The Scheme: final curtain – who done it (Chapter 7 qui tam)

For what is a man, what has he got?
If not himself, then he has naught.

a good neighbor, the one on your side, good hands people – the relationship between policy holders and their insurer is one of trust. – beginning with trust in the local agent that sells the policy; reflected in trust of the company that follows.

Yet behind the clever slogans and familiar faces lies a culture that views every claim as a potential case of insurance fraud – and trust is replaced with betrayal.  Premium dollars have made fraud detection a separate industry – one with its future riding on the continued public perception of widespread insurance fraud.

Fraud, to be certain, is a serious problem; however, the resulting problem-focused solutions have created far greater problems.

I planned each charted course;
Each careful step along the byway

The industry’s response to Katrina -captured  in Frontline’s The old man and the storm –  has been nothing short of a disaster itself, as this preview of the January 6, 2009 annual update suggests.  The charted coursea  haystack of needles – is an enterprise management system.rate_my_network_diagram2

From an IT management perspective, Enterprise Management essentially means enterprise-wide network administration, which is becoming increasingly complex. The corporate network environment is no longer tied to a single vendor, let alone a single platform. More and more, corporate intranets are multidomain, multiprotocol, multiplatform systems. They contain hardware and operating systems from a number of different, competing vendors…

End-to-end,  EMS has shaped the claims handling system into a massive fraud prevention system capable of fraud so subtle it would have gone undetected had all of its functions been fully developed.

I did what I had to do
and saw it through without exemption

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more about “Skinner Box – “, posted with vodpod

Innovative software, pioneering use of technology, and a highly touted management program – the laudable tools of success when used as intended.  Otherwise, none were more than what they became together, the newest version of the tricks of the trade fashioned by the most advanced information management system ever made – the human brain – into the scheme, a needle hidden in a haystack of needles.

Regrets, I’ve had a few;
But then again, too few to mention.


A few regrets, too few to mention? Maybe a few reminders will help

A few regrets – the human cost is an incalculable loss of life, of home, of opportunity and emotional and economic security.

A few regrets – premiums that policyholders paid on a contract intended to provide protection were instead spent on media campaigns, lobbying and lawyers that made them more vulnerable.

But through it all, when there was doubt,
I ate it up and spit it out.


As it became evident return on investment of premium payments was insufficient, the industry shifted focus to reducing loss to increasing profits and  Six Sigma. management strategies.

It’s the CEO and only the CEO who can make Six Sigma successful in an organization.

Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).

A number of software products have the capacity to integrate Six Sigma into the functionality of the EMS for any of the Six Sigma companies.  One of the companies on the list is Computer Sciencies Corporation (CSC); and, interestingly, none on the list are insurers.

In other words, the Enterprise is not a single insurer but the property/casualty insurance industry inclusive of insurers and reinsurers world wide and, via BureauNet, the National Flood Insurance Program. CSC is the enterprise manager.librarylg12042

There’s nothing inherently wrong with that structure or with the intranet that builds community among the users.  In fact, there is much to be said for the efficiency of a system that includes all functional components of an insurance industry with the capacity to meet the needs of both an individual insurance/ reinsurance companies as well as the industry as a whole.

In a perfect world, it would be the perfect approach.

Yes, there were times,I’m sure you knew
When I bit off more than I could chew

On August 29, 2005 the world was far from perfect as the power of wealth crossed path with the force of nature putting EMS to the ultimate test. Katrina made landfall and all the games began in earnest.images-katrina-3

First, there was the word gamewindstorm – although  hurricanes are formed from thunderstorms.

The word game was central to the mind game of concurrent causation – a distinction possible only when science is ignored and a hurricane is considered a windstorm. The twisted words fuel a blame game in and out of court – blame the policyholders who didn’t buy the coverage needed, blame the lawyers for taking their cases, blame everyone and everything but the insurers’ choice to make policy language a profit center.

All of the games converge at the center of the power game explained by Lawrence Lessig, Professor of Law at Stanford Law School and founder of the school’s Center for Internet and Society.

…non-obvious corruption–instances where a decision is improperly and/or subtly influenced by a government actor’s anticipation of some sort of indirect economic gain or loss. Where a person in power is motivated more by, e.g., money to their campaign, support for favored research, etc., than the interests they claim to or otherwise should be advancing.

What was it, then, that influenced David Maustaud’s decision on the Expedited Claim Handling Process?

Until the Rigsby sisters pulled the covers back and filed their qui tam claim, the Maustaud covered the scheme in progress.

What accounts for the Senate’s failure to pass HR3121?

Chris Dodd has supported every bailout save the one that would have stimulated the economy and recovery of hurricane damaged Mississippi, Louisiana and Texas.

A recent Tom Friedman column on the financial crisis illustrates an undeniable comparison and provides insight.

This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

So many people were in on it: People who had no business buying a home, with nothing down and nothing to pay for two years; people who had no business pushing such mortgages, but made fortunes doing so; people who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so; people who had no business rating those loans as AAA, but made fortunes doing so; and people who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no interest in stopping it.

…check out Michael Lewis’s superb essay, “The End of Wall Street’s Boom,” on Lewis, who first chronicled Wall Street’s excesses in “Liar’s Poker,” profiles some of the decent people on Wall Street who tried to expose the credit binge…Lewis also tracked down Steve Eisman, the hedge fund investor…

‘We always asked the same question,’ says Eisman. ‘Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.’ He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S.& P. couldn’t say; its model for home prices had no ability to accept a negative number. ‘They were just assuming home prices would keep going up.

Friedman said that’s how we got here – a near total breakdown of responsibility at every link in our financial chain.

The Scheme, likewise, represents a near total breakdown of responsibility in the insurance industry at every link  – a breakdown from the language of the policy to the decisions that made NFIP reinsurance by default following Katrina when only Kamp Re was triggered by the disaster.

Who done it?

Who had the motive?  the means? the opportunity?  Who in the insurance industry did not?

And now, the end is near;
And so I face the final curtain

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For what is a man, what has he got?
If not himself, then he has naught.
To say the things he truly feels;
And not the words of one who kneels.
The record shows I took the blows –
And did it my way!katrina_statefarm2

Who done it?

We’ll find out in ex rel Rigsby v State Farm.

24 thoughts on “The Scheme: final curtain – who done it (Chapter 7 qui tam)”

  1. Brian? Make sure I’m there when when we trade shots for understatements… (because I know I’m going to loose! 🙂
    And I do mean that in good spirit.
    I want anyone to show me a piece of work which better explains this.
    I mean, I’m not like you slabbers when it comes to this stuff. Just ask that Beotch, Claimsguy.
    But I am getting it, because this is so entertaining just on the side!!
    I may not be able to understand insurance policy fine print, but I did read Absolom Absolom 3 times. There is a reason that things come the way they do in Mississippi that easily defies the finest acumen.
    I’d be willing to bet that Mz Doucy and ol’Editilla have read a few of the same books.

  2. Furthermore in my ohso’mfkn opinion this needs to go to at least paperback publication.
    Book material. Yes.
    That way you could expand the photo / graphic journalism as well.

    I can see a book cover:
    a formal, real painted by a painter, painting of a huge pile of insurance claims piled to the sky on an old bed.
    ~~Atop this Great Pile?
    Hmmmm… Little Katrina? (work on that)
    ~But at the bottom of the painting I see the Good Hands at the bottom holding The Needle, even The Syringe… or a pile of Needles… or a Needle/Syringe in one hand and the Signing Pen in the other… or… chains, or just blood dripping of of the Good Hands from millions of Needle Pricks…
    ~In the Background are Haystacks, millions of them… and farms and animals and drowning and flooded and blown away people
    very Hieronymus Bosch (In fact somebody call his agent. D’OH that would be the Grim Reaper I suppose.)
    …and the wind, can’t forget the wind.


  3. You need to put this in a book because, when the shit hits the fan, computers can get ruined by nonexistent wind and flood.
    Because The Scheme should be told for a 1000 years.
    You can read The Scheme by candle light to your children to frighten them away from claims guys.
    You can dry out a book and read it again.
    And even if The Scheme molds after a Hurricane, remember how actually pretty all that was in the broad sunlight.

  4. Great work. Do you think it would be possible to put the series in one post? I have read alot of these but feel I have missed one or two. It would be nice to be able to link them all in one spot as well. If Claims Guy keeps hanging out here reading your work he runs the real risk of becoming a consumer advocate. Oh well.

  5. Sop made a similar suggestion about putting the series in file on left side bar.

    I believe the difference is that you’re wanting to see it as a single link. Maybe I can do both.

    Appreciate your interest. Thanks.


  6. I’ll be the Johnny come lately and chime in too. Simply excellent Nowdy. You get the next dozen of Drago’s oysters.

    Steve we will have a page with links to every post.


  7. Oysters on me. The insurance shills cannot dispute the brilliance of the “scheme” series, even if they disagree with it.

    Oh, and it’s snowing in New Orleans.

  8. I tried to let you know earlier how much I appreciate the oyster-offer but couldn’t get back online before I had to leave for afternoon appointments – but thanks, guys, I can’t wait!

  9. Just checked thread.

    I don’t know a whole lot about the evidence in the qui tam. I never have tried a qui tam, RICO or class-action. So, I’m probably not in a much better position than anyone else to make a prediction.

    I’m very interested in the outcome though. The False Claims Act is an animal unto itself.

    However, I do know a good bit about the Watkins case and verdict from Oklahoma, but I don’t know if Lecky and the gang’s prior conduct will come in under 406 (habit or routine practice) evidence. If I’m not mistaken, the Rigsby sisters were invovled in some of those tornado claims. If the all of the Oklahoma evidence of engineering “shake and bake” comes in, I would think State Farm could have the same problem it had with the Watkins jury.

  10. E.A.Renfroe was associated with Haag in Oklahoma – have no idea if the Rigsby sisters were assigned there – but I thought it rather odd that SF suspended Haag after the Watkins decision but kept Renfroe.

  11. The Haag suspension is transparent, plausible deniability. The simple answer is that Renfroe was State Farm’s legal “agent” while Haag was arguably just SF’s expert.

  12. If the whole point of the Katrina cases is wind vs water, then the tornado case from Oklahoma would seem to be irrelvant. Unless you want to allege a national scheme to underpay every first party case of every type. Good luck with that. The crap that passes for analysis here won’t survive any process that requires compliance with the rules of evidence, and that case will collapse of its own weight.

    Having said that, and with Trahant ducking the question, what about the rest of you? You all seem to think you are insurance law experts: what’s going to happen in the qui tam? Pick a number. Let’s share. It’ll be fun.

  13. Gosh, CG, you missed the logic – if all the industry provides is “crap” that’s all we have to analyze.

    Expertise in insurance law is not as relevant to this case as expertise in technology. In that regard, you can be certain whatever is going to happen in the qui tam is predictable. The results of that prediction are evident if you consider the data of the MID report in context of the related silence that followed the release.

    Now, Santa might put the magic number in your stocking if you’re nice – but it’s naughty to say the idea of a technology-assisted scheme is crap when we both know artificial intelligence is better than none.

  14. State Farm’s only prayer in the qui tam case is to suppress the evidence. They have known from the start that they cannot defend their handling of Katrina claims.
    SF is going to keep filing motions challenging the admissibility of the evidence and filing appeals of any adverse rulings on those motions. The big question is whether the 5th Circuit will let Judge Senter have a trial on the merits of the Rigsbys’ claims.

  15. Let me explain my last comment.
    I am not a lawyer and do not know the precedents for some of these motions, but I know the 5th Circuit is not the friendliest venue for whistleblowers, so I wonder whether Judge Senter may be boxed in to exclude some of the relevant evidence.

  16. Thanks for the clarification. State Farm certainly will try the box – I’m working on a post about that very situation with another case.

    I suspect what they’d like to box most will not fit – nothing but a guess on my part that will make more sense once my post is up.

  17. Claims guy– “if the whole point of the Katrina cases is wind vs water, then the tornado case from Oklahoma would seem to be irrelvant”

    Really? Irrelevant? How is it irrelevant when the same exact defendant engages in the same exact conduct to deny legitimate, covered losses? Using experts who have been paid millions to write as Judge Kern Reese of the Civil Distirct Court of New Orleans said “pre-textual” reports.

    How is irrelevant to have every single adjuster testify “it didn’t matter which came first, the wind-rain or the flooding” and then hire experts who say “although the adjuster did not care which came first, he got it 100% correct.”

    I wish I lived in the la, la land of insurance companies; life would certainly be easier.

  18. This case is ridiculous, and it is incredible to me that it has been allowed to carry on for so long. A fifth grade science student would be able to tell that this house was flooded from the photos alone. The roof is in tact, and the bottom of the house is gutted. Unless it was gutted by a horizontal tornado, it is simply impossible that anyone could believe it was damaged from wind. Are you smarter than a fifth grader?

  19. That is true about a 5th grader. I think former CEO Jorgensen at Nationwide said Kindergartners could see that and that is true too. Unfortunatley it also completely misses the point and is simplistic to the point of farce.

    Flooding is not a super peril that negates all other covered perils. Simply put, if the house blew down before it flooded wind coverage applies not flood. And to the extent State Farm tendered without question or proper adjustment flood policies before adjusting the related wind claim means every taxpayer in this country was fleeced to the tune of billions of dollars.

    If you would take the time to learn the actual case facts such as eye witnesses detailing substantial wind damage to the McIntosh residence (backed by photographic evidence) before the flooding arrived you would not make quite so big a fool of yourself in the public record.

    Thanks for commenting with us in any event..


  20. It is false to say that the case has been allowed to carry on for so long. The correct indignation should be that State Farm was allowed to delay this case for so long.
    This case is about whether State Farm can drive around handing out checks for $250,000 from federal taxpayers with no accountability for proving it was owed.
    I will grant there was maybe as much as $100,000 of flood damage after the wind-driven debris had damaged the roof, windows, doors, and walls, which let wind and rain do further damage.

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