Construction Law Insights

Slay’s Restoration, LLC v. Wright Nat’l Flood Ins. Co., 884 F.3d 489 (4th Cir. Mar. 9, 2018)

Wright National Flood Insurance Company (“Wright Insurance”) provided flood insurance to City Line Associates, LP (“City Line”). In September of 2014, City Line’s apartment complex was damaged by flooding. City Line hired First Atlantic Restoration, Inc. (“First Atlantic”) to repair the apartment complex and First Atlantic hired Slay’s Restoration, LLC (“Slay’s Restoration”) to perform “drying services.” Slay’s Restoration submitted documentation of its work to First Atlantic and City Line, which City Line used in presenting its 18 claims to Wright Insurance, totaling over $1,200,000.00 in the aggregate. To adjust the claims, Wright Insurance hired Colonial Claims Corporation (“Colonial Claims”), who then hired two consulting firms to evaluate the work done in repairing the apartment complex. These two consulting firms submitted reports that concluded that First Atlantic and Slay’s Restoration had not adhered to the applicable industry standards in repairing the apartment complex. After receiving these reports, Wright Insurance offered to pay City Line $530,000.00 as satisfaction of City Line’s 18 claims. Slay’s Restoration alleged that Wright Insurance, Colonial Claims, and the two consulting firms (the “Defendants”) participated in a “fraudulent scheme” to create “false reports [about the repair work done] to deny policy benefits to insureds and payment to contractors” in violation of the Racketeering Influenced and Corrupt Organizations Act (“RICO”).

Slay’s Restoration failed to state a plausible RICO claim against the Defendants. Under 18 U.S.C. § 1964(c), “Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefore in any appropriate United States district court . . .” This section requires a showing of proximate causation. In evaluating a RICO claim for proximate causation, courts do not focus on whether the harm to the RICO plaintiff was a foreseeable result of the defendant’s conduct or whether it was the intended consequence of that behavior. Rather, courts focus on the directness of the relationship between the conduct and the harm. Slay’s Restoration did not allege facts showing that its injury was a direct result of the Defendants’ conduct. Rather, Slay’s Restoration alleged that the two consulting firms hired by Colonial Claims, who was hired by Wright Insurance, colluded to issue false reports, resulting in Wright Insurance’s reduction in the amount it was willing to pay on City Line’s $1.2 million in claims. In turn, this reduction prevented City Line from fully compensating First Atlantic for its work, which prevented First Atlantic from fully compensating Slay’s Restoration. Because Slay’s Restoration’s claimed injury was not the direct result of the defendants’ fraudulent conduct, it was not proximately caused by that conduct, as required by § 1964(c). Being an intended recipient of insurance funds is foreseeable, but that does not make it a direct injury.

PLDR Law Mark Burgin 1 PLDR Law Scott Kowalski 1 Wolf Tom v2 Stout Kenneth 2016

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