Another mother’s child and Judge Senter’s order – Rigsby qui tam goes to trial!

Based on the evidence I heard from the stand, particularly Kerri Rigsby’s own testimony, it appears to me there is sufficient evidence to support the conclusion that she does indeed possess direct and independent knowledge of the facts she has alleged in support of the allegations in the Amended Complaint. This evidence is also sufficient to create a genuine issue of material fact on the merits of the Relators’ substantive allegations.

Sop probably thought I’d want to start this post with, I told you so.  As tempting as that is, I chose to preface Judge Senter’s Memorandum Opinion with a tip of my hat to Pat Labrano, Cori and Kerri’s mother.  Known to the unwashed in the blogosphere as “Ma,”  I had the unexpected opportunity – and pleasure – to meet both Pat and Kerri several months ago when my search for Sushi landed us in the same Ocean Springs restaurant.

Kerri was, as Chip Merlin described her, the type you want to call your friend.  So was her mother and, clearly, the two of them were also friends.  I might add, they were also beautiful and gracious women.

With that truth told, I yield to Judge Senter to tell another – the story of the McIntosh claim, constructed in large part from Kerri’s testimony but clearly verified in other documents available to him.

I  have also included in total the section he titled, Scope of Further Proceedings and, in a separate post, I’ll cover the Summary Judgment awarded State Farm on the Risgby’s claim of retaliation.

Kerri Rigsby is an experienced insurance adjustor who had been working for Renfroe for approximately ten years at the time of Hurricane Katrina. She testified that within a few daysafter the storm, when State Farm was just beginning to adjust the losses under the SFIP policiesand under its homeowners policies, she attended a meeting convened by State Farm. Kerri Rigsby testified that during this meeting the person giving instructions for adjustors and their supervisors to follow told his audience Hurricane Katrina was a “water storm” and the adjustors should go out and “hit the limits” of flood insurance policies. Defendants deny these allegations.

Kerri Rigsby also testified State Farm representatives told her Haag had performed an analysis of the forces generated during Hurricane Katrina and this analysis determined the storm surge flooding preceded the highest storm winds by a considerable time, making it highly likely the insured properties had not been extensively damaged by the storm winds prior to their being damaged by storm surge flooding. Kerri Rigsby testified she accepted these instructions and assumed the Haag report was truthful and accurate, only to find out later this was not the case.

The defendants also deny the substance of these allegations. In mid-September, Kerri Rigsby accompanied the adjustor, Cody Perry (Perry), who first assessed the flood damage at the McIntosh property. She participated in the adjustment process by observing the adjustor’s work, and she assisted in compiling notes of the room measurements the adjustor made as he moved through the first floor of the McIntosh home assessing the flood damage. The State Farm flood claim file for the McIntosh claim contained a detailed diagram of the McIntosh residence with measurements of the dimensions of all the first floor rooms. The flood file also contained a plethora of photographs of the damaged property.

By the time Cody Perry and Kerri Rigsby visited the McIntosh property, the McIntoshes were taking remedial measures to minimize their damages as is required under their State Farm homeowners policy. The McIntoshes had removed much of the damaged dry wall on the first floor and most of the debris from their home by the time Cody Perry and Kerri Rigsby arrived to inspect the property. The notes prepared during or just after the on-site inspection indicate Perry found evidence to support the conclusion the property was flooded to a depth of approximately five feet above the ground floor.

Based on the Perry’s report and evaluation, State Farm paid the policy limits ($250,000 dwelling and $100,000 contents) to settle the McIntoshes flood damage claim and closed its file for the flood policy. Neither Perry, Kerri Rigsby, nor any other representative of State Farm or Renfroe made an item-by-item assessment of the damage to the McIntosh property. This type of  item-by-item assessment is informally called a “stick built” estimate, and State Farm uses a software program called Exactimate to assist in calculating the damage when this type of evaluation is done. In evaluating the damage to the McIntosh property, State Farm relied upon a different software program called Exactotal.

Exactotal does not yield a “stick built” or item-byitem estimate of damage. Rather, Exactotal makes an estimate of the damage when a property is a total loss (either actual or constructive). Based upon its Exactotal estimate, State Farm paid the limits of coverage under the McIntosh SFIP and closed its flood adjustment file for the McIntosh property. State Farm’s wind damage file for the McIntosh property remained open. In due course State Farm submitted a claim for reimbursement to the United States, and the United States honored that claim.

Kerri Rigsby testified that on or about October 12, 2005 (approximately two weeks afterthe inspection of the McIntosh property), Perry handed her an engineering report concerning the damage to the McIntosh property. The report was prepared by Brian Ford (Ford), an engineer employed by Forensic Analysis Engineering Corporation (Forensic), on October 10, 2005. Kerri Rigsby testified there was a Post-it note on the front page of the report indicating the report should not be put into the wind damage file, where engineering reports normally went, and the note also stated the report should not be discussed. Kerri Rigsby testified she had never before seen instructions similar to those she found on the Post-it note. She gathered from her conversation with Cody that he was asking her to take physical possession of the report and see it was handled properly.

Kerri Rigsby pulled the McIntosh wind damage file for the purpose of putting the Ford report into that file. Upon examining the contents of the wind damage file, she found a different engineering report, one prepared by John B. Kelly (Kelly), another Forensic employee. Kelly inspected the McIntosh property on October 18, 2005, and signed his report on October 20, 2005.

In her experience it was unprecedented to have two engineering reports on a single property, and it was also very unusual to see an engineering report prepared just two days after the engineer, Kelly, inspected the property. Kerri Rigsby testified it usually required weeks after an engineer’s on-site inspection to prepare and finalize an engineering report. Kerri Rigsby also testified shewas surprised to find only ten days elapsed between the date the Ford report was signed and the date the Kelly report was submitted.

Once she had the two reports in hand, Kerri Rigsby testified she had a conversation with Alexis King (King), the State Farm supervisor in charge of the McIntosh claim. Kerri Rigsbytestified King acknowledged she (Rigsby) was not supposed to have seen these two engineering reports. The two reports are very similar except for the conclusions drawn by the two engineers.

Ford’s report does not identify or discuss any substantial flood damage at the McIntosh property, and Ford reached the conclusion the damage to the property was caused by wind. Kelly’s report agreed with Ford’s conclusion there was considerable wind damage, but Kelly also reports he observed extensive damage from storm surge flooding.

Ultimately, these circumstances led Kerri Rigsby to conclude State Farm was wrongfully attempting to maximize its policyholders’ flood damage claims (which are ultimately paid by the United States) in order to minimize the policyholders’ wind damage claims (which are paid by State Farm). She also concluded the Haag report concerning the timing of the peak winds and the arrival of storm surge floodinwas false and the report was done in furtherance of State Farm’s plan to dishonestly identify wind damage as flood damage.

The defendants sharply contest the truth of Kerri Rigsby’s allegations and of the
conclusions she reached after seeing the two reports. The defendants’ evidence established Katrina was a massive storm that devastated the Mississippi Gulf Coast and left many homes as 1) only foundations (“slabs”), 2) only pilings (“popsicle sticks”), or 3) empty shells (“cabanas”). The McIntosh dwelling did not come within any of these three categories. Although the McIntosh dwelling was extensively damaged by storm surge flooding, its exterior walls, roof, and interiorwalls were still standing.

State Farm’s witness Michael Farrier (Farrier), who was above both Kerri Rigsby and King in the State Farm chain of command, testified all State Farm’s flood insurance adjusting practices, including the adjusting practices Perry followed in evaluating the flood damage at the McIntosh property, were consistent with applicable Federal Emergency Management Agency (FEMA) guidelines and instructions. Apparently, not all of the FEMA guidelines for adjusting
SFIP losses were reduced to writing. State Farm asserts FEMA gave its blanket approval for the payment of flood policy limits for catastrophically damaged covered properties, where only foundations, pilings, or empty shells remained.

According to Farrier, FEMA also granted State Farm (and other write-your-own carriers) the authority, on a case-by-case basis, to pay SFIP limits of coverage for homes that were catastrophically damaged yet did not fit within the three categories designated as total losses, i.e. when the damage was sufficient to render the property a constructive total loss. Farrier testified that– in the case of a constructive total loss– FEMA’s guidelines allowed State Farm to evaluate the flood damage without making an item by item, “stick built” estimate of the flood damage.

According to Farrier, this was precisely the situation of the McIntosh residence, i.e. while the McIntosh property did not come within the three categories (slabs, pilings only, or empty shells) that were uniformly considered total losses, the flood damage to the McIntosh property was so extensive it justified State Farm’s decision to consider the home a constructive total loss and pay the SFIP coverage limits without making a detailed estimate on an item-by-item basis.
State Farm asserts King, the individual who ordered the second engineering report on the McIntosh property, was fully justified in sending out a second engineer to evaluate the storm damage at the McIntosh property.

King’s deposition testimony was that the first report, the one Ford prepared, was inaccurate and incomplete in that it did not take note of the flood damage documented by Perry’s inspection notes and the photographs in the flood file. King found the Ford report unacceptable, and she took steps to disqualify Ford’s employer, Forensic, from further participation in adjusting State Farm claims. King relented in her initial decision to terminate State Farm’s relationship with Forensic when Forensic agreed to send a different engineer (Kelly) to inspect the McIntosh property and evaluate the damage to the dwelling. Kelly testified his employer, Forensic, instructed him not to estimate the quantity of damage caused by wind or water, but only to determine the predominant cause of the damage to the McIntosh dwelling. Pursuant to these instructions, Kelly did not attempt to segregate and compare these different types of damage, and Kelly ventured no opinion on the dollar amount of flood damage he observed.

Based on the evidence I heard from the stand, particularly Kerri Rigsby’s own testimony, it appears to me there is sufficient evidence to support the conclusion that she does indeed possess direct and independent knowledge of the facts she has alleged in support of the allegations in the Amended Complaint. This evidence is also sufficient to create a genuine issue of material fact on the merits of the Relators’ substantive allegations.

Scope of Further Proceedings

Rockwell, 549 U.S. at 476, indicates any relator in an FCA case is limited to pursuing claims of which he has first hand knowledge, and each claim must be considered on its own merits: Section 3730(e)(4) [of the FCA] does not permit jurisdiction in gross just because a relator is an original source with respect to some claim. We, along with every court to have addressed the question, conclude that §3730(e)(4) does not permit such claim smuggling.

In their original complaint, the Relators alleged a vast conspiracy among several insurers to accomplish the same ends they allege State Farm sought to bring about. The amended complaint was also very broad, alleging misconduct by firms and individuals who have since been voluntarily dismissed. State Farm is the only defendant now charged with having presented a false claim, and the allegations of the Amended Complaint identify only one specific instance of misconduct: the McIntosh claim.

The McIntosh claim is the only instance of State Farm’s having submitted an allegedly false claim of which the Relator Kerri Rigsby has first hand knowledge, i.e. direct and independent knowledge sufficient to support the Court’s subject matter jurisdiction, in light of the decision of the United States not to intervene. Yet the Relators’ complaint alleges McIntosh was just one among many similar false claims State Farm and the other defendants conspired to submit. In order to protect the interests of both parties, I must strike a balance between the Relators’ interest in identifying these other allegedly false claims and the defendants’ interest in
preventing a far ranging and expensive discovery process that relates only to claims that are not, for now, specifically identified.

Accordingly, I will limit the presentation of evidence in this action to facts relevant to the McIntosh claim. In light of the extensive discovery that has already been conducted with respect to this claim, I do not believe there will be much in the way of additional preparation necessary to bring this case to trial. I will therefore refer this action to United States Magistrate Judge Walker to establish a pre-trial schedule so any additional discovery can be completed before the end of this calendar year. In the event the Relators prevail on the merits of their allegations concerning the McIntosh claim, I will then consider whether additional discovery and further proceedings are warranted.

In the meanwhile, so I may know the outer limits of the potential claims involved in this action, I will require State Farm to submit, in camera, a list containing the name of the insured, the address of the property, and the amount of flood insurance paid, for all SFIP claims that meet the following criteria:

A) The insured property did not fall within any of the three categories of storm damage for which FEMA approved payment of SFIP limits, i.e. insured dwellings that were not left as slabs, pilings, or empty shells; and B) For which SFIP limits were paid on the grounds the property was a constructive total loss; and

C) For which no “stick built” or Exactimate estimation of the flood damage was made before the SFIP limits were paid.  An appropriate order will be entered.

Just a few days short of the fourth anniversary of Hurricane Katrina, our journey for justice begins.  SLABBED takes to the road mindful there will be bumps and that it is a very long way to the end.

43 thoughts on “Another mother’s child and Judge Senter’s order – Rigsby qui tam goes to trial!”

  1. “Apparently, not all of the FEMA guidelines for adjusting
    SFIP losses were reduced to writing” This does not sound like the FEMA we had to deal with after Katrina?
    Are there two FEMA’s?

  2. RE: S/FARM’S estimating programs;

    EXACTOTAL a/k/a E X T R A C T TOTAL FLOOD POLICY LIMITS (so the Feds can reimburse us) and close the Flood file. Of course, there’s obviously no reason to consider our Homeowner’s $ is there? CLOSE THE FILE AND MOVE ON.

    But when they do use the Exactimate program in a HOMEOWNER’S claim, boy is that software EXACTLY itemized….line by line by line…when they’re itemizing that type of loss (which usually leads to a DENIAL).


  3. Steve hit the nail on the head. This was the crux of my comment on the initial post about this ruling. I’ve never had the pleasure of meeting Judge Senter, although I’ve admired the Herculean effort he has undertaken in Miss., which has been both smart and efficient. But, ALL FEMA guidelines and rules are reduced to writing. How does he make such a quantum leap based on the testimony of State Farm employees alone? One would think a government official would have to make such a pronouncement regarding “verbal” guidelines and then come to court and confirm this under oath (Murastad, Shortley, etc). THIS IS WHERE THE REAL BODIES ARE BURIED. This is particularly true in slab cases. Lower-middle Plaquemines Parish, Eastern St. Tammany and Northeastern Orleans Parish and the Coast of Miss.

    McIntosh is not even a good example of flood dumping. Let’s try a 50 year-old wooden structure in Buras, La. where hurricane force winds beat on it for hours before the water rose to the floor-level, but then the homeowner/wind claim was denied because someone in a call center in Dallas shoved flood limits down the insured’s throat without even inspecting the property, the geographical area, weather data, engineering principles, etc. You get the picture.

    What up, Steve?

  4. The auditor in me would say that no FEMA employee would have the right to contravene laws passed by Congress or program regulations such as those in the NFIP that explicitly placed a fiduciary duty on WYO insurers to properly apportion damage between the peril covered by the NFIP and other perils covered under private policies.

    It would be a mistake IMHO to assume that these issues are still not being looked at from a criminal angle as well.

    Anyone seen our State Farm girl Amy?


  5. Perjury, subornation of perjury, obstruction of justice, and conspiracy to commit same (just to name a few) will be “committed” at this trial, if it goes to trial, which I doubt. The criminals cannot allow this case to go to trial and will do ANYTHING and EVERYTHING to make it “go away”. That’s my prediction. AROD.

  6. Katrina hit August 29, 2005. Consistent with their planned scheme to call everything water loss, and falsely shift billions of their own financial losses on the government, by August 31, 2005, State Farm had gotten to David Maurstad, head of the flood program (and former Nebraska claims adjuster appointed by Bush), and had him waive the stringent proof of loss requirements under the flood program. It took almost nothing — a couple of calls from SF insiders in Bloomington to Maurstad’s Washington office, plus a clandestine meeting or two (Georgia), and within 48 hrs of Katrina landfall Maurstad issued a memo unilaterally waving the flood program POL requirements. As a WYO flood carrier, SF was at all times subject to a STRICT FIDUCIARY STANDARD OF CARE in dealing with federal flood coverage, but ultimately this meant nothing because in a bought-off system of government, there’s no one to enforce the law. FEMA was being run by Computer Science Corporation (CSC), a private for profit corporation (which BTW also produced the fraudulent and notorious Collossus adjusting software). SF had Renfroe recruit hundreds of so-called “adjusters,” and tell them how they’d make more money in a matter of months than they’d ever seen in their otherwise unremarkable lives. They flowed in from everywhere and every walk of life — unskilled construction workers, tanning salon owners, former claims agents, etc. Like a conscribed army of fraud factors, they were issued SF laptops, processed through Birmingham (epicenter of right wing political corruption) and then reported to Lecky King on the Coast who instantaneously certified them as “flood adjusters” in one afternoon. Then, programed to hit the flood limits so they could make their commissions, they marched out armed with readily payable flood checks topping out at $350,000.00 ($250K on DW, 100K on contents). This was considered brilliant corporate strategy for a host of reasons. First, when Katrina hit, SF was desperate to find an effective way to defeat and knock down a significant part of the unprecedented losses it faced. (Forget the fact the losses may have been owed — the purpose of the insurance industry is to make and keep profits, and other than sales pretext, risk transference has little or nothing to do with the insurance business). Sure, the indecipherable ACC provision could be effectively used to destroy or at least obfuscate most people’s claim, but that plan left SF looking like the corporate thugs they actually are, and besides, it couldn’t be relied on as a way to shift a large part of the massive losses. And, using the ACC to defeat claims was certain to spawn lots of lawsuits, assuming PH’s could find well funded counsel up to the task. SF knew it had charged and collected premiums for coverage it illegally excluded under the hideous and fraudulent wording of the ACC, but it was banking that most plaintiff lawyers would never pick up on this financial nuance. A challenge of this nature required a meticulous analysis of rate filings; something most plaintiff lawyers weren’t willing to do. However, if the PH had flood coverage, this put a whole new spin on everything, and to boot, was extremely profitable. First, paying flood limits (often without any adjustment) placated the PH, warded off one more lawsuit for the moment, and made it appear SF was generous, reasonable and quick in paying claims. Second, it created a basis for SF to de facto offset its own liability under the policy, such that every flood dollar paid could be used to reduce pro rata SF’s liability under its policy. This couldn’t be done by a real offset b/c the policy contract forbid it, so SF got a the Court to rule that the indemnity rule — one damage, one loss — applied. This way SF achieved indirectly what it was prohibited from doing directly — applying an offset by payment of flood coverage. As if all this weren’t enough, thirdly, SF and Renfroe could pay the fraud factors’ commissions and bill all these costs to the gov’t. And the key to all this, the thing that made it all work, was getting Maurstad to go along with an instaneous waiver of the POL requirements. It was an “everybody wins” strategy, and some thug at State Farm was told he/she was “brilliant” for coming up with it. First, SF shifts billions in losses; Second SF gets pro rata reduction on its policy losses adn circumvents the no offset rule under flood coverage; third, Renfroe’s prinicipals reap obscene profits; fourth, the PH are placated and leg to believe SF is generous in paying claims; fifth, newly hatched “flood adjusters” (fraud factors) could be endlessly recruited on the promise of earning lucrative commissions. Only one possible, but remote problem. What if someone isn’t placated with money, and God forbid, blows the whistle on all this? Well, there’s always the so-called Alabama Trade Secrets Act, and a certain federal judge in Alabama . . . and now you know . . . the rest of the story.

  7. Juriscribe we have the dating on expedited claims laid out in an earlier post and presented proof that SF adjusted claims consistently even before Muarstad (IE dump everything on flood and deny wind). It is not a huge window of time but it provides proof positive the fix was in with them from the start. I beleiev there is an email from Lecky King out there that actually identifies the SF employee who wrote expedited claims for the NFIP.

    Nowdy do you remember that post?

    Here is the document. Look on page 37 and 38. Our readers can find the old post by typing in O’Keefe in our search box.


  8. Corporate Governance
    Atlantic Legal advocates against intrusive regulation of business and advocates for responsible corporate governance. The Foundation was an early proponent of preservation of the attorney-client privilege against compulsory waiver of that essential protection where corporate misconduct has been asserted. It has challenged abuse of class action procedures.

    Lets see one of the founders of the Atlantic Legal Foundation just got hit with a 15 million dollar fine this week—Hank Greenberg. The Atlantic Foundation has fought hard to help Mr. Greenberg during this time of judical prosecution.


    Board of Directors
    Hayward D. Fisk
    DLA Piper US LLP
    Los Angeles, CA
    Vice President & General Counsel (Ret.)
    Computer Sciences Corporation

    Ernest T. Patrikis
    White & Case LLP
    New York, NY
    Senior Vice President & General Counsel (Ret.)
    American International Group, Inc.

    These two guys used the Foundation to help Hank Greenberg when he faced very serious charges of misuse of his position of leadership at AIG. Mr. Greenberg was kicked out of AIG but not the Atlantic Foundation which he helped found. They fought in Court to help Hank have a better legal position in his cases of corporate misconduct and they showered him with awards to make him “smell” better in the public arena. What was the limits of their efforts to help the insurance industry???

    “FEMA was being run by Computer Science Corporation (CSC), a private for profit corporation (which BTW also produced the fraudulent and notorious Collossus adjusting software). ”
    Quote from Juriscribe

  9. Chip Merlin has written about the wind/water protocal in prior post.

    I was in Judge Senter’s Courtroom when he directed a verdict against State Farm regarding its claims handling. He seemed emotionally upset regarding the handling of the claim. State Farm established a Wind Water Protocol for handling cases where the structure was damaged and nothing remained. I wrote about the arbitrary nature of State Farm’s decision in a prior post, Broussard Oral Argument: Warming The Bench Is No Easy Task:

  10. When is someone going to post “Stranglehold” by Ted Nugent, or at least the first verse?


    Reforms Needed to Prepare for Major Catastrophes,
    Insurance CEOs Tell Forum
    New York, Jan.10, 2006

    Edward M. Liddy, chairman, president and chief executive officer, Allstate, said the 2005 hurricane season has raised awareness of the need for a plan to deal with mega-catastrophes.

  12. You are like a x-ray machine on the industry juriscribe–

    “And, using the ACC to defeat claims was certain to spawn lots of lawsuits, assuming PH

  13. Oh my oh my. What a problem I do create when I don’t properly cite the source,— I don’t do it in a manner that will be clear to all. I do have a problem with writing clearly and hope this clears it up a bit…


    You are like an x-ray machine on the industry juriscribe

  14. Steve, your writing is fine and tx for clearing it up. I’m going to check out the link regarding State Farm’s ‘news” in Fla.

    Tx for the info.


  15. Shirley State Farm has not figured out they are an internet sales company with one of the worst reputations on the internet. People used to decide on how to buy auto insurance via human relationships with a trusted community member IE their agent. Now in ever increasing numbers consumers are turning to the internet to get more information and to purchase auto insurance. Internet auto sales are up 750 percent in the last 5 years industry wide. 65 percent of consumers who view a TV commerical turn to the internet for more information. All this is killing a company who screws its customers and uses an offline sales force to keep the customers loyal despite being screwed. Its a new world and State Farm is not transitioning to the net very well. Can you say Blockbuster Video???

    This favors companies like GEICO who know how to manage their online reputation. It is killing companies like State Farm who have bad reputations on the net and good offline sales forces. Their strenghts are now their weakness. HINT—Information age!!!

  16. My apologies for typos in the latter part of my very long Aug 11, 7:05 AM. I trust the missteps were so obvious (“leg” should be “led,” etc.), most readers could correct by context reading.

    Anyway, Steve wrote Aug 12 @3:29 PM:

    “When the industry REDUCED coverage via a change in the policy language(ACC), they did NOT reduce the cost of the policy. If you check the rate filings . . . . ”

    Steve zeroed-in exactly. I was pointing out how SF, fresh out of the Aug 2005 war room meetings, saw the ACC merely as one claim defeating strategy, but knew that a broad based ACC denial was risky and problematic, for several reasons which I’ll discuss in a separate comment. Besides, ACC denial couldn’t deliver in one blow a blockbuster write down of the colossal losses ahead. On the other hand, the wholesale transference of billions in losses to the flood program was a claim defeating strategy one could write Momma about. You might say . . . “you must mean ‘claim adjusting’ (not defeating) strategy.” Actually, no I don’t. Insurers like SF don’t “adjust” claims anymore than the company “transfers risk” from you when you involuntarily purchase their counterfeit products. Risk transference is mere pretext. The insurance enterprise is about acquiring profit, not risk, and so-called “claims adjusting” is about defeating loss, not defining and paying it. Think of it this way: the insurance business model is built around using your own money to destroy or minimize coverage payment to you. It’s about profit, period, end of story.

    I’m breaking the rest up into a separate comment.

  17. Your term “claim defeating” makes a lot of sense, juriscribe. I look forward to the rest of the comment. Thanks.

  18. Not to get off on an ACC rabbit trail . . . but a little epidemiology on the ACC virus and how ISO and the insurance cabal bamboozled an inept Mississippi bar, judiciary and legislature, is worth reciting.

    The ACC virus was imported to Ms by Nationwide, probably around 1986 (best estimate). NW applied for, (and of course got rubber-stamped) a new HO policy form with an indecipherable provision said to exclude water damage. Insurance Services Office (“ISO”), located so appropriately in the Sopranos’ homestate of New Jersey, usually helps draft fraudulent policy provisions like these and finesses the approvals through sham insurance commissioner offices like Mississippi’s. The idea here was to slip a mickey in the Ms Commissioners’ approved forms file, and over the years make sure it metastasized. It was a very illegal move, but one likely to go unnoticed in a sleepy southern business climate. See the problem for the insurers was, under public policy rules, courts routinely struck down language in private party contracts designed to circumvent or abrogate settled state law. (Otherwise, what’s the use of having a court and legislature; let’s just turn the whole lawmaking thing over to banks and insurance companies who write all the contracts anyway). In Ms and elsewhere settled law held the insurer was liable for all losses proximately caused by the loss event, under the “efficient proximate cause” doctrine. This prevented insurers from parcing losses like . . . well, let’s see if we can think of an example . . . oh yeah, here’s one, like fictionally dividing a hurricane into two loss events, wind and water. Or, how about a fire loss: “ya see you got yer burn damage . . . and yer smoke damage . . . the policy says them’s two completely different thangs . . . and the company don’t pay on no smoke damage. Ever body knows a “farrh” is two different thangs: part flame, part smoke.” The proximate cause rule kept insurers from busting up loss events to fraudulently defeat payment. Only one state caught the sloganeering pimps with their pants down, and spanked their asses proper. (See, Hirshmann v. Safeway, Washington Sup Ct; no cite handy). No matter, the lobbying corp was summoned and before you could say “Jimmy cracked corn” the ACC virus had multiplied to something like 22 states.

    Secondly — and this is finer point Steve picked up on — when the ACC form was slipped in and approved, no one even bothered to ask where’s the premium reduction since the coverage’s being cut in half? Year after year the thieves filed for rate increase after rate increase, and no one even bothered to check the fraud inherent in all of this. (Of course when the Commissioner’s re-election is funded by State Farm, NW, Allstate . . . well, you get the point). Mississippi — back when it still had an intellectually honest supreme court — held in case after case: Mr. Insurer, if you collected a premium, you owe for coverage and we don’t give a gd how many tricks you wrote in as exclusions. In other words coverage follows premium, on a one to one ratio.

    So, the ACC was a breakthrough fraud scheme in two important ways: one, it proved form contract drafting could supplant and circumvent established law and still go undetected if everything was “handled” (like ISO) right; and two, coverage could be chopped in half by using ACC policy forms, without any commensurate reduction in premiums. And, most important, the thugs realized, as long as we keep this pimp commissioner in office, next year, and the year after that, and the year after that, rate increases will be filed and approved, approved, approved.

    “Greed . . . is good . . . greed is right . . . greed works.”

  19. Not sure who owns it. I’d like to know though. It started out as a form factory for the insurance industry. Then it realized through copyright of its forms, and branding, it could start claiming if it wrote a policy form, it was the industry standard form. ISO would tell a commissioner “our HO form 2020 has been accepted in 10 states already Mr. Commissioner, thus we fully anticipate you’ll find our form acceptable in your jurisdiction . . . . ” (See a parallel here with SF getting their good buddy judge to seal discoverable documents from case to case). Building on a theme, ISO next starting offering to “interface” with regulators on behalf of their clients, like Allstate, NW, etc. Interface meant steering rate requests through commissioners and a myriad of other sleazy, insider activities run through a patchwork of insurance commissioners’ offices. This all goes back to McCarran-Ferguson, and the story of how the insurance industry came to be left in the hands of 50 insurance commissioners, and one inept national trade group, the NAIC. That’s really what gave birth to ISO and its ilk.

  20. I’ll look into the who owns ISO. So far, I’ve found more important than who owns a company is who is in charge of the company. Odd way to look at it but the owners are not always in charge of a company or the government is not always run by the people we elect or are appointed. Example of government NFIP. Example of company CSC. In the private sector, I like to see if the corporate counsel has a dual relationship with the industry. Ex. CSC had its top lawyer working for a legal non-profit founded by Hank Greenberg. CSC ran the NFIP flood insurance program as per juriscribe. These guys deliberately infiltrate companies and government agencies. The way they do it is straight out of spy novel CIA manual stranger than life stuff. They are good at what they do.

    Very nice stuff juriscribe.

  21. Links on ISO so far—

    “ISO was owned and controlled by insurers. ”

    Simsbury, Connecticut and Dallas, Texas. Dennis B. Sullivan conducted this interview on March 11, 2000 in New York City.

    Dennis: Fred, tell us a little bit about ISO and how you arrived where you are today.

    Fred To understand where we are today, you have to understand where the business is today in contrast to where the business was.

    Very simply, ISO was a rating bureau, a statistical agent. We gathered data, issued advisory pricing information, and designed coverage parts. ISO was owned and controlled by insurers.

    Several factors had a tremendous impact on ISO. The first was antitrust litigation. ISO, along with several primary insurers and reinsurers, was accused of antitrust violations by the attorneys general of 20 states. (The state attorneys general charged a boycott in the development of ISO’s standardized commercial general liability policy language in the mid-1980’s. A federal judge dismissed the suits, but appeals followed.) I became CEO in January 1988; the lawsuits were filed in February 1988, My predecessor had an incredibly good sense of timing. The case dragged on for a number of years and went all the way to the U.S. Supreme Court, but it didn’t affect our operations, our products, or our services to our insurers.

  22. “ISO was owned and controlled by insurers. ”

    Simsbury, Connecticut and Dallas, Texas. Dennis B. Sullivan conducted this interview on March 11, 2000 in New York City.

    Dennis: Fred, tell us a little bit about ISO and how you arrived where you are today.

    Fred To understand where we are today, you have to understand where the business is today in contrast to where the business was.

    Very simply, ISO was a rating bureau, a statistical agent. We gathered data, issued advisory pricing information, and designed coverage parts. ISO was owned and controlled by insurers.

    Several factors had a tremendous impact on ISO. The first was antitrust litigation. ISO, along with several primary insurers and reinsurers, was accused of antitrust violations by the attorneys general of 20 states. (The state attorneys general charged a boycott in the development of ISO’s standardized commercial general liability policy language in the mid-1980’s. A federal judge dismissed the suits, but appeals followed.) I became CEO in January 1988; the lawsuits were filed in February 1988, My predecessor had an incredibly good sense of timing. The case dragged on for a number of years and went all the way to the U.S. Supreme Court, but it didn’t affect our operations, our products, or our services to our insurers.

  23. Well, ISO has been the beneficiary of a very good Board of Directors throughout its history. Our Board of Directors was wise enough to say that one action would be enough to settle the antitrust lawsuit: insurers’ divestiture of control of the corporation. And insurers did that. They divested control of the corporation – ISO is now controlled, not by insurers, but by a Board made up of seven noninsurers, three insurers, and Frank and me.
    Notice the word CONTROL of the corporation.

    You have to have that background to understand where we are today. We’re now positioned with a stable customer base. We are still owned 85% by insurers, who are shareholders in ISO and elect three of 12 directors. Almost 15% of stock ownership is in the hands of our employees.

    We are still owned 85% by insurers…

    This company is ripe to be controlled by an outside person who manipulates the BOD or a key employee or two. It has a very unusual control and ownership structure. Wonder who is the puppet master of ISO?

  24. (This company is ripe to be controlled by an outside person who manipulates the BOD or a key employee or two. It has a very unusual control and ownership structure. Wonder who is the puppet master of ISO?)

    This part is my opinion and not part of the article. Goto the article and find out this is a very weird company indeed. Rate fixing.

  25. OK here is the background of one of the CEO’s of ISO. He no longer runs the company and I believe he is not Chairman of Board anymore. But it does give you an idea of who set up the structure of the company and who ran it for some time. It was a guy from Chicago–

    We are a unique company. We are owned by most of the insurers in the property & casualty industry in the U.S. We have a vested interested in each other. That is an important part of what drives the organization.

    Fred R. Marcon has served as chairman of the board of Insurance Services Office, Inc. (ISO) since 1995. He served as ISO’s chief executive officer from 1988 until July 2000 – as president and chief executive officer from 1988 to 1995; as chairman, president and chief executive officer from 1995 to 1999; and as chairman and chief executive officer from 1999 to July 2000.

    Marcon began his career with the Cook County Inspection Bureau in Chicago, and later became manager of the Illinois Inspection and Rating Bureau, manager of ISO of Illinois and manager of the Illinois FAIR Plan Association.

    In 1975 Marcon was appointed regional vice president for ISO’s Midwestern Region. In 1977 he became ISO’s vice president – government and industry relations in ISO’sHome Office and, in 1979, executive vice president. Marcon was named ISO’s senior executive vice president and chief operating officer in 1983.

    Having this information I would then track down all the associations I can get between Fred R. Marcon and Ilinois based insurance companies. In this article we have a bit more information about Fred


    JERSEY CITY, N.J., Aug. 10, 2006

  27. Arguments Begin in La. Suit Against State Farm and Software Manufacturer

    Publication Date: 06/15/2007
    Source: BestWire Services

    Preliminary arguments in a lawsuit brought against State Farm Fire and Casualty Co. by Louisiana policyholders Gordon and Kathleen Schafer, which allege the insurer underpaid Hurricane Katrina claims by colluding with software manufacturer Xactware Solutions Inc. to keep property replacement costs artificially low, were recently heard in U.S. District Court.

    State Farm spokesman Phil Supple confirmed a preliminary court session took place June 13 in front of U.S. District Court Judge Stanwood R. Duval Jr. Supple said the company would not comment on the lawsuit’s specifics.

    The lawsuit alleges Utah-based Xactware Solutions Inc., also named as a defendant, provided State Farm with software programs designed to assess and estimate property damage. The suit alleges State Farm had a “special profile” designed for Xactware’s product, which was loaded into computer systems by claims adjusters when working for the Northbrook, Ill. property/casualty insurer.

    The suit claims State Farm’s profile quoted prices for building materials consistently lower than standard market value when adjusting and tallying payment for Katrina claims while using the software.

    Xactware Solutions Inc. is a wholly owned subsidiary of Insurance Services Office Inc. Attempts to contact the company were not immediately successful.

    State Farm Fire and Casualty Co. currently has a Best’s Financial Strength Rating of A+ (Superior).

    In 2005, the top writers of homeowners multiperil in Louisiana, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 34.5% market share; Allstate Insurance Group, with 21.8%; Southern Farm Bureau Group, with 7.4%; Farmers Insurance Group, with 4.4%; and Liberty Mutual Insurance Cos., with 3.9%.

    (By Tom De Martini, associate editor, BestWeek: [email protected])

    Copyright 2007 A.M. Best Company, Inc.

    1. Schafer was just killed. We haven’t gotten around to posting on it with everything else that is going on. It is next to impossible to get anything going from a class action standpoint anymore in Federal Court.

  28. You wonder it they have any good information about State Farm and claims handling floating around the Schafers’ legal team?

    Funny how those who fought so hard for killing peoples rights to use class action lawsuits were themselves engaging in class action abuses of the public. I think the industry actually has used technology to implement fraud against their customers. It will catch up with the industry eventually and it is something Congress needs to regulate to ensure technology is not used to abuse people. The control which used to be in place via the Court system has been derailed and companies are growing more proficient at abusing people with new technology. Lawyers and the Courts were once able to bring to Congess’s attention matters that they(Congress) were not dealing with properly. Katrina shows the negative impact that eroding or destroying the class action option has had in that process. It is why anouther avenue was used Qui Tam? Of course State Farm has gamed the Federal Court system of Alabama in an attempt to pervert and kill any future Qui Tam cases via employment contracts?

  29. Schafer had very good representation, some of the best in fact. That said Nowdy expressed the view internally another approach may have enjoyed a bit more success but as one of our readers pointed out to her offline, legal strategy at that level is a team effort that takes many factors into account.


  30. Only the Schafer motion for a class action was denied, there is still the Schafer’s case which was stayed pending ruling on the class as I recall.


    XactTotal Workflow from this link. I was wondering if it was related to Xactware Solutions Inc.


    Also I have some links I’ll have to rework where Edward Rust and Edward Liddy are in Congress testifyng about the need for tort reform to limit class action lawsuits. These guys go around engaging in class action abuse of consumers and are the very people getting the laws changed. Also Hank Greenberg giving over 100 million to the Chamber to spend on “tort reform”. The award the top lawyer at CSC presented to Hank Greenberg was given because of Hank’s work on class action lawsuit tort reform. Yet Hank and the guy presenting the award were both class acts so to say. Kind of sick. The same guys who are gaming our justice system with money and getting Congress to change the laws are using those changes to screw us Katrina victims. SICK.

  32. Steve et al – Y’all have posted some great info on ISO. It’s going to take some time for me to absorb it all. How did we get where we are? Legal loopholes and corporate lobbying created the insurance monster we deal with today.

    After the great depression, sweeping new laws were enacted to regulate the sale of “securities,” and control excess risk taking by banks and corporations. These included the ’33 and ’34 securities acts, and Glass-Stegall (1933). Among other things these laws required the filing of signed registration statements to sell or offer “securities,” mandated strict financial and contract disclosure, and set up an agency watchdogs like the SEC. The Sherman (1890) and Clayton (1914) anit-trust laws, already on the books, forbid price fixing, monopolies, tying agreements and the like. Glass-Stegall was designed to keep banks out of rampant stock trading, seen as a root cause of the great depression.

    After the depression, US courts applied these laws vigorously. However, insurance, unlike every other major business in the private sector, never became subject to any of these laws. Many rejected the argument that an insurance contract somehow fell outside the broad definition of a “security,” but insurers prevailed in case after case. Then, a 1944 US Sup Ct case held that the insurance business could be subject to federal regulation under the commerce clause. At the time, the insurance industry operated in total disregard of anti-trust laws, and without any effective regulation since disclosure rules and agency oversight under the securities acts didn’t apply. Insurance lobbyists scurried to congress and pressed for passage of an exemption law. Presto, the McCarran-Ferguson Act of 1945. So, within one year of the Sup Ct ruling, insurance was exempted altogether from federal regulation and federal anti-trust laws. (Ironically, the lobbyists sold congress by asking for a temporary exemption until a long term solution could be worked out). What we ended-up with was the largest private sector enterprise in US corporate history, virtually unregulated. Gradually, big insurance tightened its stranglehold on us, making it illegal to drive a car without insurance; impossible to buy a house without insurance; impossible to get medical care without insurance; etc. We lost our last ounce of bargaining power when big insurance, deploying fraud factories like ISO, took over the state regulators.

  33. I would add that the current economic problems in housing and health care MIGHT have something to do with your post sir.

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