U.S. Appeals Court Rules for State Farm Whistleblowers in Katrina Fraud Case

A federal appeals court has ruled that whistleblowers who sued State Farm Fire and Casualty Co. can seek more evidence of fraud against the U.S. government after 2005’s Hurricane Katrina.

In its decision, the New Orleans-based 5th U.S. Circuit Court of Appeals upheld a jury verdict in favor of Cori and Kerry Rigsby, the two sisters who sued on behalf of the government after they said they witnessed the insurance giant shifting claims to federal flood insurance that should have been paid by State Farm. Like most private insurers, State Farm’s policies cover wind damage but not flood.

Such allegations were widespread on the Mississippi Coast following Katrina, which left many homeowners with bare slabs, making it hard to judge what role wind and water played in each particular loss. Few cases ever went to trial, but a jury found in 2013 that State Farm had committed fraud by attributing damage to water instead of wind at the Biloxi, Miss., home of the McIntosh family. The Ocean Springs sisters were key to the trial, saying they witnessed State Farm pressure engineers to rule that damage was caused by floodwaters and not wind.

State Farm was required to pay $750,000 in damages, with 30 percent going to the Rigsbys and the rest going to the federal government. The Rigsbys’ lawyers won $2.9 million in legal fees and expenses.

State Farm appealed, saying the Rigsbys hadn’t proven their case and that it should be thrown out because of pretrial leaks when the suit was supposed to be secret.

The judges rejected those arguments.

“We are disappointed in the court’s ruling,” spokesman Justin Tomczak said in a statement. “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.”

Lawyers for the Rigsbys appealed too, asking the court to examine more evidence following their victory. The appeals court directed the trial judge to allow more discovery, saying the verdict “supports a high probability that State Farm submitted more than one false claim.”

“The Rigsbys’ allegations and trial evidence – which extend far beyond the realm of the McIntosh claim – entitle them to at least some additional discovery,” the judges wrote.

August Matteis, a lawyer for the Rigsbys, told The Associated Press that the Rigsbys “have taken on Goliath and won.”

“Because we won the bellwether McIntosh trial, we can now go forward taking discovery to determine the full scope of State Farm’s fraud. We believe that this could involve thousands of claims in Mississippi,” he wrote.

The state of Mississippi hired the same lawyers who represent the Rigsbys and sued State Farm in April, claiming the company improperly denied homeowners’ claims and allowed a federally-funded state aid program to pay as much as $522 million to State Farm policyholders instead.

State Farm has filed to move the suit to federal court and claims the lawsuit is barred by a 2007 settlement between Mississippi and State Farm.