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Mississippi Sues State Farm Over Katrina Coverage

In La., Whistleblowers Claim Feds Were Defrauded

By Mark Huffman
ConsumerAffairs.com

June 11, 2007

Mississippi Attorney General Jim Hood says he will go to court after all to press a civil case against State Farm Fire and Casualty Company over its refusal to pay some claims from 2005, when Hurricane Katrina devastated wide areas of the Gulf Coast.

In neighboring Louisiana, a whistleblower lawsuit claims that at least eight major insurance companies and their adjusters are ripping off the federal government by overbilling the National Flood Insurance Program for Hurricane Katrina flood damage while stiffing homeowners on wind damage payments under their homeowners insurance policies.

In January, Hood agreed to remove State Farm from his office’s suit against several other insurance carriers after the firm said it would pay some of the disputed claims. But the deal apparently fell apart after it failed to win backing from a federal judge.

Insurance companies refused to pay thousands of hurricane related claims, saying the damage was caused by the storm’s ferocious storm surge and therefore were not covered by the policy. Homeowners countered that their homes were knocked off their foundations by the hurricane’s winds, when the storm’s eye passed directly over the coast.

“We filed this lawsuit in an effort to help the more than 30,000 Gulf Coast policyholders who have suffered for nearly two years because of State Farm's inaction,” Hood said.

The state is seeking both compensatory and punitive damages.

Mississippi and State Farm have enjoyed an uneasy truce since the beginning of the year, when Hood announced the separate peace that removed the insurance giant from the litigation.

But in February, State Farm angered the Attorney General when it announced it would no longer write policies for homeowners or businesses in the entire state. Hood said the company was trying to back off its commitment to remain in the state, which he said was part of the lawsuit settlement.

"The whole reason for reaching the settlement with them was to keep them here," Hood said at the time.

Louisiana Suit

The Louisiana suit is based on the testimony of a group of former insurance adjusters, who say they found that private insurers overcharged the federal flood program in every single one of 150 cases that were reinspected.

The suit alleges numerous violations of the False Claims Act.

The adjusters say the companies purposely underestimated wind damage, which is paid for by private insurers, while overestimating water damage, which is covered by the federal government.

In one example cited in the suit, the owners of a group of fourplex apartments in eastern New Orleans were paid for flood damage with taxpayer money, even though their buildings experienced no flooding. Instead, roofs were damaged, windows blown out and the interiors damaged by wind-driven water, even though no floodwaters got into the buildings, the suit charges.

American National Insurance Co. paid $40,000 or less per building for wind damage instead of the $250,000 the adjusters say would have been a more accurate assessment.

Other insurance companies named in the suit are Allstate Insurance Co.; State Farm Fire and Casualty Co.; Liberty Mutual Fire Insurance Co.; Fidelity National Insurance Co.; Scottsdale Insurance Co.; and Travelers Cos.

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