Merchants Insurance Wields RICO Act Against Sprawling NY Construction Fraud Scheme

BUFFALO, NY – January 26, 2026 – Merchants Insurance Group has launched a major legal offensive against what it describes as a sophisticated and extensive fraud operation targeting New York’s construction industry, filing a federal civil action under the Racketeer Influenced and Corrupt Organizations (RICO) Act. The lawsuit aims to dismantle a network accused of orchestrating staged accidents, fabricating injuries, and coercing vulnerable workers into unnecessary surgeries to inflate insurance settlements.

The lawsuit, filed on October 20, 2025, represents a significant escalation in the battle against systemic insurance fraud. While the alleged criminal enterprise primarily operated downstate, Buffalo-based Merchants emphasized the statewide consequences of such schemes.

“Insurance fraud has consequences beyond the immediate parties involved. It doesn’t just affect insurance companies — it hurts everyone who depends on a fair system,” said Charles Makey, President & CEO of Merchants Insurance Group, in a statement accompanying the announcement. “When false claims are used to line the pockets of a few, it drives up costs for employers and takes resources away from genuinely injured workers. We filed this case to help preserve the integrity and affordability of insurance for consumers throughout New York.”

The Anatomy of an Alleged Fraud Ring

The court filing, Merchants Mutual Insurance Co. v. William Schwitzer & Associates, P.C., et al., provides a detailed look into the alleged mechanics of the fraud. The lawsuit, lodged in the U.S. District Court for the Eastern District of New York, names a prominent plaintiff's law firm, dozens of medical providers, and their principals as defendants.

According to the complaint, the scheme has operated since at least 2018, preying on construction workers, many of whom are foreign-born with limited English proficiency. The network allegedly employed “runners” to recruit these workers, offering them thousands of dollars to participate in fabricated or exaggerated injury claims. These workers were then allegedly funneled through a coordinated web of complicit law firms and medical clinics.

The allegations outline a disturbing process where minor incidents were transformed into catastrophic, “full-body” injury claims. The lawsuit accuses specific medical providers of conducting “intentional MRI misreads” to invent or overstate traumatic injuries while omitting evidence of pre-existing degenerative conditions. Workers were allegedly pressured into undergoing medically unnecessary procedures, including invasive spinal surgeries. The complaint further alleges that some doctors involved had gained equity stakes in spinal implant companies, creating a powerful financial incentive to perform surgeries with specific, high-cost devices, regardless of medical necessity.

Litigation funding organizations also played an alleged role, advancing money to claimants and providers at potentially usurious rates. This practice can incentivize drawn-out legal battles and further unnecessary medical care to maximize the final settlement value. In one case cited, a claimant reportedly received only $500,000 from a $3.75 million recovery, with the litigation funder taking nearly $1.8 million and attorneys collecting over $950,000.

A Hidden Tax on New York's Economy

While the lawsuit targets specific actors, its implications shine a light on a problem plaguing the state's entire construction sector. The cost of essential insurance—including workers' compensation, general liability, and excess liability—has skyrocketed in New York. Analysis shows that for a typical $100 million construction project, insurance costs nearly tripled from approximately 4% of the project's value in 2010 to 12.5% by 2024, with projections nearing 14%.

This dramatic increase acts as a hidden tax on development, shifting immense financial risk onto general contractors and, ultimately, increasing costs for businesses and consumers. Industry experts note that fraudulent litigation in New York has reached “unprecedented levels,” with minor injuries frequently inflated to justify average settlements approaching $3 million. The state’s strict liability statutes, particularly Labor Laws 240 and 241, are often cited as legal mechanisms that are exploited within these schemes, making it difficult for contractors and property owners to defend against even dubious claims.

“This case is about accountability and fairness everywhere,” Makey stated. “We owe it to the construction workers who risk their safety every day and to the small businesses that play by the rules to make sure the system works for them — not against them.”

A Nationwide Scourge with a Local Price Tag

The problem extends far beyond New York’s borders. According to the Coalition Against Insurance Fraud, fraudulent claims cost U.S. consumers an estimated $308.6 billion annually across all lines of insurance. This staggering figure translates into a direct financial burden on American families, who pay an estimated $4,000 to $7,000 in higher premiums over a ten-year period to cover these losses. The vast majority of both consumers and insurance carriers agree that fraud is a growing concern that negatively impacts everyone.

Insurers Fight Back with Legal and Tech Arsenals

Merchants' lawsuit is not an isolated event but part of a broader, more aggressive strategy being adopted by the insurance industry. The use of the powerful RICO Act, originally designed to prosecute organized crime, has become an increasingly common weapon for insurers to dismantle entire fraudulent networks rather than fighting suspicious claims one by one.

In recent years, several other major insurers and companies have filed similar RICO suits in New York. Carriers like Roosevelt Road Specialty, ride-sharing giant Uber, and Allstate Insurance have all leveraged the statute to target alleged conspiracies between law firms, medical clinics, and funders involved in staged auto and construction accidents. These lawsuits signal a strategic shift from a defensive posture to an offensive one, aiming to disrupt the financial ecosystem that allows such fraud to flourish.

In addition to its legal action, Merchants is bolstering its internal defenses. The company is investing in advanced data analytics and claims review tools, including AI-powered platforms from CLARA Analytics. This technology is designed to automatically scan and analyze claims documents and medical records, flagging inconsistencies and patterns indicative of fraud far more quickly than human reviewers alone. By combining aggressive litigation with cutting-edge technology, insurers are waging a multi-front war to protect the integrity of the system for honest policyholders and legitimately injured workers.