Insurance Law

End days for False Claims Act case alleging massive insurer fraud?

By David Rossmiller

You might recall that one of the central talking points by certain people during the heyday of Katrina litigation was this: insurance companies committed massive fraud on policyholders and federal taxpayers by overstating flood damage that would be paid, up to $250,000, by federal flood policies, and understating wind damage that would be paid from the insurers' own pockets.

To me this point was like one of those tiny cars in the circus where, paradoxically, a large number of clowns keep coming out of it.  As we've since learned, this strategy of claiming this type of fraud was arrived on just after Katrina happened, long before claims had even been adjusted.  Among the chief proponents of this view were, of course, Mississippi AG Jim Hood and his confidential informant, Dickie Scruggs.  They, of course, had their hallelujah chorus of such as U.S. Rep. Gene Taylor, Sen. Trent Lott and many others, all singing the Katrina Fraud Theme Song (which is sung to the tune of The Beatles' Hello Goodbye):    

You say flood, I say wind

I say fraud, and you just grinned, grinned, grinned

Oh no! You say let's steal, and I say get real

Let's steal/get real

I don't know why you say let's steal, I say get real

Despite Congressional hearings and other such massive wastes of taxpayer money -- hearings that included an assortment of dingbats and moonbats, not the least of which were some of the people on the Congressional committees themselves --  nothing came of all this Wagnerian screeching.  

Now, it has always seemed pretty clear to me that this strategy of claiming fraud on the nation's taxpayers was simply a way to try to nationalize Katrina issues and put added pressure on insurers to pay more.  One of the legal offensives that supposedly would vindicate these accusations was a False Claims Act case filed by Dickie Scruggs and his "insiders," the Rigsby sisters.  You can ponder the words "False Claims Act" and decide for yourself what the false claims are in connection with this lawsuit: the insurers' conduct or the allegations themselves. 

This case is the one that people who deal with these Katrina cases all the time refer to as "the Qui Tam," which in Latin of course means "Who's Your Daddy?" I prefer to call it the False Claims Act case, because I hate to be ruled by the dead hand of Latin, or if I must use Latin, I call it by its name, Ex rel. Rigsby,  which sounds like a great name for a race horse.  This case, you may remember, featured secret meetings in beach trailers to access State Farm files from laptops, it featured the Trailer Lawyers -- Trailer Chip and Trailer Tony, Trailer Todd and Trailer Mary -- and it featured the flood payment in the McIntosh case, and for the quiz, all you really need to remember about that payment is this: Kerri Rigsby herself approved the flood payment. You heard that right. The only specific example cited in the lawsuit of fraudulent conduct is one where the supposedly fraudulent payment happened because of one of the plaintiffs, or as they call them in this type of lawsuit, "relators." Try to "relate" that fact to the overall allegations: Kerri Rigsby approved the federal flood payment to the McIntoshes.    

I was looking at the docket of this case, and there was an order by Judge L.T. Senter Jr. in mid-February, and here it is. This is a fascinating order, typically brief, well-written and to the point,  which to me appears a clear indication Senter may be getting ready to pull the chain on this thing. Here is what I saw as a key part of the opinion:

In their Amended Complaint, Relators identify two and only two specific instances in which they allege the submission of false flood damage claims: the McIntosh property situated at 2558 South Shore Drive, Biloxi, Mississippi; and the Mullins property situated at 6057 Pine Tree Drive, Kiln, Mississippi. The defendants assert that the Mullins property was not covered by a SFIP and that the SFIP payments made on the McIntosh property were fully justified in light of the flood damage there. McIntosh collected the statutory maximum SFIP coverage on his property, and the individual who supervised and approved this payment was one of the Relators.

My review of the material from the McIntosh case discloses that the McIntosh home was inundated with approximately six feet of water. The house was not reduced to a shell or left as a foundation only by the storm, so there was physical evidence from which the extent of flood damage could be reasonably estimated. Because this is a FCA case and because the McIntosh property is the only property covered by a SFIP and identified in the Amended Complaint, I believe it is appropriate to conduct a hearing on the pending motions to allow the parties to present evidence concerning the question whether the payment of the flood insurance limits in the McIntosh case was justified, as a matter of law.

The hearing will be equivalent to a summary judgment hearing, and the Rigsbys are not allowed to conduct discovery beforehand.  Instead, Judge Senter said he is interested to see what they know firsthand, because supposed firsthand knowledge of fraud by a whistleblower is at the root of False Claims Act lawsuits.   All in all, it looks like one of the last stars in the once glittering Scruggs/Katrina sky is ready to wink out. 

Full post as published by Insurance Coverage Law Blog on March 04, 2009 (boomark / email).