No. 04-5184 (CCC).

Attorneys: Bryan S. Dumesnil (Bracewell & Giuliani LLP) and Robert M. Parker (Parker Clayton) for International Risk Insurance Co. Andrew T. Berry (McCarter & English, LLP) and Christopher J. St. Jeanos (Willkie Farr & Gallagher LLP) for Marsh & McLennan Companies, Inc., Marsh Inc. and Marsh USA Inc.

Companies: International Risk Insurance Co.; Marsh & McLennan Companies, Inc.; Marsh Inc.; Marsh USA Inc.

MainStory: TopStory Antitrust RICO NewJerseyNews

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