Life Insurer Back on the Hot Seat in RICO Case

In a surprising decision, the Tenth Circuit revived a class action that accused Security Benefit Life Insurance Co. of devising a scheme that tricked consumers into purchasing annuity products that had no value. The majority on the three-judge panel found that the plaintiffs’ allegations concerning Security Benefit’s shady sales and marketing tactics met the heightened Rule 9(b) standard for fraud claims and plausibly stated a RICO claim. Judge Hartz issued a brief dissent accusing the majority of misreading key sale documents and inappropriately acting as a backstop for disappointed investors.

The decision is notable both due to the gravity of the allegations and the jurisdiction it came from. In general, due to the highly regulated nature of the insurance industry, plaintiffs are hard-pressed to state fraud claims in court against insurers. But here, the plaintiffs were able to successfully allege mail and wire fraud predicates for their RICO claim. And moreover, this is not the appellate circuit from which one would expect this reversal; the Tenth Circuit is far from a bastion of consumer rights. As such, this opinion will certainly catch the attention of insurers that sell similar products.