…the State Farm submission for NFIP payment does not properly support a payment of $250,000, and the report contains numerous line item entries not consistent with flood damage if one accepts the adjustor’s apparent method of analysis.
The expert testimony of Joe Gregg, “a FEMA-certified flood adjuster with more than a decade of experience in evaluating and adjusting flood claims under the National Flood Insurance Program”, is based on an item-by-item analysis of the McIntosh claim that State Farm submitted to the NFIP McIntosh property the most detailed analysis of the (“NFIP”)”.
Mr. Gregg’s report evidences State Farm’s use of XACT Total program as a key element of the fraudulent scheme detailed in the Rigsbys’ qui tam Complaint. The expert report of Risk Management Consultant Louis G. Fey adds to the discussion:
The adjuster used Xacttotal to create an estimate of flood damage that deemed the house a total loss from flood…The use of Xacttotal for the flood claim and Xactimate for the wind claim is another example of SF placing their own interests in front of the interests of NFIP / FEMA’s and their own insured’s…
By way of background, Xacttotal is a program developed by XactWare specifically for SF. This software is not sold to the industry for broad use. The limitation of Xacttotal is that the resulting estimate is not an accurate depiction of the actual structure being estimated. It is more of an average estimate of the value of the house based on square footage and the quality of construction. Particular characteristics of the house are not considered and those unique qualities of the property can easily affect the value of the house. The scope generated by the program is basically useless as it is inaccurate and merely a generalization of the house. Additional information from the homeowner or photos taken prior to the loss with regard to the layout and number of rooms and the unique characteristics of the house in question must be considered and either additions or subtractions would need to be made to the estimate. This is why it is inappropriate to use Xacttotal when the house can be accessed and accurately scoped.
State Farm’s “inappropriate” use of Xacttotal inflated the amount of flood damage to the McIntosh property. Mr. Gregg’s report contains compelling examples of the inflated cost: (all emphasis added)
The following is a list of items that should been omitted, in whole or in part, from an assessment of damage caused by a five-foot water level.
A. Items that do not exist:
• 5 bedrooms — The house has only four bedrooms, not five.
• A 16′ garage door, garage door trim, and steel trim — Pre-storm photographs of the home show that the house did not have a garage.
• Stucco, 3381 square feet — Pre-storm photographs of the home show that the house had no first-floor stucco; the siding was all brick.
• A masonry fireplace — Pre-storm photographs of the home show a regular fireplace, not a masonry fireplace.
• Faux painting, 8985 square feet — Pre-storm photographs of the home do not show faux painting.
• Bi-fold doors — Pre-storm photos of the home do not show bi-fold doors on the first floor.
• Medicine cabinets in the bathrooms — Pre-storm photos of the home show that there were no medicine cabinets; the mirrors are static against the walls.
• A range hood — Pre-storm photographs of the home do not show a range hood in the kitchen.
• A heat pump — Pre-storm photographs of the home do not show a heat pump.
Section “B” in the listing details “Items with no basis in the file for inclusion”:
Foundation
• Replacement of concrete slab on grade — This house appears to be elevated with a slab, but the slab appears to have no damage. Therefore, there should be no coverage.
• Gravel — Gravel is not required, since there was no damage to the slab.
• Visqueen – Because the foundation, gravel, and footings were not damaged, and no visqueen was observed in any of the photographs, visqueen is not necessary.
• Footings — These were not damaged.
• Concrete wall — Appears intact and not damaged by the flood water.Rough Framing
• 2 x 6 stud walls — The square footage allowed appears excessive.
• Sheathing/plywood 1/2 cdx — The square footage allowed appears excessive.
• 3/4 T&G sheathing, joist 2 x 10, 2 x 10 lumber, 5/8 cdx plywood, Hip/Valley, and Rafters — These are all roofing or ceiling items and nothing in the file documentation supports inclusion.Exterior Finish
• Roof Felt, attic vent, roof vent, soffit/fascia, gutter/downspout, fluorescent 2 tube 8’ light, and insulation batt 10” — These are all roofing items and nothing in the file documentation supports inclusion.
• Brick Veneer —An engineer’s opinion would be required to make a wind/flood causation determination. Moreover, there is also a likely subrogation claim to be made. Brick ties should have been placed in every 6th row of bricks and along the studs at 16″ on center. Post-storm pictures show no ties in many locations. The adjuster should have contacted a supervisor to advise of a possible subrogation claim against the contractor, which would further reduce or eliminate the allowance for this item.Windows
• 36 windows — There do not appear to have been 36 windows in the house so impossible that 36 would have been damaged. The adjuster apparently has allowed window replacement for the entire house, but nothing in the file documentation supports inclusion beyond 1st floor windows. The NFIP does not allow for matching of items.
• Patio doors — Patio doors were not observed. Four exterior doors were allowed for the exterior finish.
• The adjuster apparently also has not accounted for the possibility that windows were broken by storm winds or wind blown debris before any flooding reached the house.Roofing
• All items — A five-foot water level would not have reached the second floor of the property. Nothing in the file documentation supports inclusion of these items.Electrical
• Wiring — The wiring allowed appears excessive. The adjuster has allowed for 4345 square feet of rewiring, which apparently includes the second floor. Nothing in the file documentation supports inclusion of wiring above the first floor of the house.
• Meter Base Main Disconnect — this item probably is owned by the power company, and there should be no allowance for this item.
• Outlets and switches — The outlets and switches allowed appear excessive. Nothing in the file documentation supports inclusion of outlets and switches above the first floor of the house.
• Exterior light fixture, smoke detectors, light bars, and light fixtures — These items are all above any possible water line. Nothing in the file documentation supports inclusion of these items
• Breaker box — the breaker box is above the likely water level in the house and should probably be removed from the estimate.Heating / AC
• Ductwork system — This is a ceiling item. Nothing in the file documentation supports inclusion of these items.
• Furnace Vent and rain cap — Nothing in the file documentation supports inclusion of these items.Floor Covering
• Slate / high grade — This material could be cleaned, re-sealed, and re-grouted. It would not need to be replaced.Interior Finish
• Mortar bed for tile — The adjuster already provided for replacing tile. The cost of mortaring is included in the tile cost. In addition, the tile probably could have been cleaned rather than being replaced.
• Interior Doors — The floor plan and photographs show 11 interior doors, not 18.
• Closet rod, shelving, insulation batt, 10” and 4”, painting, and seal/prime walls and seal/paint walls — The allowance appear excessive.
• Flue cap, fluorescent 2 tube 4’ lights, crown molding, light fixtures, and security system, and crown molding — Nothing in the file documentation supports inclusion of these items. These items are generally not consistent with a 5 ft. flood line.Special Features
• Motion sensors, sound system, security system – Nothing in the file documentatlon supports inclusion of these items. These items are generally not consistent with a 5 ft. flood line.
• Chandelier and recessed lighting – These appear to be ceiling items. Nothing in the file documentation supports inclusion of these items. These items are generally not
consistent with a 5 ft. flood line.
• Vanity, countertops, and base cabinets – These allowances appear excessive.
The final section of the report is “C. items that do not need to be replaced”.
• Granite countertops and shower door- These items would not be damaged by flood water. These items can be cleaned and re-sealed.
• Plumbing rough – PVC plumbing is generally not damaged by flooding.
• Sinks and toilets – These items would not be damaged by flood water. These items can be cleaned and replaced.
• Jetted tub – This item probably would not have been damaged by flood water, although the motor and heater would need to be replaced.
Mr. Gregg concluded his report saying he had “also reviewed the estimate from David J. Favre Sr.” and felt Favre’s adjustment produced “a more acceptable estimate of the flood damage to the Mcintosh home” than the claim State Farm filed with the National Flood Insurance Program.
The best place to hide a needle is in a haystack of needles – particularly when DOJ and GAO investigators and the OIG of HHS are doing the looking and the hidden needle is evidence of State Farm’s fraudulent billing of wind damage to the NFIP.
Any chance you can post the “report”?
I’m particularly interested in seeing the Xactimate and Xactotal output, and the “item-by-item” worksheets done for the McIntosh property. If you can get the Preliminary Report, Final Report or Proof of Loss for McIntosh, that would be helpful.
The Maursted Letter instructs the adjuster/insurer to use the square foot estimates for making the flood damage valuation. So the use of Xactotal as a shortcut seems reasonable. I would be surprised if a million dollar house flooded several feet would have less than $250,000 in flood damage……that would be a tough threshold….I would focus on the $100,000 contents claim…..because the total flood claim for contents was only $105,000. If there are things on that list that don’t belong that would satisfy the facially-false requirement of 3729(a)(1) and kill the “materiality” defense. Then the defense will shift to the government knowledge or the contract-based defense…..that the government got the benefit of the bargain.
Man this is getting interesting.
You bet James, Nowdy is working on Part 2 as we speak. I could be wrong but the use of square footage would apply to slab claims only, not those that could be adjusted using tradtional methods such as the McIntosh.
Also I’d like to emphasize that using State Farm’s own data the McIntosh residence had only 2.1 feet of water above grade.
Finally we owe you both a debt of gratitude and an apology. Your law school thesis has been very well received and I have been remiss for not emailing you some of the data regarding the traffic it generated.
When Nowdy checks in we’ll see if we can’t dig up the full report. In respects the problems noted above are very similar to those uncovered in the Weiss case where Allstate’s paid them for non existent furs and jewerly.
sop
Rigsby is definitely “getting interesting” – and, hopefully, I’ll meet my project deadline today and devote more time to the blog. I’ve got a little bit more to do on part 2 before I can put it up and turn my attention to pulling the remaining points into a catch-all third part.
One quick point about calculating damage based on the square footage. When an adjuster is told to “hit the limits” of flood coverage and actual damage is less, you’re going to see a lot of extra doors and windows and so forth because the underlying estimating platform is actually the itemized price list of Xactware.
If you’ve ever priced one of those big playground sets at Home Depot, you’ve seen something similar. You select the options you want and there is an associated list of materials – how many boards, nails, etc of a certain size are needed.
Inflating a flood claim is not all that different from selecting one of the smaller playground sets and getting charged materials and labor for the delux.
SOP:
“I could be wrong but the use of square footage would apply to slab claims only, not those that could be adjusted using tradtional methods such as the McIntosh.”
From Maurstad Letter:
“As a result, we have developed three processes, described in Attachment A, for handling claims with specific characteristics. Process #1 should be used to expedite the claims handling of structures that have or have had standing water in them for an extended period to time. In order for your company to participate in this process, you must be able to acquire a reliable square foot measurement so that an accurate value can be developed. Some companies have a homeowner policy base that largely matches the flood policy base and may develop the square foot measurement from that information.
Process #2 is to be used when it has been determined that the structure has been washed off its foundation by flood water and the square foot measurements are known. The company should use the same settlement procedures as in process #1. All other claims require a site visit and will be handled using hte company’s normal claim procedures (process #3).”
I’ve always assumed that McIntosh is in Process #1.
The Maurstad Letter then states:
“The company should use its best judgment, based on the depth and duration of the water in the building, to determine if it is likely that the covered damage exceeds policy limits. If the depth of hte water in the building is not likely to cause damage in excess of the policy limits the company should proceed based upon #3.”
I’ve always been confused about the McIntoshs’ many site visits and engineering reports if they were not required. Did McIntosh reject Process #1? Did State Farm apply the methodology (“best judgment” rule) and conclude that Process #3 was required.
I would also like to note that the Maurstad Letter’s expedited procedure still requires an itemized list for the property contents. “Assist the insured to list major categories of contents (e.g. Appliances, electornics, furniture, clothing, etc.).” That is why I emphasized a focus on the Contents part of the McIntosh claim. State Farm likes to focus on the reasonableness of a “limit” claim on the building…..but it was not nearly as clear with regard to the Contents. An item-by-item listing of the contents attributed to flood caused damage is the easier path to proving a facially false claim. If that happens the battlefield dynamics will shift dramatically.
My bad James. Process #1 would apply to claims originating in NOLA which did have structures that “have or have had standing water in them for an extended period of time.” I guess that would depend on your definition of extended but in the context of Katrina the McIntosh residence had water inside for maybe 3 hours tops while structures in NOLA for 3 weeks or more.
This all assumes Muarstad had the authority to issue expedited claims procedures to begin with – we are finding lots of case cites elsewhere on the general question of whether an agent of the executive branch has authority to set aside existing laws, rules or regulations that indicates he probably did not. I think ultimately this will be a question that will be resolved in one of the 2 False Claims Act cases. Senter’s initial ruling on McIntosh indicates to me he does not think McIntosh falls into process #1.
All that said I do think the fraud is most clearly illustrated in how contents were paid.
sop
The “connection” between the McIntosh property and the Expedited Claim Handing Process is that State Farm used the Maurstad memo to justify the otherwise unjustifible use of XactTotal – after the Rigsbys’ blew the whistle.
Given what is known about the McIntosh property, the flood water wasn’t there long before the house became like a bathtub with flood water going down the drain.
The greater damage was the water coming in because of the earlier wind damage – and that would include damage to both the property and contents.