“Relators, through limited discovery, have already obtained sufficient evidence to demonstrate that State Farm engaged in a broad, systemic, intentional scheme to defraud the government. Moreover, discovery has revealed that State Farm’s scheme extends far beyond the McIntosh flood claim…”
While State Farm’s legal team has made every attempt to turn the upcoming trial into a “Scruggs sideshow” despite Judge Senter’s Order to the contrary, Counsel for the Rigsbys’ has, instead, presented the Court with the opportunity to reconsider the Scope of the Proceedings – an option commentor James Barbieri suggested when he posed the question, “if Judge Vance has expanded the scope, doesn’t this force Judge Senter to move beyond McIntosh”. However, the Rigsbys’ Motion to Reconsider relied on evidence of “the scheme” gleaned from evidence revealed in Discovery, evidence supported with Exhibits attached to the Motion and discussed in the accompanying Memorandum in Support of Motion to Reconsider Scope of Proceedings…
“The NFIP Claims Manual requires that “repair estimates should be prepared room-by-room,on a unit-cost basis, clearly indicating dimensions and unit costs, except when the building has been completely destroyed.” NFIP Director David Maurstad testified that prior to Hurricane Katrina, flood claims had to be adjusted using a line-by-line stick build estimate. Maurstad also testified that following Hurricane Katrina, he tasked the NFIP Director of claims to come up with a method that “I could ultimately approve that could guide the Write Your Own Companies to handle claims in an expedited process specific to this . . . disaster, to Katrina.”
Maurstad testified that FEMA Directive W-5054 embodied the only expedited claims procedures that he authorized. That directive allowed adjusters to use a square foot value estimator instead of a line-by line estimate in two very narrow circumstances: (1) when a home “had standing water in it for an extended period of time”; or (2) when a home was “washed off its foundation by flood water.”
Discovery revealed that State Farm ignored the NFIP and Memorandum W-5054. Rather than follow the NFIP’s rules, State Farm expressly applied their own rules, which directly conflicted with Memorandum W-5054. David Maurstad testified that that in developing W-5054, he solicited ideas from various insurance companies for FEMA to consider. As part of that process, State Farm submitted a proposal to the NFIP on September 13, 2005, just one week before David Maurstad issued the actual directive. Remarkably, Juan Guevara, State Farm’s principle contact with the NFIP, testified that unlike all the other insurers, State Farm did not have to follow Memorandum 5054, but rather could play by its own rules, as stated in State Farm’s September 13th proposal.
Specifically, Guevara asserted that “5054 is different than the document we received approval to use,” and in fact, that State Farm’s claims handling practices did not change as a result of W-5054 being issued because it continued to adjust claims based on the September 13th proposal. Guevara’s admission is an enormous and dispositive indictment because there is a very important difference between State Farm’s September 13 proposal and the actual directive that was issued by FEMA.
Under the September 13 proposal, State Farm sought permission to use Xact Total “where a site visit was completed and [the damage] appeared to exceed policy limits.” But that part of State Farm’s proposal was not adopted in Maurstad’s final Memorandum.Rather, under FEMA Directive W-5054, Xact Total could be used only if the home had been in standing water for at least five days, or if the home had been washed off its foundations. In addition to his testimony, Juan Guevara’s emails reveal State Farm’s intent to ignore FEMA Directive W-5054. On September 22, 2005, the day after W-5054 was issued, Juan Guevara emailed Jim Shortley because he wondered why State Farm’s proposal regarding the use of Xact Total for policy limit losses was rejected. Mr. Guevara quoted the language in W-5054 requiring all claims (other than those related to slabs or homes in standing water) to be adjusted using the company’s “normal claims handling procedures,” and he stated, “I read this as having to write a complete line by line estimate even if the repairs will exceed the policy limits.”
Guevara is absolutely correct about what W-5054 means. Nonetheless, he and State Farm chose to ignore W-5054 and deliberately adjust claims based on a proposal that FEMA did not accept. On September 29, 2005, a week later, Juan Guevara emailed Jim Shortley a second time asking if he had an opportunity to review the question. Jim Shortley did not respond to Guevara’s email. David Maurstad testified that W-5054 contains all of the expedited flood claims handling procedures. And contrary to Guevara’s testimony, Maurstad further said there were “absolutely not” any side agreements with particular insurance companies. Maurstad also testified that no one below him, including Jim Shortley, had the authority to issue any procedures that contradicted W-5054.
Thus, the discovery process has revealed that State Farm knew that using Xact Total rather than a line-by-line estimate for homes like the McIntosh’s (and all others not in standing water or washed off their foundations) directly violated FEMA Directive W-5054. Nonetheless, State Farm decided to apply its own version of NFIP’s rules across the board…(emphasis added)
It is undisputed that the McIntosh flood file does not contain a line-by-line, stick built estimate of flood damage to the McIntosh property. Rather, it contains an Xact Total estimate of the value of the McIntosh home based on a square foot estimate of the house. It also contains a print-out that appears to be a line-by-line estimate of a house of similar square footage that is not the McIntosh home. In the summary judgment hearing, [State Farm’s] Michael Ferrier testified that this fictitious line-by-line estimate was simply a reformatted version of the Xact Total estimate that was “easier to follow.”
While State Farm was never able to explain the purpose of the fictitious estimate, its purpose became quite clear during the deposition testimony of Gerald Waytowich, State Farm’s purported expert witness who also is a fact witness due to his role of being an NFIP reinspector for Hurricane Katrina claims. State Farm offered Waytowich as an expert to testify, in part, regarding whether State Farm’s handling of the McIntosh claim was in compliance with FEMA regulations.
Remarkably, Waytowich, an actual FEMA reinspector, identified the fictitious estimate in the McIntosh flood file as real “line-by-line written estimate” of McIntosh’s home. Waytowich further concluded that in comparing the line-by-line estimate to the photographs of the damage, he was satisfied that “everything that’s in here. .. was estimated and everything is correct in here.” Thus, even after spending forty to fifty hours reviewing the McIntosh file, Waytowich still believed that the fake estimate with the Xact Total print out was a true assessment of flood damage that occurred to the McIntosh home. When asked if he were to later find out that the line-by-line estimate he had reviewed was not in fact a representation of the McIntosh house, Waytowich agreed that he would be surprised, and he would question whether the McIntosh claim was adjusted correctly.
Thus, despite State Farm’s repeated assertions that the NFIP approved its procedures, it is now clear that State Farm intentionally and fraudulently hid the truth. There is no question that Waytowich and other NFIP reinspectors believed at the time of their reviews that State Farm’s false line-by-line estimates were real. Accordingly, the NFIP would have had no reason to question the appropriateness of the adjustment of claims like the McIntosh home, which was not eligible for the expedited procedures of FEMA Memorandum 5054. Indeed, the NFIP believed that State Farm applied normal procedures (i.e., line-by-line estimates) to the McIntosh property and all other claims that did not involve slabs or homes in standing water…”
How other insurers adopted similar adjusting schemes remains without explanation – and that alone is sufficient reason for Judge Senter to grant the Relators’ Motion to expand the Scope of Proceedings and open additional Discovery.