Fraudulent Denial Of Workers’ Comp Claims Can Violate RICO

The York Risk Services Group administers workers’ compensation claims for the City of Phoenix, Arizona. A group of firefighters, all of whom sustained serious injuries or illnesses resulting from their work, sued York in federal court. The essence of their complaint was that York, with the assistance and knowledge of certain City employees, wrongfully denied and delayed workers’ compensation benefits and as a result their medical care and financial condition suffered. One of the firefighters’ claims was filed under the Racketeer Influenced and Corrupt Organizations Act (RICO).

York asked the federal court hearing the case to dismiss the RICO claim. York’s argument was that the firefighters could not prove that they were injured in business or property as is required under RICO because their injuries are personal injuries and are not business related. York argued that RICO was not intended to provide employees with another vehicle for bringing bad faith claims against insurance companies and that the Arizona Workers’ Compensation Act provided an exclusive remedy for employees injured during the scope of employment.

The Court refused to dismiss the RICO claim. The Court started with the notion that to recover under RICO a plaintiff must allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (5) causing injury to the plaintiff’s ‘business or property. There is no Ninth Circuit case specifically addressing whether the expectation of workers’ compensation benefits is property for the purpose of bringing a civil RICO claim, but in the Ninth Circuit what constitutes property under RICO is typically determined by looking to state law.

“Here, the Court concludes that Plaintiffs possess a property right in their workers’ compensation benefits under Arizona law. Taking the allegations in the complaint as true, Plaintiffs all suffered injuries while working for the City’s Fire Department. Under Arizona’s workers’ compensation statute, when an employee is injured on the job and the injury was not self-inflicted, that employee ‘shall be entitled to receive and shall be paid such compensation for loss sustained on account of the injury as is provided by this chapter.’ The mandatory language of this statute is sufficient to create a property interest in the expectation of workers’ compensation benefits. Also, Plaintiffs have a property right in their workers’ compensation benefits because Plaintiffs are third-party beneficiaries of the insurance contract between the City and York, and under Arizona law, a contractual right is a property right.

“York argues that allowing workers’ compensation benefits to be considered property contravenes the purpose behind RICO because it originates from a personal injury, which would not be compensable under RICO. However, Plaintiffs do not allege that York caused their underlying personal injuries and are not seeking to recover damages for those personal injuries. Instead, they allege that York caused injury to a separate and distinct property right – the right to receive benefits – which caused additional hardships and losses. In other words, while the Plaintiffs’ RICO claims may have originated from personal injuries in that Plaintiffs suffered personal injuries which led them to file claims for workers’ compensation, the harm alleged here is to the intervening legal entitlement which caused additional financial losses. This is sufficient to raise a RICO claim.”

Miller v. York Risk Services Group, 2013 WL 6442764 (D. Ariz. 2013).