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MOORE v. FIDELITY FIN. SERVS.

May 5, 1995

JULIUS V. MOORE, JR., Plaintiff,
v.
FIDELITY FINANCIAL SERVICES, INC., Defendant.



The opinion of the court was delivered by: ROBERT W. GETTLEMAN

 In this putative class action, plaintiff alleges a number of claims arising from defendant's financing of retail motor vehicle purchases. In connection with such financing, defendant's Standard Security Agreement (the "Agreement") requires the borrower to obtain insurance for defendant's benefit against "loss by fire, theft, and collision." If the borrower fails to do so, the Agreement allows defendant to obtain and "advance the premium on required additional insurance," adding the premium to the borrower's indebtedness. Plaintiff refers to such insurance as "force placed insurance."

 Practices relating to force placed insurance have spawned a great deal of litigation in recent years. *fn1" In the instant case, plaintiff alleges that a number of defendant's practices violate various statutes and legal doctrines: (1) charging borrowers the entire premium without crediting the borrower with premiums that the insurer refunds to defendant; (2) procuring and passing on charges to borrowers for insurance coverage that include more than that required by the Agreement; (3) subrogating certain of defendant's rights to the insurer; (4) procuring insurance that covers the entire balance owed under the contracts, including both the principal and finance charges, even though the amount payable under the policy cannot exceed the outstanding principal alone; (5) purchasing single interest "force placed" insurance only to benefit the creditor; *fn2" (6) issuing "force placed" insurance policies that are retroactive; (7) procuring "force placed" insurance that does not apply a deductible to losses and thus is substantially more expensive than a standard policy with a deductible; and (8) misrepresenting borrowers' redemption rights.

 In an earlier decision involving the original complaint in this case, this court denied defendant's motion to dismiss and for a more definite statement. ( Moore v. Fidelity Financial Services, Inc. 869 F. Supp. 557 (N.D. Ill).) Thereafter, plaintiff filed an amended complaint that added a count (Count I) under the Racketeer Influenced Corrupt Organizations Act, 18 U.S.C. §§ 1341 and 1961, et seq. ("RICO"). In addition, plaintiff alleges violations of the Truth-in-Lending Act, 15 U.S.C. §§ 1601, et seq. (Count II), the Illinois Consumer Fraud Act, 18 ILCS 505/2 (Count IV), the Uniform Commercial Code (Count V), as well as a claim for breach of contract (Count III).

 FACTS3

 Defendant finances the purchase of vehicles from automobile dealers. The dealers must use defendant's prescribed printed installment sales contracts in order for defendant to consider purchasing the loans. Plaintiff bought an automobile from Mid City Nissan, which referred him to defendant to obtain financing. As part of the financing process, plaintiff signed defendant's standard Agreement. *fn4"

 Plaintiff did not obtain the required insurance under the Agreement, and on January 5, 1993, defendant issued "force placed" insurance through American Bankers Insurance Company ("American Bankers") on plaintiff's vehicle. The actual insurance policy term ran from October 19, 1992, through October 19, 1993, and listed defendant as the only insured party. Defendant's "force placed" insurance policy insured defendant against losses to plaintiff's automobile caused by many risks, including fire, lightening, transportation, hail, earthquake, windstorm, explosion and others.

 DISCUSSION

 A complaint should not be dismissed pursuant to Rule 12(b)(6) unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hartford Fire Insurance Co., et al. v. California et al., 125 L. Ed. 2d 612, 113 S. Ct. 2891, 2917 (1993); Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99(1957). In reviewing a motion to dismiss, the court tests the sufficiency of the complaint, not the merits of the suit. Triad Associates, Inc. v. Chicago Housing Authority, 892 F.2d 583, 586 (7th Cir. 1989), cert. denied, 498 U.S. 845, 111 S. Ct. 129, 112 L. Ed. 2d 97 (1990). The court must presume that all well-pleaded facts are true, and resolve all ambiguities and draw all reasonable inferences in favor of the plaintiff. Dawson v. General Motors Corp., 977 F.2d 369, 372 (7th Cir. 1992).

 Defendant moves to dismiss Count I of the amended complaint on the ground that the McCarran-Ferguson Act (the "Act"), 50 U.S.C. § 1012(b), *fn5" bars the applicability of RICO to defendant's alleged collateral protection insurance practices. Congress enacted the Act to "assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation." SEC v. National Securities, Inc., 393 U.S. 453, 459, 89 S. Ct. 564, 568, 21 L. Ed. 2d 668 (1969).

 To determine whether plaintiff's RICO claim is precluded under the Act the court must apply a four-part test: (1) does the federal law in question specifically relate to the business of insurance; (2) does the challenged conduct constitute the business of insurance; (3) has the state enacted laws for the purpose of regulating the challenged conduct; and (4) will the application of the federal statute invalidate, impair, or supersede the state legislation regulating the challenged conduct. Cochran v. Paco, Inc., 606 F.2d 460, 464 (5th Cir. 1979). There is no dispute about the first and third questions. For the reasons discussed below, the court concludes that the conduct at issue does not constitute the "business of insurance," and even if it did, RICO does not impair, invalidate or supersede state legislation regulating the conduct.

 A. The "Business of Insurance" Issue

 In SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S. Ct. 564, 568-569, 21 L. Ed. 2d 668 (1969), the Supreme Court addressed the meaning ...


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