US Supreme Court hears State Farm Katrina appeal

Jury found insurer culpable of passing damage coverage to the federal government

Catastrophe & Flood

By Allie Sanchez

The highest court in the US recently heard the arguments of insurance firm State Farm in a challenge to the 2015 court ruling which upheld a verdict in a case filed in 2006 by whistleblowers against the carrier.

Sisters Cori and Kerry Rigsby sued State Farm under the False Claims Act, which allows people to file complaints on behalf of the government over allegations of fraud. 

The complainants accused the insurance company of shirking indemnities and instead passing on to the government Katrina-related damage in a Biloxi, Mississippi home.

State Farm moved to challenge the decision on a technicality, saying that the sisters’ lawyer at that time violated a gag order that required details of the case to be kept under wraps for 60 days after filing.

Dickie Scruggs, the lawyer, distributed information about the law suit to news media prior to the lapse of the prescribed period.

Justice Ruth Bader Ginsburg explained that the seal requirement’s purpose is to make sure that defendants are not tipped off about the case. She added that “the one who is really penalized…is the government,” and not the defendant if the seal rule is broken.

In the original decision, the jury found that the federal government had been defrauded of $250,000. State Farm was ordered to pay $758,000 in damages. The sisters were awarded $227,000 for disclosing the irregularity and almost $3 million in attorney’s fees and expenses. 

The Rigsbys said the home in question suffered wind damage, which should have been compensated under the homeowner’s policy with State Farm. However, State Farm passed it off as flood damage, which was instead covered by the federal flood insurance program.

In 2015, the 5th US Circuit Court of Appeals in New Orleans upheld the jury ruling.

The Supreme Court will promulgate a decision by the end of June.

Related stories:
IBA Southeast: NFIP pays out more than $1 billion since the August Louisiana floods
US Supreme Court to consider Katrina fraud case in connection with State Farm


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