The whistleblower suit filed in 2006 against State Farm Fire and Casualty Insurance Co. over wind and flood damage linked to Hurricane Katrina is a long way from being over.
The 5th U.S. District Court of Appeals in New Orleans on July 13 reversed the U.S. District Court in Gulfport ruling denying the plaintiffs to broaden discovery beyond the one home at issue in the case.
And so the litigation stands to go “stormwide” in six coastal counties, said plaintiffs attorney William “Bill” Copley III with the Weisbrod Matteis and Copley law firm in Washington, D.C.
The suit sought to prove that the insurer schemed to defraud the federal government by pushing adjusters to find that the destruction of a Biloxi home from the hurricane was due to flooding and not wind. As a result, the claim was paid out of the government-funded National Flood Insurance Program.
“This is a huge decision for the federal government,” Copley said. And he said that the open door to discovery may well expose “systematic malfeasance” by State Farm.
State Farm spokesman Justin Tomczak said in an email: “We are disappointed in the court’s ruling. State Farm maintains its long-held position that allegations made against the Company by two former independent adjusters (Rigsbys) are groundless. State Farm acted responsibly in handling Katrina claims – appropriately following all government guidelines. We are reviewing our legal options.”
In 2007, State Farm agreed to pay 600 policyholders who had sued the company more than $80 million for refusing to pay claims. And the insurer also agreed to pay at least $50 million, and possibly much more, to thousands of Mississippi homeowners whose claims were denied but didn’t sue State Farm.
State Insurance Commissioner Mike Chaney said that he had not seen the ruling but that the decision is “a double-edged sword for me.”
State Farm – the largest writer of homeowners policies in the state, with about 23 percent of the market — has indicated to Chaney that it might pull out of the state, he said.
Chaney said State Farm decides that Mississippi is “unfriendly” it may do that. “That would leave 300,000 people without policies. And I don’t have the capacity to cover those folks.”
State Farm’s Tomczak said in another email that “few, if any, insurers do business in every state and there is a large variety of business reasons for that. As far as this ruling, it has no impact on our commitment to our MS customers.”
State Farm and other insurers face auto coverage suits in numerous states that are being tried in federal court in Florida over alleged “steering” auto owners to certain body shops, including one suit whose lead plaintiff is John Mosley, a candidate for Mississippi insurance commissioner, opposing Chaney, who is seeking his third term.
The Insurance Department conducted a 22-month review of documents and sworn testimony and issued a report on Oct. 29, 2008.
In a prepared statement prior to the public release of the report, Chaney said: “Although there were questionable decisions and irregularities by State Farm in handling claims, no scheme or plan to systematically mistreat policyholders was found.”
The report said there were 43,000 homeowner claims, including 6,237 flood claims, 39,044 of which were in the lower three counties, as well as 6,269 flood claims.
The lower court jury in 2013 awarded plaintiffs Cori Rigsby and Kerri Rigsby, sisters and former appraisers for a State Farm contractor, $227,475 in their allegation that the insurer had defrauded the federal government by finding that a home in Biloxi had been destroyed by flooding caused by Katrina, and not wind.
The jury also awarded $2.9 million to the plaintiffs’ attorneys.
The flood damage payment was drawn from the National Flood Insurance Program. Kerri Rigsby testified that State Farm told adjusters that “you are not going to to see a lot of wind damage. If you see substantial damage, it will be from water.”
Kerri Rigsby and another adjuster, Cody Perry, concluded that a house owned by Thomas and Pamela McIntosh, was destroyed by flooding and the couple was paid $250,000 for the house and $100,000 for its contents, according to the trial record.
But subsequently a State Farm engineer concluded that the damage was mostly from wind, which the company rejected and another engineer found that flood did most of the damage. The first engineer was fired, according testimony.
After the trial, the Rigsby sisters moved for additional discovery to look for other allegedly false claims, but the court decided that “expanded discovery would lead to an inappropriate fishing expedition for new claims.”
However, the appeals court rejected that line of reasoning.