premium and does not pass on the refund to the borrowers.
As in Bermudez, all three Royal Drug factors are missing. First, the practice of purchasing unauthorized insurance and charging it to plaintiff does not involve the transfer or spreading of the defendant's risk because that transfer was completed once defendant purchased the insurance from the insurer. Second, charging plaintiff for the extra coverage is not an integral part of the policy relationship between the insured and the insurance company because plaintiff is not the insured. The "policy" relationship is between defendant (the policyholder) and the insurer. In contrast, the challenged conduct is an integral part of the contract between plaintiff and the insured, not the insurer. Third, the practices complained of are not limited to "force Placed" insurance, or indeed to any kind of insurance. Plaintiff's claim could just as easily have been based upon allegations of unauthorized procurement of other services or products that increased the amount financed by defendant (e.g., undercoating, license and title fees, etc.); or upon "kickbacks" that were improperly withheld from the customer. As plaintiff pointed out in its brief, the relationship between defendant and the insurer, American Bankers, might be perfectly legitimate.
Defendant argues that this court should not follow its colleague's reasoning in Bermudez, but rather should follow two other district courts' decisions, Gordon v. Ford Motor Credit Company, 868 F. Supp. 1191 (N.D. Cal. 1992), and Senich v. TransAmerica Premier Insurance Co., 766 F. Supp. 339 (W.D. Pa. 1990), both of which barred RICO claims involving "force placed" insurance on the basis of the Act. After carefully reviewing all three cases, this court concludes that the facts of Gordon and Senich are distinguishable from the facts of the instant case. For example, in Gordon the plaintiff alleged that the defendant itself, not the insurer, set the insurance rates. This led the court to conclude that the fixing of rates is "certainly" a part of the business of insurance. Gordon, 868 F. Supp. at 1195. In Senich, the defendant was the insurance company, not the finance company. The court there held that state insurance law comprehensively regulated the insurance companies' practices complained of, and therefore the plaintiff's attempt to pursue a RICO claim would "invalidate, impair or supersede" the state insurance law as forbidden by the Act. The facts of Bermudez are far more similar to the instant case than those of Gordon and Senich, and this court chooses to follow the well reasoned rationale of Judge Castillo in Bermudez. To the extent that rationale differs with Gordon and Senich, this court respectfully disagrees with those decisions.
The "business of insurance" involves the relationship between the insurance company and the policyholder. National Securities, 393 U.S. at 460. That relationship is not at issue here. The conclusion is inescapable that the conduct complained of in Count I does not constitute the "business of insurance," but instead constitutes alleged unlawful practices of the finance company in passing along unauthorized charges to or otherwise overcharging its borrowers. For this reason alone, defendant's motion to dismiss Count I on the basis of the McCarran-Ferguson Act should be denied.
B. Whether RICO Invalidates, Impairs or Supersedes State Insurance Law
Even if the court were to find that the conduct complained of constituted the "business of insurance," it would not be barred by the Act unless it were found to "invalidate, impair or supersede" any law enacted by Illinois for the purpose of regulating the business of insurance. 15 U.S.C. § 1012. Defendant has failed to demonstrate that this prong of the test can be satisfied. Indeed, to do so one would have to argue that Illinois insurance law somehow condoned or allowed merchants to charge premiums for unauthorized or otherwise improper insurance coverage.
The most that can be said about the relationship between RICO and Illinois insurance law is that under certain circumstances a party that violates Illinois insurance law by charging unlawful premiums might also violate RICO and have to pay treble damages under the federal statute. Such overlap between state and federal law does not violate the McCarran-Ferguson Act. In NAACP v. American Family Mut. Ins. Co., 978 F.2d 287 (7th Cir. 1982), the Seventh Circuit upheld this principle in rejecting a McCarran-Ferguson challenge to the application of the Federal Housing Act which, like the state insurance law there in question, prohibited "redlining." The court noted that "duplication is not conflict" that would be barred by McCarran-Ferguson, and that, "state and federal rules that are substantively identical but differ in penalty do not conflict with or displace each other." 978 F.2d at 295, 297.
Defendant argues that the court may have to interpret the Illinois Insurance Code regarding defendant's right to receive reasonable commissions (215 ILCS 5/141
), and its right to receive "abatements" or "bonus" payments (215 ILCS 5/151
). Even if defendant were correct, it has nevertheless failed to demonstrate how application of RICO would "conflict" with these statutes. No party in the instant case has suggested that Illinois law permits a finance company to charge its borrowers premiums for unauthorized insurance or improperly keep rebates for itself, and the court can find no such authority. Therefore, RICO, if it covers the practices complained of, could not be found to "invalidate, impair, or supersede the state legislation regulating the challenged conduct."
Accordingly, defendant's motion to dismiss is denied because the application of RICO to the Amended Complaint is not barred by the McCarran-Ferguson Act.
ADDITIONAL ISSUES TO BE ADDRESSED BY THE PARTIES
Having determined that defendant's motion, as filed, should be denied because the McCarran-Ferguson Act does not bar Count I of the amended complaint, the court directs the parties to file briefs on the additional issue of whether Count I sufficiently alleges a cause of action under RICO (an important issue not addressed by the parties in connection with defendant's motion). The parties are specifically instructed to address the issues raised in Richmond v. Nationwide Cassel, LP, 52 F.3d 640, 1995 U.S. App. LEXIS 8118, 1995 WL 187083 (7th Cir. 1995). Defendant is ordered to file a memorandum on the sufficiency of Count I of the amended complaint on or before May 19, 1995; plaintiff shall file a response on or before June 2, 1995; and defendant is given leave to file a reply on or before June 16, 1995. The previously set status date of May 8, 1995, is vacated, and the case is set for a status report on July 20, 1995, at 9:15 a.m.
ENTER: May 5, 1995
Robert W. Gettleman
United States District Judge