U.S. Supreme Court Upholds Verdict Against State Farm In Whistleblowers’ Hurricane Katrina Fraud Case

posted on:
December 8, 2016

author:
Kurt Niland

The U.S. Supreme Court unanimously upheld a jury verdict Tuesday against State Farm and Casualty Co. in a whistleblower case that accused the insurer of defrauding the federal government by manipulating Hurricane Katrina property damage reports.

State Farm appealed the case all the way to the nation’s highest court, claiming it should have been dismissed because the plaintiffs’ lawyer leaked the existence of the lawsuit to the press when it remained under seal.

Justice Anthony Kennedy wrote in an opinion for the court upholding the Fifth U.S. Circuit Court of Appeals decision in favor of whistleblowers Cori and Kerry Rigsby, sisters who formerly worked as adjusters for an Alabama contractor assessing property damage after Hurricane Katrina decimated parts of the Gulf Coast in 2005.

The Rigsbys accused State Farm of misclassifying wind-damage reports, which would have been payable by State Farm, as flood damages, which made them the federal government’s liability. The federal government insures property owners for flood damages whereas private insurers do not.

The Rigsbys won their case in 2013 when a federal jury in Mississippi ordered the insurer to pay $750,000 in damages, with the Rigsbys collecting $227,000 of that as a whistleblower award.

State Farm appealed, claiming the case needed to be dismissed because the Rigsby’s lawyer leaked information to the press about the existence of the case before it was public. The Associated Press, New York Times, and ABC News all published stories about the case, although none of the stories specifically mentioned the Rigsby lawsuit.

The Rigsby’s lawyer was later disbarred after he was convicted of trying to influence a judge in another, unrelated case.

According to PBS News Hours, the Supreme Court’s decision “dealt almost exclusively with the provisions of the federal False Claims Act that call for the existence of whistleblower lawsuits to remain secret for at least two months.” Justice Kennedy wrote that there is no federal law requiring a lawsuit to be dismissed upon that violation.

Although the Supreme Court ruling marks a hard-fought victory for the whistleblowers, it is bound to have wider implications in parts of the Gulf Coast.

PBS News Hours reports that the Rigsby case gives rise “to other claims that Illinois-based State Farm defrauded the National Flood Insurance Program. Last year, Mississippi filed its own civil fraud lawsuit against State Farm, saying the state paid as much as $522 million to State Farm policyholders after the company manipulated the reports of adjusters and engineers to limit its responsibility.”

Sources:
PBS News Hour
Righting Injustice

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