The U.S. Supreme Court’s recent ruling allowing a former truck driver to pursue a civil Racketeer Influenced and Corrupt Organizations Act claim against a supplement maker whose product caused him to fail a drug screening and lose his job could fuel a driven plaintiffs bar to craft similarly styled lawsuits, experts say.
Plaintiffs attorneys could use the decision in Medical Marijuana v. Horn to craft RICO allegations to fit within a company’s general liability or directors and officers liability insurance coverage and at least trigger their insurers’ defense obligations.
The 5-4 ruling allowed Douglas Horn to proceed with his lawsuit against the Vista, California-based company and pursue treble damages for business or property damage even though it stemmed from a personal injury. While RICO does not permit recovery for personal injuries, the majority found that Mr. Horn’s loss of employment could be considered business damage.
The dissenting justices – Chief Justice John Roberts and Justices Samuel Alito, Brett Kavanaugh and Clarence Thomas – expressed concerns that the April 2 ruling could turn routine personal injury lawsuits into RICO cases. Still, the majority said that the statute’s causation standards could act as a deterrent or be remedied by an act of Congress and that the decision “was not a ticket to federal court for treble damages.”
Aggressive plaintiffs lawyers could still attempt to convert run-of-the-mill bodily injury claims into RICO claims, but they would have to overcome significant obstacles, such as adequately pleading a conspiracy claim and a violation of federal law for the case to proceed, said Joseph Saka, a Washington-based insurance recovery partner at Nossaman LLP.
“The question for the plaintiffs bar is whether it will be worth the upside because the lawsuits will face immediate and expensive motion practice. It would be difficult to get past the pleading stage in a federal court,” he said.
Another challenge for plaintiffs lawyers would be adequately pleading allegations that fit within a company’s general liability or directors and officers liability coverage, said Donald Patrick Eckler, a Chicago-based insurance coverage partner at Freeman Mathis & Gary LLP.
“It may not increase indemnity payments, but I’m sure there are very clever plaintiffs attorneys who will find a way to plead into coverage,” he said.
Mr. Horn used a supplement called “Dixie X,” which contained cannabidiol, commonly referred to as CBD, to treat chronic pain that was not relieved by physical therapy or conventional medication following a 2012 accident. The product’s label said it was legal to consume in the U.S. and abroad and contained 0% of CBD’s psychoactive cousin, tetrahydrocannabinol, known as THC, court records show.
He was later selected for a random drug test by his employer and fired after the screening detected THC in his system. He then purchased a second bottle of Dixie X and shipped it to a third-party laboratory for testing, which found the product contained the psychoactive chemical.
Mr. Horn sued Medical Marijuana in federal court in Buffalo, New York, in August 2015. The trial judge awarded summary judgment to the company on the RICO claim in January 2022, ruling his loss of employment resulted from a personal injury. Mr. Horn appealed, and the 2nd U.S. Circuit Court of Appeals reversed the decision in August 2023. Medical Marijuana then sought review from the U.S. Supreme Court.
The ruling’s abrogation of the “antecedent personal injury bar,” which allows Mr. Horn to advance his business damages claim from an alleged personal injury, shortens the causal chain, potentially making it less challenging for a policyholder to argue that a civil RICO suit constitutes an occurrence under a commercial general liability policy, said Lee S. Siegel, a Hartford, Connecticut-based partner at Hurwitz Fine P.C.
Depending on its language, a civil RICO lawsuit could also trigger an insurer’s defense obligations under a D&O policy because the policy covers alleged wrongful acts, he said.
Although insurers’ defense obligations under CGL and D&O policies could be triggered by an artfully pleaded civil RICO lawsuit, experts say insurers could argue that exclusions relieve them from the duty to indemnify.
“Whether it ultimately is covered or not, it still raises the cost for the insurance company to handle the claim,” Mr. Eckler said.
