Alternative Legal Theories Asserted Against Insurers Current Cases and Issues

1. Alternative Legal Theories Asserted Against InsurersCurrent Cases and Issues Luanne Sacks George Gigounas May 17, 2006 Andrew Saxon

2. Choice of lawCan present difficult issues for plaintiffs Predominance of common questions Manageability of litigation and trial “Outcome determinative” differences in laws unnecessary Class actions State claims can limit or prevent nationwide classes Constitutionality based on aggregate contacts Extraterritorial application based on intent of state statute Varying state antitrust laws Could create different outcomes Does the state law mirror the Sherman Act? Does the state law have McCarran-like exemption? Common Issues With “Alternative” Claims

3. Is a State’s antitrust law available to plaintiff? Some state laws have McCarran-like exemptions Other state laws have other procedural hurdles Both issues raised by In re Insurance Brokerage Antitrust Litigation motions to dismiss Is the scope different from a federal claim? In general, states’ laws can differ from federal law—California v. ARC America Corp., 490 U.S. 93 (1989) Some states explicitly adhere to federal laws Various other idiosyncrasies of state antitrust law State Antitrust Claims

4. RICO • A prominent “alternative” federal claim • Many cases MDLed into IrIBAL included RICO claims • New case, New Cingular Wireless Headquarters includes RICO • Broad applicability, but McCarran preemption possible • Would RICO “invalidate, impair or supersede” state insurance law? • No RICO where no private right of action under state law. In re Managed Care, 185 F.Supp.2d 1310 (S.D.Fla. 2002) • No RICO where procedural and substantive restrictions in state law conflict with RICO. Braunstein v. General Life Ins. Co., 2002 WL 31777635, *4 (S.D.Fla. 2002) • FUITPA had pre-suit notice provisions • FUITPA had ban on class actions

5. RICO • RICO’s many statutory elements must be established • This can be difficult for plaintiff and is often basis for challenge • IrIBAL motions to dismiss have challenged multiple aspects of plaintiff’s RICO allegations • In re Managed Care motions to dismiss (unsuccessfully) challenged plaintiff’s RICO allegations • “Enterprise”—plaintiffs alleged links between defendants “beyond ordinary contractual bonds” • hiring of senior-level employees • use of similar patient care guidelines and computer software package • trade associations that unify the industry voice • “Operation and Management” of enterprise—developing guidelines and standards as criteria to deny claims “furnished a vehicle for the commission of continuing predicate crimes with the Defendants squarely in the driver’s seat” • Developing automated systems for manipulated claims • Creating common entry point for physician data • CEO approval for coalition actions

6. State Common Law Claims • Breach of Fiduciary Duty • Fundamental role in broker cases (e.g., contingent commissions) • State-by-state variations are a challenge to multi-state classes • Motions to dismiss in IrIBAL have raised the issue • Plaintiffs in IrIBAL have tried to allege “special circumstances” creating a fiduciary duty in every state, e.g., • Broker possesses confidential information • Broker held self out as an unbiased expert • Broker induced client’s trust in objective advice • Allegations in New Cingular Wireless Headquarters are geared towards showing “special circumstances” as well • Applicability to insurers? Claim for “aiding and abetting” breach • Challenged in IrIBAL motions to dismiss • New Cingular Wireless Headquarters complaint ties this claim to bid-rigging allegations against insurers

7. State Common Law Claims (cont’) • Unjust Enrichment • May be inappropriate where enforceable contract exists • Adequate remedy at law also may preclude • Fraudulent / Negligent Misrepresentations • Arose in earlier contingent commission cases • New Cingular Wireless Headquarters includes fraud claim • Economic Loss Doctrine may provide defense in antitrust cases • Breach of Contract • Dependent on fact pattern, contractual relationship

8. State Common Law Claims (cont’) • Interference claims With contract or prospective advantage • Can supplement antitrust claims in, e.g., boycott cases • But losses must be sufficiently definite and identifiable • Claims failed on this basis in Medical Savings Insurance Company v. HCA, Inc., 2005 WL 1528666 (M.D.Fla. June 24, 2005) • Boycott case—medical providers refused and bad-mouthed cut-rate insurer • On motion to dismiss, no “antitrust injury” • Also, under Florida law, interference claims failed at pleading stage • Plaintiff couldn’t allege inducement to breach contract, since insureds’ non-renewal is not breach • Plaintiff couldn’t identify prospective insureds with “actual and identifiable understanding or agreement which in all probability would have been completed if the defendant had not interfered.”

9. Consumer Protection & Unfair Competition Laws • Probably no antitrust injury needed • Conduct is “unfair” under California’s UCL only if it “threatens an incipient violation of an antitrust law, or violates the public policy or spirit of one of those laws because its effects are comparable or the same as a violation of that law, or otherwise significantly threatens or harms competition.” Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163 (1999) • This principle may not hold true where conduct violates antitrust and unfair competition laws for the same reason. See Chavez v. Whirlpool Corp., 93 Cal.App.4th 963 (2002) • Does the state’s law cover the plaintiff? • Sufficient aggregate contacts for constitutionality? Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) • Intention of state statute re extraterritorial application?

10. Consumer protection claims limited against insurers Does insurance purchase qualify for consumer protection? States have differed in answering this question Does the insured activity qualify for consumer protection? In re Managed Care: “provision of medical services” is not “sale” of “merchandise” under New Jersey law Are the plaintiffs considered “consumers”? In re Managed Care: physician/provider plaintiffs were not “consumers” Associational plaintiffs may have standing problems California’s Proposition 64 Other states may have similar principles Plaintiffs face other issues in UCL insurance cases Consumer Protection & Unfair Competition Statutes (cont’)