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Georgia Insurer Faces Racketeering Charge After Denying Car Accident Victim’s Claim

Haggling with insurance companies following a car accident is an everyday occurrence for many Georgia motorists. At the end of the day, an insurance policy is a contract, and if the insurer refuses to pay a valid claim, it can be held liable under Georgia law. Specifically, Section 33-4-6 of the Official Code of Georgia Annotated states that an auto insurer that rejects a claim “in bad faith” must pay not only for the policyholder’s losses, but also a penalty equal to greater than $5,000 or 50% of the insured party’s total liability.

Stiegel v. USAA Casualty Insurance Company

Could an insurer face liability beyond that provided under Section 33-4-6? According to a recent ruling by a federal judge in Columbus, the answer may be yes. In this case, an accident victim is alleging not just bad faith, but also potential violations of state racketeering laws.

The plaintiff was actually the victim of two separate car accidents that occurred within a month of one another. The plaintiff sustained serious injuries in these accidents that required spinal surgery. She was also a named insured under her husband’s policy, which was issued by the defendant.

The plaintiff said the defendant refused to cover her medical expenses, in clear violation of the terms of her husband’s policy. She initially sued the defendant under Section 33-4-6 alleging “bad faith.” During pretrial discovery, the plaintiff and her personal injury attorney learned that the defendant was working in conjunction with a third party “auditor.” This auditor used a computer program to review and “systematically” deny claims.

The plaintiff then amended her lawsuit to claim that this review process was a “sham designed to designed to deny legitimate claims and conceal USAA’s intention to not pay such claims in the first place.” The plaintiff added the auditing firm as a defendant to her lawsuit. She also pleaded additional violation of the Georgia RICO Act.

RICO laws target “racketeering activity,” which refer to a wide range of criminal conspiracies or schemes. Although RICO enforcement is most commonly associated with mob or gang activity, it may also include white collar offenses like insurance fraud. In this case, the plaintiff (and her husband) said the insurance company and its auditor conspired to commit fraud–i.e., taking their premiums without intending to provide coverage.

The defendants moved to dismiss the RICO allegations, arguing that the “bad faith” provisions of Section 33-4-6 provided the only remedy for the plaintiff’s claims. The trial judge disagreed. He noted that Section 33-4-6 only apply to claims arising from the “breach of the insurance contract.” Here, the plaintiffs alleged that their premiums were “stolen” from them as the result of a conspiracy between the insurance company and the auditor, and the latter is not covered by the bad faith law.

Note the judge did not rule on the merits of the plaintiff’s RICO claims. That will be disposed of in the future, either during summary judgment or following a jury trial. This is apparently the first case in Georgia where a court has expressly held that Section 33-4-6 “does not preclude the assertion of fraud and RICO claims simply because an insured may also have a bad-faith breach of contract claim.”