US Market Fraud: Enforcement of RICO Laws and Related Legal Measures
In the bustling insurance landscape of New York, a significant shift has taken place in recent years. The aggressive use of the Racketeer Influenced and Corrupt Organizations (RICO) Act by insurers has sent a deterrent message to fraud rings and emboldened other insurers nationwide to consider RICO as a strategy to combat organized fraud.
The epicentre of this change can be seen in the construction and personal injury sectors, where a series of federal RICO lawsuits have been initiated since 2024 by Roosevelt Road Re, Ltd. and Tradesman Program Managers, LLC. These lawsuits target a variety of players, from personal injury law firms and medical providers to clinics, all accused of orchestrating elaborate schemes to defraud insurers.
These schemes often involve coordinated operations, with lawyers, doctors, chiropractors, and "runners" recruiting vulnerable construction workers—many undocumented—to file fraudulent workers' compensation and personal injury claims based on staged or exaggerated injuries. Inflated or unnecessary medical procedures, including surgeries, are used to maximize claim values.
The ongoing fraud is said to have started around 2018 with a "marked escalation" since 2020, indicating a long-term and deep-rooted problem that RICO suits are now directly addressing. Although one RICO complaint faced dismissal on procedural grounds, the court allowed amendments, which the plaintiffs are using to recalibrate and strengthen their cases.
This deliberate and evolving legal strategy has reportedly led to about a 40% reduction in reported questionable claims in the construction insurance space in New York, signaling a deterrent effect and improved fraud control. Moreover, trade entities like Tradesman are collaborating with federal prosecutors by providing data to potentially pursue criminal charges alongside civil RICO actions.
As the insurance industry continues to leverage RICO to combat organized fraud, it's crucial to combine legal innovation, proactive fraud prevention, data-driven strategies, and thoughtful engagement with policymakers. The industry should also advocate for greater transparency in litigation funding and reforms to prevent abuse of the no-fault system.
Leveraging AI and predictive modeling can help detect fraud patterns earlier in insurance claims. However, insurers must tread carefully due to the growing involvement of litigation funders and the inherent complexity of RICO litigation.
Pragatee Dhakal, the Director of Claims Solutions at CLARA Analytics, a leading provider of AI technology for insurance claims optimization, emphasizes the importance of this strategic approach. Dhakal started her career as an insurance defense attorney and has served as AVP of Complex Claims. She notes that New York has become a focal point for RICO litigation by insurance companies targeting fraudulent medical billing and staged accident rings.
Insurers must also focus on enhanced provider oversight through credentialing, monitoring, and auditing to minimize exposure to fraudulent medical networks. Proactive partnerships with law enforcement and regulatory agencies can lead to joint investigations and more coordinated enforcement actions.
Sedgwick, a leading global provider of technology-enabled risk, benefits, and integrated business solutions, saved clients £1.23m in potential fraud claims in 2022 through their dynamic international claims fraud strategy. As the war on insurance fraud continues, these strategic efforts are expected to continue evolving, ensuring the integrity of insurance markets and protecting policyholders from the financial impact of fraudulent claims.
- In light of the successful use of the RICO Act for fraud detection in the insurance industry, particularly in the construction and personal injury sectors, it's essential for businesses to innovate and adopt proactive fraud prevention strategies that leverage AI and predictive modeling.
- The ongoing legal battles against organized fraud in New York's finance sector have significantly reduced questionable claims by about 40%, indicating a need for industry-wide collaboration, data-driven strategies, and thoughtful engagement with policymakers to maintain the integrity of insurance markets and protect policyholders.
