Wednesday, May 11, 2011

Carrier RICO Against Employer/Employee New Twist

Usually we hear about insurance companies being sued by either the injured worker, or the employer. WorkCompCentral News this morning though threw an interesting twist to the usual formula with a story about a work comp carrier suing the employer and injured worker under RICO (the Racketeering Influence and Corrupt Organizations Act) alleging a conspiracy to defraud the carrier.

In the unpublished opinion of Virginia Surety Co. v. Macedo, The carrier contends that Macedos Construction Co. of New Jersey, its management and an injured worker conspired to defraud the insurer out of $284,699 in workers' compensation benefits, along with $31,892 in defense costs toward other litigation. By alleging violations of the RICO act, the carrier is able to seek treble damages, which allow a court to triple the amount of compensatory damages. Furthermore, its unjust enrichment allegations allow it to seek interest on the money expended.

The really interesting twist is that Virginia Surety is arguing that the business owners, the Macedo family, attempted to convince an injured worker who was not actually the company's employee to accept workers' compensation benefits obtained through fraud in exchange for dropping his negligence suit against them.

The suit arose when Carlos Peixoto, a Macedos Construction foreman, bought undeveloped residential property with his wife and sought to develop it. Virginia Surety noted that Peixoto was listed as the "contractor" at the home construction project, not Macedo Construction.

The suit alleges Peixoto asked two Macedos employees if they knew of any carpenters to help him build the home. They recommended Manuel Covas and his co-worker, Jose Moreira. In October 2005, Moreira was seriously injured when he fell 25 feet to the ground after scaffolding collapsed. Moreira was hospitalized and has been unable to work since the accident.

Sandra Macedo-Bilynsky, a co-manager at Macedos Construction and Peixoto's sister-in-law, filed workers' compensation and comprehensive general liability policy claims with Virginia Surety, stating that Moreira was a covered employee for the job. Virginia paid him the $284,699 in benefits, and also spent another $31,892 defending Macedos Construction from a negligence suit Moreira filed against the business.

Virginia Surety began to suspect fraud when it noticed that Moreira's negligence suit included a certification stating that he had never worked for Macedos Construction. This led the insurer to file RICO claims, along with a number of wire and mail fraud claims based on New Jersey statutes. It also sought a declaratory judgment voiding and rescinding coverage for the Moreira claims.

Usually the employer argues that the injured worker is NOT an employee or did NOT get hurt at work! Business complains that work comp doesn't work, but when the exclusive remedy provision of the grand bargain weigh in favor of the employer, all of a sudden work comp is desirable.

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