J.C. Hallman
Dec. 18, 2025, 10:58 a.m. CT
On Dec. 4, Attorney General Gentner Drummond filed a petition accusing State Farm of violating ORICO, Oklahoma’s version of the Racketeer Influenced and Corrupt Organizations Act (1970), the so-called RICO laws that were passed to dismantle La Cosa Nostra, the Italian mafia.
State Farm has been accused of racketeering before; the first time reads like something from The Godfather saga.
The story begins in 1997, when State Farm was caught violating its own auto insurance policies by substituting aftermarket parts for bodywork. A 48-state class action lawsuit filed in Illinois resulted in a jury award of $1.1 billion. State Farm appealed.
In 2004, a circuit court judge from a small, rural county southeast of St. Louis, Lloyd Karmeier, mounted a long-shot campaign to win a seat on the Illinois Supreme Court. The race became the most expensive judicial election in history, with $9.3 million raised between the two candidates. Karmeier prevailed and quickly provided the deciding vote in a decision that overturned the billion-dollar settlement against State Farm.
In 2009, a U.S. Supreme Court case in West Virginia triggered a new investigation in Illinois — a retired FBI agent and a private investigator teamed up to prove that Karmeier had received as much as $4 million in campaign donations from State Farm.
In 2012, State Farm was accused of violating RICO laws over the judge scandal, with billions of dollars in damages being sought.
In 2018, just before the case went to trial, State Farm settled for $250 million, saving the company from billions in potential losses and skirting a trial that could have permanently branded it a criminal enterprise.
Now, what happened in Illinois may be repeating in Oklahoma.
Drummond’s petition is an attempt to intervene in the most public-facing of as many as 200 cases that have been brought against State Farm in Oklahoma, alleging a practice of pre-denying claims of hail and wind damage to the roofs of policyholders.
“The Attorney General identifies the harm to numerous Oklahoma policyholders as proof of the ‘pattern of racketeering activity’ required by ORICO,” the petition reads. “Their experiences demonstrate the scope and magnitude of State Farm’s enterprise-wide scheme.”
If District Court Judge Amy Palumbo grants the motion to intervene, Drummond will be able to exert substantial subpoena powers to prove the existence of the alleged scheme.
Insurance industry’s tumultuous legal history
Accusations of resembling a criminal enterprise have dogged the insurance industry from the moment of its modern incarnation.
Ever since the passage of the McCarran-Ferguson Act (1945), which provided the insurance industry with qualified immunity from enforcement of the Sherman Antitrust Act (1890), scholars have argued that insurance companies engage in what amounts to state-sanctioned price-fixing and are therefore susceptible to cartel-like behavior. That is, insurance companies may cooperate in the same way that OPEC in the oil industry collaborates to fix oil prices outside of competitive markets or the way drug cartels divide territory for the production and distribution of illegal drugs.
Editorials in Business Week and the New York Times have suggested that the insurance industry is a cartel ripe for busting.
Reflecting on his own experiences as a patient and psychologist, Former Yale professor Jonathan Kellerman called on his second act career as a bestselling crime novelist to characterize the insurance industry as a de facto crime syndicate.
“The health insurance model is closest to the parasitic relationship imposed by the Mafia and the like,” Kellerman said. “Insurance companies provide nothing other than an ambiguous, shifty notion of ‘protection.’”
Jay M. Feinman, Distinguished Professor of Law at Rutgers University and author of a book on why insurance companies don’t pay out on claims, did not go so far as to liken the insurance industry to organized crime but listed a triumvirate of shady legal tactics that are difficult to square with an industry devoted to ethics and good practices.
Insurance companies, Feinman argued, prolong the claims process to exploit the financial desperation of policyholders. They reject valid claims based on technicalities and ambiguous language. And they force policyholders into prolonged litigation that they cannot afford to sustain.
RICO flows both ways
Opinions have differed on whether RICO laws are enforceable against the insurance industry. In 1998, however, a ruling in the Supreme Court case Humana Inc. v. Forsyth held that McCarran-Ferguson did not protect insurance companies from RICO laws if federal law did not interfere with state regulation.
That paved the way for cases in which RICO was found to assist rather than impair state regulation.
Twenty-five years ago, a consortium of 700,000 physicians banded together to charge more than two dozen HMOs under RICO laws. Some of the HMOs fought back, and the charge of racketeering did not hold up in court. Others, like State Farm in the case in Illinois, opted for multiple settlements totaling $1.7 billion, likely to avoid branding as a criminal enterprise.
More recently, RICO charges have flowed both ways. In 2020, another physicians’ group filed a lawsuit against UnitedHealthcare,charging RICO violations. In August, UnitedHealthcare called on RICO laws to sue a group of radiologists. Since 2003, Allstate has used RICO laws to seek $237 million in damages in 48 separate lawsuits against individuals and “organized rings” for alleged fraud.
In Oklahoma, the application of RICO laws has been uneven. In 2001, two individuals charged with stealing cows were convicted under RICO laws only to have their conviction overturned by the Oklahoma Court of Criminal Appeals, which judged the case not serious enough to merit the application of RICO.
The numerous crimes prosecutable under RICO in Oklahoma are detailed in Section 1402 of Title 22. Crimes that may be part of racketeering activity include homicide, sex offenses, arson, kidnapping, bribery, Medicare and workers comp fraud, and insurance fraud as defined in Title 36.
The McKinsey report
In 2007, in the wake of Hurricane Katrina, which cost insurance companies at least $11 billion, a confidential report from McKinsey and Co., a management consulting firm, proposed a plan in which insurers would lowball potential payments when claims were filed and fight back vigorously if policyholders refused to acquiesce. Exposed in Bloomberg Markets, the nature of the McKinsey report tracks perfectly with the alleged scheme that State Farm has been accused of perpetrating in Oklahoma and beyond.
The McKinsey report is the equivalent of the internal documents now being sought by the attorney general in order to prove that State Farm is guilty of racketeering.
Whether the documents will become public — or whether State Farm will once again settle before trial — remains to be seen.
State Farm must respond to Drummond’s petition by Dec. 22.
Oklahoma Watch, at oklahomawatch.org, is a nonprofit, nonpartisan news organization that covers public-policy issues facing the state.