Unlike the good neighbor State Farm Insurance claims to be, it turns out the company isn’t always there, especially when it comes to the families who lost everything during the devastation of Hurricane Katrina.
The company was convicted of fraud against the federal government this week on charges related to the manipulation of evidence in the case of a Mississippi homeowner who was denied full coverage by State Farm after the insurance giant alleged the home’s damage was caused by flooding, not wind.
By ordering employees to alter insurance claims to indicate damage was caused by flooding rather than by wind, State Farm collected National Flood Insurance Program (NFIP) funds fraudulently, the court found.
Testimony delivered in the federal case indicated the insurance company knew the damage was wind-related, but manipulated the process to indicate flooding was the cause, allowing it to ditch out of costs owed to the homeowners and pin the penalty on the federal government.
All the while, the owners of the home, Thomas and Pamela McIntosh, were denied full coverage available under their insurance plan, with State Farm providing just $36,000 out of a plan worth $500,000.
Considered whistleblowers, former State Farm employees Kerri and Cori Rigsby filed the lawsuit against the company after they were ordered to submit fraudulent reports to the federal government’s NFIP, which allowed State Farm to retrieve federal funds for damages inflicted by high winds.
Created in 1986, the NFIP exists to cover damages caused by floods associated with hurricanes, heavy trains, tropical storms and flooding. Communities eligible for NFIP must comply with Federal Emergency Management Agency (FEMA) guidelines to reduce flooding risks. NFIP then works with insurance companies to cover flood-related damages.
Blowing the whistle, opening the door
Evidence provided during the trial indicated State Farm had made its mind up over the cause of damage before inspectors filed reports. The NFIP payouts were already in motion when State Farm sent an engineer to inspect the McIntosh home.
The first inspector to assess the McIntosh home’s damage was an engineer, who, according to evidence presented in trial, concluded wind led to destruction of the home, according to the Sun Herald, a Mississippi newspaper.
The engineer’s report included eyewitness testimony, along with evidence discovered at the scene. However, the report, submitted by Forensic Analysis and Engineering Corp., was reversed after State Farm Flood Claims Manager Lecky King allegedly threatened to cut business ties with the company, according to testimony. A second report deemed the house was destroyed by water damage.
King told the court she put a note on the first report that read, “Put in Wind File. DO NOT Pay Bill. DO NOT discuss.”
The McIntosh family indicated they never received the first engineer’s report — instead, they received notice from State Farm denying “further coverage.”
In this case, the whistle was blown by the Rigsby sisters, who testified they were told to indicate the home’s damage was caused by flooding, despite acknowledgements that it was caused by wind damage.
The insurance company then filed a fraudulent report with the federal government’s National Flood Insurance Program, which then paid out State Farm $250,000.
In turn, it paid out just $36,000 for wind damage on the Thompson house policy, which included $500,000 worth of coverage, wind-related included.
While this isn’t a huge financial blow to State Farm, as it’s legally bound at this point to pay back the $250,000 to the federal government, the repercussions could cause financial burdens down the road.
The eight-member federal jury’s guilty verdict handed down to State Farm Fire and Casualty Co. does more than satisfy the legal complaints of one family — it opens the door for thousands of others who experienced similar frustrations with the companies to file suit.
State Farm attorneys indicated the company will likely file a motion requesting a new trial. The company has also gone on the attack against the Rigsby sisters, filing a claim they stole insurance documents.
“Obviously, we are disappointed by the verdict,” State Farm’s Attorney Bob Galloway told the judge, according to the Sun Herald. “We think it’s highly suspect and not supported by evidence.”
In 2007, State Farm Fire and Casualty Co. settled with 600 Mississippi homeowners impacted by Hurricane Katrina who filed lawsuits against the company for coverage refusal. At that point, the company paid out $80 million, in addition to $50 million the insurance giant agreed to pay to policyholders with similar claims, but who had yet to file lawsuits.
The lawsuit stemmed from a civil lawsuit filed by the state’s Attorney General Jim Hood on behalf of the 600 policyholders.
“It’s been like a death roll with an alligator for the last two months in these negotiations,” Hood told the Associated Press in 2007.