Oops! With an apology to Judge Vance and another to SLABBED readers, I have corrected my error and appropriately attributed the Order discussed in this post to Magistrate Shushan.
Magistrate Shushan’s autopsy-Order on the 2nd Amended Complaint filed by the Branch Consultants poses a new and entirely different challenge for reporting on an order issued in Branch – turning a technical manual into a non-fiction novel. In that context, Allstate is somewhat of a MacGuffin, “a plot element that catches the viewers’ attention…Commonly, though not always, the MacGuffin is the central focus of the film in the first act, and later declines in importance as the struggles and motivations of characters play out”.
Although Allstate is certain to be the “central focus” of public interest in the Order, it is important to note the Magistrate doesn’t know how this character will play out and her Order” is stayed until the District Judge resolves any appeal of the order”. In that regard, a footnote in the Order is telling of the story at this point:
In support of it motion for leave to amend, Branch states:
To be clear, whether Allstate is entitled to immunity under the first-to-file provision of the False Claims Act is not at issue in this motion (for leave to amend), and Branch has not attempted to fully brief the issue here. Rather, what is at issue is merely whether Branch may amend its complaint to attempt to state a claim against Allstate.
The story of claims handling following Hurricane Katrina is more of a thriller than a typical mystery. However, the Magistrate’s dénouement of the plot missed important clues and I momentarily digress from the discussion of Allstate’s role to examine her conclusion and related denial of the proposed incorporation of an inflated-revenue scheme. Branch alleged a loss-shifting scheme in both the original and first amended complaint.
In her Order, Magistrate Shushan declared, “The loss-shifting and inflated-revenue motives create two entirely different schemes”. I contend otherwise and suggest her decision indicates knowledge of the law can not overcome lack of experience with what “po’ folks” call “getting by” else she, too, would recognize the two are one in the same. 
On a much larger scale, the situation insurance companies faced after Katrina was similar. Like those who can’t meet their obligations when faced with an unexpected cost, insurers employed strategies that delay payment of thousands of policyholder claims and made partial payment on thousands more in the guise of mediated settlements. However, they also engaged in a “broad scheme” to “get by” for reasons that have been well documented since Katrina such as investments that were worth less or worthless.
Although Judge Shushan recognizes the “broad scheme” alleged by Branch, her Order indicates she narrowly conceptualizes “broad” and rationalized, “If there was no distinction between the two schemes, then the outcomes for each scheme would be the same”. From her perspective, “broad” translates as widespread in terms of the number and diversity of defendants and “scheme” as set of same-scheme properties each with a single insurer providing two separate policies and, accordingly, she can justify her position on differing outcomes:
With the inflated-revenue scheme, a WYO insurer may be found liable for overstating a flood loss even though the insurer did not issue a homeowners policy on the property. With the loss-shifting scheme, there would be no inquiry into such a property because the WYO insurer did not issue a homeowners policy on that property.
However, to determine the outcome of a “broad scheme” one has to conceptualize “broad” as single set comprised of all properties covered by a single insurance company and use related data to define the relevant sub-sets. From that perspective, inflating loss from flood damage increases the amount available to cover loss from wind damage – and the single outcome is enough to “get by”.
Derek Wyatt’s deposition of State Farm’s 30(b)(6) representative Stephan Hinkle produced data indicative of the need for a “broad scheme” to “get by”.
BY MR. WYATT:
Q. Okay. Before I get too far afield, I want to remember where we started, but you mentioned something yesterday. Mississippi had about 80,000 P&C Katrina claims.
A. Yes.
Q. – – for State Farm?
A. Yes…
Q. In those coastal counties, Harrison, Hancock, Jackson, what percentage of the properties had dual coverages? And by dual, I mean of course I’m talking about flood and HO…
A. The homes that had substantial flood damage, only about a third of them had flood insurance.
Q. How many properties are we talking about there?
A. I don’t know. I mean, again, if you want the numbers, I can get the exact numbers…
MR. WYATT: Well, estimate.
A. I want to say — now, I can’t tell you. I can tell you I think we had about 20,000…
MR. SPRAGINS: I think he’s saying of the homes that flooded that State Farm had a homeowners coverage, a third of those also had flood coverage.
THE WITNESS: That’s what I’m saying.
While only an estimate, when all 80,000 damaged properties were considered, the percentage with dual coverage dropped to approximately one-fourth of the total. 
“The best place to hide a needle is in a haystack of needles” and the best place to hide a fraudulent flood claim is in a stack of fraudulent flood claims.
Not only is “inflated revenue” an essential element of loss-shifting, the Magistrate had no data to support her decision that “loss-shifting and inflated-revenue motives create two entirely different schemes”.
She needed to know the number of insured properties covered by type of policy (wind-only policy, a flood-only policy, and both a wind and flood policy). Once she had the data segregated by type of policy, she needed data showing loss payment relative to coverage by type of policy and a subset of these data by type of loss; i.e., slabs, etc.
Branch has proposed a system that could generate these an other needed data and she should grant the motion, start the process and stay her decision until it can be supported with fact.
Allstate had more motivation than other companies to engage in a “broad scheme”. The company had no reinsurance for Hurricane losses in Louisiana. With that thought in mind, we return to her Order and our discussion of her decision:
The issue of judicial economy weighs in favor of Branch. It acknowledges the presence of substantive issues regarding Allstate.12 If Branch had sought leave to amend shortly after the mandate and the motion was granted, the substantive issues concerning Allstate would have been resolved by October 19, 2009 when Judge Vance ruled on the defendants’ motions to dismiss. The activity by the Court, demonstrates its intention to move the case forward as promptly as possible. In these circumstances, Branch’s failure to act to add Allstate shortly after the issuance of the mandate is inexplicable. That being said, Allstate could be sued in this district in a newly filed suit. Rather than have a new suit transferred and consolidated with this suit, judicial economy would be served by allowing Branch to amend to sue Allstate in this proceeding.
No one is in a better position than Federal District Judge SarahVance to let Allstate “pick its poison” should the Company appeal the Magistrate’s Order. Weiss v Allstate was tried before her and there was no shortage of evidence documenting the flood claim was inflated:
The Weisses’ lawyer, Johnny Denenea, used the “track changes” function of Word software on the Rimkus reports from claims filed in Mississippi. (Check them out here: Rimkus document #1, Rimkus Document #2.) It revealed that conclusions supporting wind damage were changed to flood in the home office.
It revealed that conclusions supporting wind damage were changed to flood in the home office. Denenea says that, “one or two of the changes may be expected, but in each case that has been litigated involving Rimkus, the conclusions were universally changed from wind to flood. In not one case has there been a report that shows the report was changed from flood to wind.” In Denenea’s view, this supports the notion of a conspiracy to defraud the government.
Denenea says there are other examples of “false information” submitted by Allstate to the NFIP in the Weisses’ case. He cites forms that contain a reference to exterior and interior waterlines on the Weisses’ house, and a phrase reading “damage was extensive throughout the home.” The field adjuster, Mike Wells, denied under oath that he wrote this narrative report, noting that since there was no house there to inspect, there were no water lines, and no interior damage, to document.
Denenea also submitted evidence that he said showed the company fabricated the list of personal property damages, inflating the expenses billed to the NFIP. Merryl Weiss submitted a handwritten list of personal property the couple lost from the first floor of their home. It was mostly fishing equipment, and totaled $38,848.25. During trial depositions, the Weisses discovered that Allstate had submitted a list to the government that included furs, jewelry, and furniture valued at more than $139,000. Fishing rods were not on the list.
During testimony, field adjuster Mike Wells confirmed that the documentation sent to the NFIP did not match what the Weisses submitted. Denenea says he believes the process of falsely maximizing flood claims was encouraged by Allstate supervisors. To back up his claim, he points to the testimony of Allstate office adjuster, Mung Hatter. She said that all adjusters’ reports are maintained in a computer database and reviewed by managers Denenea believes insurers maximize content lists to take advantage of the highest bracket of the NFIP’s fee structure.
In describing what he sees as damning evidence of false information and fabricated data in the Weiss case, Denenea told the Times-Picayune, “When Allstate pays a claim under a flood policy, they are using the checkbook of the United States Treasury. When they pay a claim under their homeowners policy, they are using the Allstate checkbook. For every dollar paid out of the federal treasury under flood, Allstate takes a credit and keeps a dollar.
In the absence of data, there is no way of knowing if any flood claim was treated differently.
Folks my partner was more sleep deprived than I and we have to make a major correction to the post in fairness to Magistrate Sushan who signed that order. As lay people we are not familar with the inner workings of opinion writing beyond the fact there are law clerks that generally draft the verbage. While we both detect Judge Vance and her wonderful way of making hard legal concepts easy to understand in her legal writings contained in this latest order, we must give credit to the jurist that signed it.
sop
I believe the expression is “blind running tired” Sop! I’ve revised and corrected the post.