Let’s talk – the Maurstad directive on post-Katrina Expedited Claim Handling UPDATED

Can you post Senter’s Order from August 10? Order 344. I’d like to see the “criteria”.

In my hurried response to this request from SLABBED reader James Barbieri, I provided the link to Judge Senter’s Memorandum Opinion.  However, both the Order and Opinion contain the criteria Judge Senter established for the list of claims he has ordered State Farm to deliver for his in camera review:

  • 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
  • For which SFIP limits were paid on the grounds the property was a constructive total loss; and
  • For which no “stick built” or Exactimate estimation of the flood damage was made before the SFIP limits were paid.

Mr. Barbieri also requested the Attachments to Maurstad’s letter, which I’ve linked here as Memo and attachments Expedited Claim Handling Process – and added:

I’m also very interested in starting a discussion on the Maurstad letter. There are some cases that involved legal issues subsequent to waiving Proof of Loss, and it looks like State Farm’s best defense will be the governments alteration of contractual obligations, and particularly Maurstad’s comment that “FEMA will not seek reimbursement from the company when a subsequent review identifies overpayments resulting from the company’s proper use of the FEMA depth data…”

I would assume that means that a home totally destroyed my wind, that is in the “in” area…..i.e. flooded, could apply for maximum flood coverage and the government would not request subsequent reimbursement after the actual damage cause was documented.

Is Maurstad’s letter amending the SFIP legal? If so, Senter has to address it….will Maurstad be subpoenaed to testify? How about Shortly and Johnson?

Brian Martin, Policy Director for Congressman Gene Taylor, responded with a comment including this interesting point:

The expedited procedures memo may be State Farm’s best defense but it may also expose them to a broader case…If SF brings in Shortley and/or Maurstad to justify paying flood limits on houses that had plenty of evidence for a proper adjustment, that would seem to bring into play all the evidence that State Farm contacted NFIP to initiate the expedited procedure, drafted the memo, and built a fraudulent scheme around it to pay and close flood claims without investigation and then use acceptance of flood checks against wind claims. If all of this is allowed in court finally will the DOJ finally notice? Then they could finally put the focus on Maurstad and Shortley and challenge the legality of the memo and all the fraud that was shielded by it.

Although we’ve talked about the Expedited Procedure in the context of related cases, I don’t recall a post on the subject and it could not be more timely given the upcoming trial of the Rigsby qui tam claim.

Let’s talk!

UPDATED with the related FEMA correspondence in two pages shown below and with all three pages linked here:

September 1 Shortly GracePeriodPolicies after KatrinaMaustaud Sept 2 PaymentGracePeriodPolicies after Katrina-2_Page_1

2nd Update

Linking per my comment to James 10/06/09: Judge Walker’s Ordercompelling the Rigsbys to provide State Farm with the evidentiary disclosure filed with the Justice Department.

19 thoughts on “Let’s talk – the Maurstad directive on post-Katrina Expedited Claim Handling UPDATED”

  1. “Edward B. Rust Jr., chairman and CEO, State Farm, observed that new technology helped his company provide policyholders with better services. “Satellite imagery now allows us to quickly identify damaged properties so that we can issue checks to policyholders even before we’ve had a chance to visit their homes. ”


    I wonder if he issued policy limits checks to HIS policy holders?

  2. I have a post coming that ties some of these concepts in. The concepts encapsulated in the excellent questions Mr Barbier posed have surfaced in O’Keefe. These concepts go tot he heart of the False Claims suits IMHO.


  3. Here are some basic questions I have:

    #1. Is McIntosh in Maurstad”s “in”, “near” or “out”-group?
    (Does anyone have the depth data chart to clarify?)

    #2. If a property in the in-flooded or near-flooded area didn’t actually flood can the insurer still bill the government? I ask this because many of the Branch Consultants “examples” (listed in their Complaint) have no flooding (according to reinspection experts), yet maximum or near maximum flood benefit was paid. If they were in the in-flooded depth chart…that would explain the adjuster’s motivation.

    #3. Along this line, Maurstad’s Letter Attachment also has the following instruction:

    From Maurstad

  4. We can address all your points James but right now I’ll address #6. The subgroup is not as small as you would think. McIntosh is important because of its location in a neighborhood on the back bay of Biloxi which was not subject to wind driven wave action thus more of the houses survived (coupled with an 18.6′ surge instead of the 25 feet at my place on the beach in Gulfport) thus making the structures adjustable.

    According to testimony at the hearing using the offical flood levels the McIntoshes had only 2-3′ of water and some of their neighbors didn’t flood at all. The houses that were completely destroyed in the neighborhood had several eye witness accounts of tornadic activinty causing their explosions.

    Go back over Nowdy’s posts where she shows the case locations on the map – they are all clustered literally within 10 miles of each other (and also close to the State Farm claims center on Popps Ferry Road). That is a well to do area of Biloxi – State Farm’s exposure there alone probably ran into the hundreds of millions of dollars.

    There are other places in Harrison and Hancock County that meet the criteria – far more than an outsider without detailed local knowledge of the area would understand given the press accounts of slabs (and we had many of those) and innaccurate blog accounts from people who know little to nothing about the lay of the land here.


  5. James, “government knowledge” would not exempt liability for conduct that represents “gross negligence” or “fraud”.

    I found two interesting letters while searching my file for the memorandum with attachments and I’ll see if I can get them to post in a comment.

  6. Letters are in an update published in the post. I found the dates and terms an interesting contrast (if not conflict).

  7. Once State Farm sent adjusters to the property, did they need to use the expedited procedure? All the adjuster depositions have said that they were paying flood limits based on the State Farm guidance that ACC meant that flood paid and SF did not. I have not seen one deposition of a State Farm/Renfroe adjuster in which the adjuster said that the flood payment was based on FEMA water level data. In fact, I remember depositions where the adjusters said they did not need to know the water level.
    All of the justifications of the expedited procedures memo was based on arguments that there were not enough adjusters to perform detailed adjustments of the volume of cases, that some properties would be unreachable for some time, and that many houses obviously had been destroyed by surge and flooding.
    Once State Farm’s adjusters walked on a property, all those justifications disappeared.

  8. I agree Brian and there was also the criteria of “standing water” and the fact that process #1 was developed specifically to address conditions in New Orleans and not areas where the “in and out” surge was the source of damage.

  9. Here’s my take on how the Rigsby team will layout the case for fraud…..based on how Senter decided there was a material issue….

    #1. Maurstad Letter (expedited claim handling procedure) directs WYO Company to use their “best judgment to determine if it is likely that the covered damage exceeds policy limits…If …not likely to cause damage in excess of policy limits…company should proceed to use…[normal procedure].”

    Senter recounts the testimony of senior SF staff Michael Farrier……SF justified in using the procedure Maurstad outlined…..McIntosh fits ….Senter is not so sure.

    #2. Senter’s opinion lays out the timeline….

    Kerri Rigsby and Cody Perry do the site inspection, layout the square footage of the first floor and use the exactotal program to estimate a loss in excess of the policy limits. The limits are paid and the file is closed. (That in-itself is not fraud because they are within the Maurstad rules, in that their best judgment is that flood-caused damage exceeds policy limits.)

    October 10: Then Ford does the engineering report that detects preexisting wind damage…the hole in the front wall which he believes was caused by wind:


  10. Good evening – and good thinking, James. I believe Kerri made your last point, either in the hearing or one of the depositions I’ve been reading.

    I’ve been reading various Maustaud documents and am beginning to believe the “expedited process” may have only applied to flood only claims.

    Nonetheless, McIntosh does not seem to “fit” the expedited process at all – with or without Ford’s report.

    And, then, there’s the issue of paying flood claims alone on property an adjuster could access.

    One thing that troubles me is Judge Senter seemingly accepting State Farm’s claim of verbal approval for certain things. The rule of thumb in government work is that if it’s not in writing it didn’t happen – and there is just so much in writing.

    Any thoughts about any of this?

  11. I think McIntosh fit the Maurstad directive…..if constructive loss is flood-caused (the ‘in’ gourp) and damage probably is in excess of policy limits…..then use of the expedited process …..sounds ok. That’s Farrier’s claim…..and I believe that part.

    Problem is both engineer reports undermined the basis for the “primarily” flood-caused damage…..

    If you’re a fiduciary you’ve got to disclose the engineer opinions……or better yet…..just do the stick built adjustment….homeowner would fill out most of the contents worksheet…..not that much of an inconvenience. Clearly, as soon as you have an opinion that wind was the primary cause of damage you can’t use the expedited process.

    Yes, I picked up Senter’s comment: “Apparently, not all of FEMA guidelines for adjusting NFIP losses were reduced to writing.” Really. I wonder what OIG will say about that?

    I think Senter wants State Farm personnel to tell exactly what their assumptions were.That will force the government to explain their interpretation. McIntosh will actually help FEMA save face….because State Farm developed the information that should have caused them to shift to process #3.

    I’d love to find the case where FEMA reinspection detected preexisting wind damage…..

    Anyway, Branch is still the better case…..because McIntosh represents just one kind of ripoff ….and Senter has limited the Rigsby FCA to McIntosh-like cases.

    The way to prove that State Farm’s intent was improper is to show that Lecky King and other coordinators uniformly suppressed preexisting wind evidence…….I’d start with the Mississippi Insurance Department investigation of State Farm…….that report had all kinds of revelations from a sample of a few hundred. Those files could be key.

  12. James, are you saying you think McIntosh “fit” Process #1? I can’t respond further on the case without knowing where you see the fit.

    However, I have questions about your comments on Branch compared to Rigsby and your take on Judge Senter’s position.

    What “rip-off” does Branch have other than pricing and where in the Branch complaint is that “rip off” described with the specificity the 5th circuit requires?

    I see Branch as a more easily understood complaint but poorly constructed. Rigsby, on the other hand is a “textbook case” or would have been had Judge Walker not given State Farm the “evidential disclosure” which I suspect contain other claims. I can’t add a new document in comments; so, I’m going to do another “update” and link that Order in the post.

    Tony DeWitt, one of the original group of Rigsby qui tam attorneys wrote a law journal article that I can link here and it addresses the disclosure in a way that leads me to believe there are more cases in the Rigsby claim than the two cited in the case and those the sisters copied from the files on what is commonly called the “data dump weekend”.

    “The disclosure, however, carries with it some risks. In some cases, the federal courts, broadly construing Rule 26 of the Federal Rules of Civil Procedure, have held that the entirety of the disclosure made to the government must be turned over to the defendant. This has obvious implications if the material in the disclosure contains privileged or otherwise legally confidential material. Thus, disclosure statements should convey only that information which is specific to the case and which might be the subject of proper discovery requests in a civil case. Gratuitously supplied information about the relator, the relator’s work history, or other privileged or confidential information, should be omitted. This information can be disclosed privately to the Department of Justice if relevant and important to the case.

    While some authors suggest that the evidentiary disclosure statement required by the statute must be filed en camera and under seal, the Justice Department frowns on this procedure because it impairs their ability to keep documents like the disclosure statement under seal once the case is unsealed and allowed to move forward. [FN87]

    Nothing in the Act requires a qui tam relator to make supplemental disclosures to the government. However, Rule 26 does require supplemental disclosures, and, even in those cases where the Department of Justice has not intervened, it is probably wise to continue to supply the Department of Justice with supplemental information which might impact its decision regarding intervention.”

    Perhaps, this factors into my belief that Judge Senter is taking incremental steps – first the hearing, then a trial on McIntosh (with consideration of McIntosh-like cases) and, if the Rigsbys prove their case, then consideration of other claims. In between steps 2 and 3, he will hear the counterclaim but there is abundant case law available to the sisters to refute the counterclaim.

    I think you’re right on target about the way to prove State Farm’s intent was improper – and, I agree the MID files could be key, but there is also ample other evidence.

  13. Kevin Buckle has been fighting the MID market conduct file battle with no luck. George Dale saw something in the initial phase of the study because he went back to State Farm and ordered them to reopen the claims they summarliy denied. IMHO George Dale’s MID and Lee Harrell in particular are first hand witrnesses to the fraud perpetrated by State Farm and through their actions helped cover it up.


  14. State Farm processed McIntosh as if it fit process #1. Farrier testimony cited by Senter:

    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

  15. Here’s my response on why Branch is a better case:

    Senter is limiting the potential claims in Rigsby:

    “….So I may know the outer limits of the potential claims….”

    criteria: B. …only properties where limits were paid on the grounds the property was a constructive loss.

    and C. no item-by-item assessment was made before limits were paid.

    Branch includes cases where limits were not paid and whether the expedited procedure or normal procedure were used is irrelevant….their claim is “grossly overstating flood damage.” ….”misattributed” damage claim.

    Branch is emphasizing the adjuster documentation…..specifically evidence of preexisting wind damage that could reasonably have been the proximate cause of damage in areas that subsequently were inundated by flood.

    The case law shows that breach of the roof’s integrity is an important fact…….if the roof, upper windows, doors etc are breached before the flood….you can make the case the wind-driven rain is the proximate cause……dueling experts become the driver ……

    Look at the list of cases and the synopsis for each….its pretty clear what the reinspections were looking for………

    Branch can open up any case where multiple adjustments have been made…..and the insurer chose the better outcome for themselves…..they also emphasize the point that insurers systematically suppressed evidence of wind damage which reasonably could have occurred prior to flooding….that concealment accusation is very important in my opinion……because in a fiduciary relationship, concealment of a material fact is automatically fraud……and the term fiduciary is used in three separate locations of the Arrangement (Part 62) to describe the relationship between the WYO and NFIP.

    As to your comment about the evidence obtained by the Rigsbys beyond McIntosh……and T.Dewitt……I don’t have enough of the details to form a judgment……but I imagine they’ll come out in the counterclaim trail.

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