A federal jury has found State Farm Fire and Casualty Co. committed fraud against the federal government and submitted a false record to support fraud after Hurricane Katrina.
The verdict came after the eight-member jury deliberated for three hours Monday afternoon in a whistle-blower lawsuit, Rigsby vs. State Farm. The decision potentially opens for examination thousands of post-Katrina flood claims State Farm adjusted and paid before reimbursement by the National Flood Insurance Program.
Before opening their case to other claims, former insurance adjusters Kerri and Cori Rigsby first had to prove State Farm committed fraud involving one property: the North Biloxi home of Thomas and Pamela McIntosh.
The Rigsbys presented evidence that State Farm paid policy limits of $250,000 for flood damage to the house, even though wind covered under the insurance company's policy was responsible for the loss. The jury decided State Farm overcharged NFIP the full $250,000.
The verdict means State Farm will have to repay the $250,000, plus damages to be determined. The Rigsbys, as whistle-blowers, are entitled to a share of recovered money. Under the federal False Claims Act, they filed the lawsuit on the government's behalf because they discovered the fraud.
By charging the National Flood Insurance Program for the loss, State Farm minimized what it owed for wind damage. The company initially paid $36,000 for wind damage on a policy that provided more than $500,000 in coverage.
The false report was what appeared to be a line-by-line estimate of flood damage to the house, placed in the flood file. The report actually showed the value of construction materials for a generic custom home that varied in some respects from the McIntosh house. Under federal guidelines, participating insurance companies adjust their own wind claims, plus flood claims for NFIP. State Farm no longer participates in the flood program.
The Rigsbys smiled broadly at the verdict. Thomas and Pamela McIntosh, the home's owners, sat in the front row of the courtroom behind the Rigsbys. Pamela McIntosh cried after Judge Sul Ozerden read the verdict.
State Farm is expected to file a motion asking Ozerden to overturn the verdict or, in the alternative, grant a new trial. State Farm also has a counter-claim pending against the Rigsbys over insurance company documents they took after growing suspicious of how the insurer was handling claims.
"Obviously, we are disappointed by the verdict," attorney Bob Galloway told Ozerden as the attorneys and judge talked about post-trial motions. "We think it's highly suspect and not supported by the evidence."
After Ozerden dismissed court, Rigsby attorney August Matties said, "We had very strong facts and we're happy about the verdict."
State Farm timing suspect
The jury asked during deliberations whether they could consider State Farm's claim false because flood policy limits were paid and the flood claim closed more than a month before State Farm sent an engineer to inspect the house.
Evidence showed the first engineer concluded wind destroyed the house. He based his report partly on eyewitness testimony about wind and wind-driven debris, but also found evidence that wind destabilized the house, rendering it a total loss. The report also referred to trees downed on the property and a 5.5-foot water line in the house.
Unhappy with the report, testimony showed, State Farm flood claims manager Lecky King at first threatened to fire the engineering firm, Forensic Anaylsis and Engineering Corp. Forensic owner Robert Kochan talked his way back into King's good graces, testimony showed, sending a second engineer to examine the house. The second engineer concluded that water destroyed it.
King put a sticky note on the first engineer's report, she testified. It said: "Put in Wind File. DO NOT Pay Bill. DO NOT discuss." The McIntoshes were never shown the first report. After receiving the second report, State Farm sent the McIntoshes a letter denying any further coverage.
The jury also learned a house next to the McIntoshes' had flooded but suffered no structural damage. Another house on the cul-de-sac was destroyed down to the slab. The owner, who stayed at a neighbor's, testified her house was gone before the water rose.
The jury saw evidence that King had said policyholders were "so desperate" they would say anything.
The Rigsbys also were able to show State Farm never attempted to interview eyewitnesses about the loss. Kerri Rigsby testified that State Farm considered Katrina "a water storm" and trained adjusters accordingly.
Rigsby attorney Maison Heidelberg told the jury during closing arguments, "State Farm doesn't care that wind destroyed the house."