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

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. 


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Ping sent from PointOfLaw Forum on March 6, 2009 7:47 PM
David Rossmiller believes the much-ballyhooed (by Dickie Scruggs, the New York Times, and others) False Claims Act over insurer wind-vs.-water practices may be getting ready to expire with a whimper. Not that Rossmiller is entirely lacking in admiratio...
Written By:Smiling On March 4, 2009 11:51 AM

Welcome home, David!

Written By:David Rossmiller On March 4, 2009 12:52 PM

I might have added that this False Claim Act case is reminiscent of those bumper stickers you see: "In case of Rapture, this vehicle will be unmanned," or some such. This Ex rel. Rigsby car is going down the road, but there's nobody driving, just a couple of demoralized passengers.

Written By:Barry On March 4, 2009 2:53 PM

You were missed, David.

The judge should note that Insurance fraud laws have been enacted in 48 of the 50 states.

The statutes were not written to give an unfair advantage to insurers, as some members of the plaintiffs’ bar claim, but to protect the insurance buying public against the enormous disadvantage insurers meet when faced with a potentially fraudulent claim.
Unlike other victims of crimes, insurers are required by most of the statutes, to staff Special Investigative Units (SIU) to investigate and work to defeat insurance fraud attempts.

State Farm, therefore, was obligated by statute to thoroughly investigate the claims and determine if a fraud was being attempted.

The legislatures of the various states, the United States Congress, the National Association of Insurance Commissioners, The National Insurance Crime Bureau and insurance industry groups decided, in similar language to that quoted above, that the war against insurance fraud is worth fighting. Until the states, the local police agencies, the district attorneys, the United States Attorneys, and the Attorneys General of the various states join in the battle it will be fought to a stalemate. The insurance industry cannot successfully fight insurance fraud alone.
On the state level the effort has begun. Fraud statutes forced the insurance industry to pay money into a special fund to create a Fraud Division or other investigative and prosecutorial agencies designed to only investigate and prosecute insurance fraud. Special Fraud Investigation Unit Regulations forced insurers to pay monies into another fund to pay prosecutors to prosecute the crime of insurance fraud and to create their own special fraud investigation units. Defrauding an insurance company has been made a felony in most states.All of these actions suggest that the Legislatures have concluded that insurance fraud is draining away the wealth of their states into the pockets of criminals. It has been established that the public policy of the state of California, and the 47 other states that have enacted insurance fraud statutes, that insurance fraud must be stopped.
What has been the result of these new statutes? Are insurance criminals going to jail? Have there been scores of arrests? Have the courts been inundated with prosecutions? No. The prosecution of an insurance fraud is as rare as chicken with a full set of teeth. Convictions are miniscule in relation to the extent of the crime.
Prosecutors complain that insurance companies do nothing. The statutes compelling insurers to form fraud investigation units usually have no penalties if the insurer fails to establish such a unit [California recently enacted regulations that imposes a $5,000 fine for failure to establish a Special Investigation Unit or to train its integral anti-fraud personnel].

So, if fraud is being attempted, insurers are obligated to report the suspicion to the authorities and the local prosecutors are required to prosecute the insureds who attempt fraud not sue the insurers to force them to pay a fraudulent claim.

Written By:Steve On March 4, 2009 9:28 PM

I would have added that this False Claim Act post is reminiscent of those bumper stickers you see: "In case of Rapture, this vehicle will be unmanned," or some such. This post is going out to the net, but there's nobody driving, just a demoralized passenger. Kind of like a State Farm written op-ed in the WSJ. Author signs off on the report but he's just along for the ride.

Written By:David Rossmiller On March 4, 2009 10:10 PM

Steve, good one, except that in your analogy the vehicle is not actually unmanned but is being driven by State "Snake" Farm, plus I'm not demoralized -- why would I be, almost everything I ever said about Katrina turned out to be right. Also, if a vehicle is driverless and you are a passenger, you are not really along for the ride, you are along for the crash. In addition, it should be obvious State Farm isn't writing these posts, they can't do comedy as good as I can.

Barry, thanks for your insights, definitely you know what you are talking about.

One question: WHERE IS BELLESOUTH??? Two days of posts and no invective or even opposition from Bellesouth? I won't truly feel like I'm back until I've irritated Bellesouth, although in thinking about it, I seem to remember she has her own blog or something, maybe she'll denounce me on that. Something like: "Insurance company shill lawyer and Yankee enemy of the people David Rossmiller has once again emerged from his lair and as one would expect has re-endorsed insurer fraud." Maybe I'll have to devote a post solely to Jim Hood (Welcome to Jim's neighborHood), maybe that would do it.

Written By:steve On March 5, 2009 12:19 PM

Very true about State Farm not being as good at doing comedy or writing as well as you. Your work on the concurrent clause was infact the best legal analysis on the subject. If State Farm had used it as a guideline for claims payment things would have been much better for all involved.

I wish you luck in convincing the reader that less federal oversight and regulation is needed on the expenditures of funds by major corperations from the Treasury. I think there has been a awakening of sorts in the Nation about how our government regulates insurance and banks. If anything more Congressional investigations were needed not less. Had the Nation taken heed to our warnings about a lack of regulation in the industry BEFORE the AIG meltdown I believe the Nation would have been better off.

This link might be of some help to you in your research---


Written By:James N. Barbieri On March 12, 2009 11:16 AM

While I love to read your blog, and have missed your postings for the past 6 months, I've kept coming back waiting to see if you would return.

However, I have to reprimand you just a little. You are gloating, too soon.

First, I think the Rigsbys will defeat the motions to dismiss....McIntosh is evidence of a false claim. The critical issue is the Brian Ford engineering report. If that is material information, and it was concealed...contract stipulates the policy is void. There are plenty of cases where otherwise legitimate flood claims were voided by failure to abide by NFIP rules or SFIP contract terms.

Second, Branch was sent back to (by Fifth Circ.) and their evidence is much stronger than the Rigsbys.

Third, go look at the DHS-Office of Inspector General report Hurricane Katrina: Wind Versus Flood Issues (OIG-08-97)which identified $400,000 in overpayments (for flood) in a sample of less than .1% of the total cases. Multiply by 1000 to the whole 200,000 plus flood claims you get 400 million dollars.

Auditing of Katrina has just begun and the facts haven't been addressed.

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