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Kerri Rigsby and Cori Rigsby are the whistle-blowers who proved to a Mississippi jury that State Farm committed fraud against the United States Government. The sisters claim State Farm ignored or minimized wind damage to avoid payments relating to Hurricane Katrina (2005). The jury verdict was upheld by the U.S. Court of Appeals for the Fifth Circuit and then was affirmed 8-0 by the United States Supreme Court. The Rigsbys were managers who worked in Gulfport, Mississippi for a subcontractor hired by State Farm to adjust wind and flood claims after Hurricane Katrina. They were the first to uncover a fraudulent scheme by State Farm to improperly categorize wind damage as flood damage. This mischaracterization was very important because State Farm had to pay for wind damage out of its own pocket under State Farm homeowner policies, while flood damage was paid by the federal government under FEMA’s flood policies. Their story went public when ABC's 20/20 show aired it in August 2006.

In 2013, a federal jury in Gulfport found State Farm guilty of committing fraud against policyholders during Hurricane Katrina by forcing engineers to change their reports. The Rigsbys’ landmark win was historic because they were the first to prove that an insurance company defrauded the government in FEMA’s National Flood Insurance Program.

FEMA’s Federal Flood Program

Many homeowners who live in coastal areas have two insurance policies on their homes: (1) homeowners’ policies, which are underwritten by private insurers and cover damage from wind; and (2) flood policies, which are underwritten by the National Flood Insurance Program (“NFIP”) (a division of FEMA) and cover damage from flooding. Private insurance companies contract with the government and are paid fees for selling the federal flood insurance policies, for collecting the premiums, and for adjusting flood claims under those policies. Sometimes, the same insurance company that insures a particular property under its homeowner policy also sells and administers the flood policy on the same home. When a multi-peril storm strikes such a property, the “Single Adjuster Program” allows that insurance company to send its own adjuster to the property to adjust both the wind claim and the flood claim. Many commentators have noted that this program creates an inherit conflict of interest because if the employee characterizes the damage as wind damage, then his employer has to pay the claim, whereas if he characterizes it as flood damage then the government has to pay.

The Rigsbys as Catastrophe Team Managers

The Rigsbys worked as catastrophe adjusters for insurance companies on many hurricanes and other storms for several years prior to Katrina. In the days after Katrina made landfall, the Rigsbys were called to work as team managers overseeing adjusters in State Farm’s Gulfport catastrophe claims office. During the weeks and months after the storm, the Rigsbys noticed that State Farm was engaging in a scheme to defraud the government by shifting losses from its homeowners’ policies to the government flood policies by intentionally miscategorizing wind damage as flood damage. Kerri Rigsby first noticed that something was terribly wrong when she found two engineering reports on a property owned by Chris and Pam McIntosh in Biloxi: the first version of the report stated that wind was the primary cause of damage to the home, while a second report done by the same company a week later stated that flood was the primary cause of loss.

The Lawsuit

In April 2006, the Rigsbys filed a lawsuit in a Mississippi federal court under the qui tam whistleblower provisions of the False Claims Act (“FCA”).  The FCA provides a vehicle for private citizens to blow the whistle on companies that defraud the federal government. The FCA was initially referred to as “Lincoln’s Law” because it was enacted in the Civil War Era to incentivize private citizens to blow the whistle on unpatriotic companies that were overcharging the government during the war effort.

When they filed the FCA claim, the Rigsbys were represented by Richard Scruggs, a Mississippi plaintiffs lawyer who had become famous for an historic settlement with tobacco companies.  The lawsuit alleged that State Farm implemented a fraudulent scheme to defraud the federal government by mischaracterizing wind damage as flood damage and thereby shifting losses from Hurricane Katrina away from State Farm’s homeowner insurance policies onto FEMA’s federal flood policies.

Scruggs was eventually indicted for misconduct unrelated to the Rigsby’s lawsuit and withdrew from the case.  In 2008, the Rigsbys retained Augie Matteis of Weisbrod Matteis & Copley and Maison Heidelberg of Watson Heidelberg, who have represented the Rigsbys continuously since that time.

The Rigsbys Win a Unanimous Jury Verdict

State Farm filed scores of motions over the years to dismiss the Rigsbys’ lawsuit, but was unsuccessful.  Judge Senter, the federal judge assigned to adjudicate all of the Hurricane Katrina claims in Mississippi, denied State Farm’s summary judgment motion and directed the parties to prepare for trial.

Although the Rigsbys’ alleged that State Farm’s fraudulent scheme affected thousands of flood claims, Judge Senter ordered the parties to try the McIntosh claim first as a “bellwether” trial before allowing the Rigsbys to take discovery on the magnitude of the fraud. The Rigsbys would first have to prove to a jury that State Farm’s submission of the $250,000 flood insurance claim to the NFIP constituted a false claim under the FCA.  Judge Senter retired and then died prior to the trial.

In April 2013, after seven years of scorched earth litigation, the Rigsbys prevailed in a jury trial that was presided over by Judge Ozerden in the Southern District of Mississippi.  After a two-week trial, the unanimous jury ruled in less than three hours that State Farm violated the FCA by submitting a false claim and false records to the federal government.  Indeed, the jury found that the McIntosh’s home was completely destroyed by wind, so it therefore suffered no flood damage and the $250,000 payment was fraudulently charged to the government.

Judge Ozerden affirmed the jury’s verdict and awarded $250,000 to the federal government, trebled to $750,000, plus civil fines, attorneys’ fees and costs.  The Court awarded the Rigsbys the maximum share allowed for plaintiffs in FCA cases, which is 30% of the amount recovered for the government.

The Rigsbys Win in the Fifth Circuit

State Farm appealed the jury verdict and the Rigsbys’ appealed the District Court’s decision that the Rigsbys were entitled to no more discovery. The Rigsbys won on both issues:  the Fifth Circuit affirmed the verdict, but reversed the District Court’s decision that denied the Rigsbys’ discovery into other false claims.

The Rigsbys Win 8-0 in the U.S. Supreme Court

After its devastating loss in the Fifth Circuit, State Farm petitioned for certiorari in the Supreme Court. The Supreme Court granted cert on one narrow issue: Whether seal violations by Richard Scruggs in 2006 required automatic dismissal of the lawsuit. Under the FCA, a lawsuit must be filed under seal and remain under seal for at least 60 days. After 60 days passed, Judge Senter had extended the seal, and Richard Scruggs violated the seal order during that time by releasing certain information to media outlets.  State Farm argued that Scruggs’s seal violations mandated dismissal of the lawsuit and that the trial judge abused his discretion by denying a motion to dismiss.

Court

November 2006

Attorney General Jim Hood's office argued the suit, E.A. Renfroe & Co. Inc. v. Moran, No. 06-CV-1752, should be suspended until the Mississippi Attorney General's office completed its criminal investigation into post-Katrina insurance claims practices. They claimed the government's case could be compromised if the civil case continued.

Insurance Commissioner George Dale: Dale launched his own investigation of the insurance industry and began with State Farm because they were the biggest insurance company in Mississippi. Dale claimed he was spurred on by policyholder complaints aired on local television.

January 2007

The Rigsby sisters testify for the Mississippi Attorney General before a Mississippi grand jury about what they saw while working as claims adjusters after Hurricane Katrina.

In Alabama, Judge Acker orders the sisters to show why they should not be held in contempt of his order in December 2006 as they had yet to turn over the documents. Acker also requires Scruggs and the Scruggs law firm to show why they should not be held in civil contempt.

In a court hearing on January 31, E.A. Renfroe's attorney requested the Rigsby sisters and their representation face civil and criminal charges for their actions.

February 2008

The charge of criminal contempt against Scruggs is dismissed.

April 2008

A federal judge dismissed the action by Thomas and Pamela McIntosh of bad faith and fraud against State Farm. They had filed a claim after State Farm minimized its liability by using a second engineering report which minimized wind damage for which State Farms was liable and blamed flood and storm.

September 2008

Thomas and Pamela McIntosh settle their lawsuit for $250,000.

July 2009

The finding of contempt by the District Court overruled in the U.S. Court of Appeals for the eleventh circuit.

June 2010

Federal Magistrate Judge Robert Walker ruled that State Farm should not be required to hand over engineering reports to the Risbys, The case involved claimants Thomas and Pamela McIntosh whose house was damaged and two engineering reports, the first citing wind damage and the second tidal surges. The Risbys also were seeking any other altered reports in an attempt to establish a pattern of fraudulent behaviour.

June 2012

Judge Halil S Ozerden in the District Court of the Southern District of Mississippi ruled on final motions by State Farm and the Rigsbys. State Farms repeated motions to have the case dismissed were denied and the Rigsbys were limited to provided testimony only in the case of Thomas and Pamela McIntosh as they had direct knowledge of the documents in that case.

April 2013

In Federal Count a jury found for the Rigsby sisters in their whistle-blower lawsuit against State Farm. The plaintiffs suggested that State Farm minimized its wind damage payout to $30,000 when the policy provided for up to $500,000 by charging the National Flood Insurance Program where payments were paid by the government.

March 2014

In the federal court a jury found that State Farm had defrauded the government in a policyholder claim. State Farm was ordered to pay the Rigsbys attorneys $2.6 million plus expenses of just over $3000,000. The Rigsby sisters were to each receive 15 percent of the $750,000 awarded to the government. The case involved the claim of Thomas and Pamela McIntosh only and the judge refused to allow any claims on other properties to be included. The Rigsbys launched an appeal to the 5th U.S, Circuit Court of Appeals in New Orleans.

April 2015

State Farm is sued in a claim filed 21 April by the Mississippi Attorney General over allegations that they minimized wind damage in their response to claims which resulted in the states Homeowner Assistance Program paying far more than it should have. The private attorneys for the Rigsbys have been engaged by the state.

July 2015

The Rigsby sisters were successful in their qui tam appeal in the Fifth Circuit Court of Appeals to expand their claims of fraud in relation to the adjustment of National Flood Insurance Program claims. The court found that many homeowners were covered by at least two policies, one for wind and one for flood. A private insurance company administering both policies would be liable for wind damage but would pay flood damage with government funds. It would be in the company's interest to classify Hurricane Katrina damage as flood related to minimize its exposure to payouts. State Farm argues that the case should have been dismissed as the Rigsbys lawyer, Scruggs sent documents to the media when they were still under seal. Scruggs was gaoled over another matter and the court ruled that violating the seal should not result in the dismissal of the case,

August 2015

State Farm to challenge the ruling by the Fifth Circuit in the U.S. Supreme Court with a certiorari petition. Their argument centres around the plaintiffs talking with the media and thus violating the 60 day seal provisions of the False Claims Act.

June 2016

State Farm has lodged a case in the U.S. Supreme Court, State Farm Fire & Casualty Co. v, United States ex rel. Rigsby to be heard in the term which commences in October 2016. State Farm is arguing that the attorneys for the Rigsbys violated a part of the False Claims Act, that is they released documents which were under the 60 day seal rule. The decision of the Supreme Court has ramifications beyond the matter being argued, as the Rigsbys attorneys argue that State Farms actions could involve thousands of cases. State Farm want clarification on the 60 day seal rule as in this particular matter the breaching of the rule was overlooked by a lower court and the action allowed to continue.

November 1, 2016

Arguments before the Supreme Court. The justices will vote at the end of the week, but the complexity of the case means that it will most probably come down to a written judgement after they achieve consensus over the winter. The case is pending

December 6, 2016

Supreme Court Judges affirmed 8-0 that a "... seal violation does not mandate dismissal of a relator's complaint under the False Claims Act."

"The judgement of the Court of Appeals for the 5th Circuit is Affirmed. The judgement was issued January 9, 2017.

Whistleblower recognition

In February 2007, Mississippi state senators Dawkins and Williamson submitted a resolution, Mississippi Senate Concurrent Resolution 574,, to the state legislature commending the Rigsby sisters for their actions. The resolution died in committee and the Rigsbys garnered no formal recognition by the legislature.

Media coverage

References

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