Ms. Ludwick contended that, if F&G had properly accounted for these transactions under the principles promulgated by the National Association of Insurance Commissioners, as F&G had claimed it was doing in its annual statements, F&G would have had to report that its “surplus” was in fact negative – in other words, that its liabilities exceeded its assets. Instead, Ms. Ludwick said, F&G reported billion-dollar surpluses in each of 2011, 2012, and 2013. Based, in part, on F&G's apparent financial good health, Ms. Ludwick said, she bought an annuity in 2013.

Ms. Ludwick eventually became convinced that F&G was not in as good shape as it seemed, and thus her annuity was not worth what she had paid for it. She sued under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), alleging that F&G – under Harbinger's control and facilitated by the subsidiaries (collectively, “F&G”) – had committed numerous acts of mail and wire fraud in the course of a book-cooking scheme, most straightforwardly by distributing paper and electronic copies of its deceptive reports and marketing materials.

The U.S. District Court for the Western District of Missouri granted F&G's motion to dismiss for failure to state a claim on which relief could be granted, relying on the McCarran-Ferguson Act and not reaching the merits of Ludwick's RICO claims.

Ms. Ludwick appealed to the Eighth Circuit.

The McCarran-Ferguson Act

The McCarran-Ferguson Act provides:

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance … unless such Act specifically relates to the business of insurance.

15 U.S.C. § 1012(b).

The Eighth Circuit's Decision

The Eighth Circuit affirmed, ruling that Ms. Ludwick's RICO charges would “impair” state insurance regulation and, therefore, could not survive F&G's McCarran-Ferguson challenge.

In its decision, the circuit court explained that Ms. Ludwick's claims involved questions about F&G's assets and its solvency, which were “squarely within the regulatory oversight by state insurance departments.”

A federal court could not rule in Ms. Ludwick's favor without holding, more or less explicitly, that state insurance regulators were wrong to let the transactions proceed, because the negative surplus Ms. Ludwick alleged “would be patently unreasonable and inadequate,” according to the circuit court.

It concluded that litigating Ms. Ludwick's RICO claims “would interfere with state regulation of the insurance business,” and, as a result, the claims were barred by the McCarran-Ferguson Act.

The case is Ludwick v. Harbinger Group, Inc., No. 16-1561 (8th Cir. April 13, 2017). Attorneys involved include: Counsel who presented argument on behalf of the appellant was Kevin Kamuf Green, of San Diego, CA. The following attorney(s) appeared on the appellant brief; Steve Berman, of Seattle, WA., Andrew S. Friedman, of Phoenix, AZ., Diane A. Nygaard, of Kansas City, MO., Charles J. Crueger, of Milwaukee, WI., Erin K. Dickinson, of Whitefish Bay, WI., Francis Joseph Balint, Jr., of Phoenix, AZ., Sean Matt, of Seattle, WA. Counsel who presented argument on behalf of the appellee was Maeve Louise O'Connor, of New York, NY. The following attorney(s) appeared on the appellee brief; Scott Gregory Knudson, of Minneapolis, MN., Frank A. Taylor, of Minneapolis, MN., Julie H. Firestone, of Minneapolis, MN., Jarrod L. Schaeffer, of New York, NY., Maeve Louise O'Connor, of New York, NY., Julie Keersmaekers, of New York, NY., Mark Spatz, of New York, NY., Stephen Gale Dick, of New York, NY.