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May 29, 2013 Mortgage Fraud

Jury Finds State Farm Guilty in False Claims Act Lawsuit

After a lengthy legal battle, a panel of 12 jury members in Mississippi federal court found State Farm Fire and Casualty Co. (State Farm) guilty of violating the False Claims Act. State Farm, the country’s largest insurer of homes, faced allegations that it defrauded the National Flood Insurance Program (NFIP) in relation to the devastation left behind by Hurricane Katrina. The jury found that State Farm avoided paying for a policy-holder’s wind damages by blaming the destruction on a storm surge, which is covered by federal flood insurance.

This decision came after a whistleblower lawsuit was originally filed against the insurance provider by two former independent claims adjusters. Cori and Kerri Rigsby, sisters and whistleblowers in this case, claimed to have witnessed “widespread” fraud within the State Farm offices operating in Biloxi and Gulfport, Mississippi. Both whistleblowers alleged that the insurer falsified engineering reports after Hurricane Katrina in order to put off its losses, leaving the NFIP to pay the bill. Bothered by State Farm’s fraudulent activities, the sisters consulted with a False Claims Act attorney and filed suit against State Farm in April 2006.

Evidence Presented at Trial

During this trial, the Rigsbys hoped to prove their case to the jury, showing how State Farm produced fraudulent documentation stating that flood water was the culprit for the loss of a home. That home was owned by State Farm policy holders Thomas and Pamela McIntosh of North Biloxi, Mississippi. The Rigsbys alleged that State Farm determined the McIntosh home was damaged due to flood waters, even though they knew that the property damage was actually caused by wind.

According to the evidence presented at trial, State Farm received a claim for extensive damages to the McIntosh home that were inflicted during Hurricane Katrina. The company sent an engineer to survey the home and determine a cause of damage. During the course of the trial, the engineer in question testified that he originally determined wind was to blame for destroying the McIntosh home. According to testimony, State Farm then threatened to fire the engineering firm as a result of the determination, but then withdrew their threats once the firm agreed to send out a second engineer. Coincidentally, the second engineer concluded that water, not wind, destroyed the McIntosh home.

The determination effectively limited the State Farm’s liability to pay on the claim, as there is a policy limit of just $250,000 for flood damage. State Farm then submitted a reimbursement claim to the federal NFIP for $250,000. Under the NFIP guidelines, participating insurance providers must adjust their own wind damage claims, therefore State Farm would not have been eligible for federal reimbursement if they listed wind as the cause of damage.

The evidence also showed that State Farm provided a line-by-line item estimate for the flood damage of the property. In reality, however, court documents showed that the report actually listed construction materials that were priced “for a generic home that differed in respects to the specifications of the McIntosh house.”

The Jury’s Decision

After reviewing all of the evidence and testimony presented in the federal False Claims Act case, the jury found that State Farm had indeed filed a false and fraudulent report in order to justify their determination of water damage. The jury believed that the damage to the McIntosh home had actually been caused by wind and, therefore, the payout should have been made by State Farm and not NFIP.

The jury ultimately found that State Farm, who is no stranger to accusations of fraud, did violate the False Claims Act by overcharging the NFIP $250,000. State Farm will be forced to repay the full $250,000 to the NFIP, along with additional damages that are yet to be determined.

For their whistleblower efforts in this case, the Rigsby’s are entitled to a share of any money the government recovers under the federal False Claims Act, including a portion of the damages.

“Katrina was devastating, but so was State Farm,” Cori Rigsby said.

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