Fraud, Insurance and Finance Update - Thursday, May 2, 2013 10:24 - 0 Comments

Jury Finds State Farm Defrauded Flood Insurance Program

A federal court jury in Mississippi has found that State Farm Fire and Casualty Co. avoided covering a policyholder’s wind losses by blaming the damage on storm surge, which is covered by federal flood insurance. The verdict came in a whistleblower lawsuit filed against the insurer over its handling of Hurricane Katrina claims. State Farm has indicated that it will appeal. The lawsuit was filed by Cori and Kerri Rigsby of Ocean Springs, Miss. They once worked for Alabama-based E.A. Renfroe, a company State Farm contracted to provide damages assessments after the hurricane.

This verdict could open the gate for examination of thousands of post-Katrina flood claims State Farm adjusted and paid before reimbursement by the National Flood Insurance Program (NFIP). While the sisters had pursued cases for a number of policyholders, a federal judge in Mississippi limited the initial phase of the case to one State Farm claim — that of Thomas and Pamela McIntosh, whose Biloxi home was lost to the storm — because the sisters have firsthand knowledge of how it was adjusted. The Justice Department was not involved in the case.

Evidence at the trial was 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 repay the $250,000, and also must pay additional damages to be determined. The Rigsbys, as whistleblowers, are entitled to a share of any recovered money. They filed the lawsuit under the federal False Claims Act 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 Rigsbys are represented by August Matties, who did a very good job in the case.

Source: The Sun Herald