State Farm began their defense in the Rigsby whistleblower lawsuit involving allegations they and other insurers defrauded the National Flood Insurance Program after Hurricane Katrina early this week and I immediately noticed a foul odor that seemed to emanate from the Federal Courthouse in Gulfport when former NFIP Director Dave Maurstad took the stand for State Farm. To understand Maurstad and the concept of the revolving door, you gotta understand these guys circle from private sector insurance related jobs to government regulatory positions and back each time collecting more career enhancing favors. With this bunch it is always about the next job so the insurance industry could not have had a better water boy in place when Katrina hit than Dave Maurstad.
But once upon a time ol’ Dave was not so keen to testify about the NFIP handling of Hurricane Katrina claims no siree. In Bolden v FEMA for instance Dave had to be compelled to show up at the Federal Courthouse to testify about the expedited claims process he and Lecky King came up with after Katrina. Worth noting is rather than let Maurstad testify FEMA opted to settle Bolden immediately. The bottom line is most people I listen to think Maurstad is a self serving hack under whose watch the NFIP sank into technical insolvency.
But it got deeper yesterday folks as State Farm retiree Lecky King took the stand with the sound of miniature violins playing in the background as Anita Lee explains in her latest dispatch from the Courthouse (I hope McClatchy sent a gas mask with her and is considering hazardous duty pay):
Career almost destroyed
Lecky King, on the other hand, said State Farm attorneys prepared her for her testimony. She spent her last few years at the company working on policyholder lawsuits filed after Katrina and on the case against her, which at one time was part of a criminal investigation that never resulted in charges.
The subject of the BP claims process is one that has been well blogged upon in this area though not necessarily here on Slabbed despite the natural fit given our origins as a blog devoted to the insurance claims process. Our silence here is due to the fact that I think it is too early to make a call on whether the process is fair overall. On one hand certain elder statesmen type former politicians such as former Mississippi Gov William Winter think the process is fair and that Ken Feinberg’s heart is in the right place. OTOH several of my blogging brethren and Mississippi Attorney General Jim Hood think Feinberg is a sorry piece of crap from Wall Street. For his part Jim Hood is fanning the anti-Feinberg flames in his most recent call for a whistleblower to step forward so he can nail Feinberg.
He did such a shitty job shielding the whistleblowing Rigsby sisters from State Farm I guess he wants a second crack.
I was up almost all night finishing Kathie Koch’s upcoming book, Rising from Katrina but I noted a couple of blog entries from Anita Lee’s blog which I need to highlight.
First up is Magistrate Walker again protecting his buddies at State Farm by letting State Farm’s legal team lie and stonewall about which documents they have in response to subpoenas. The trick is you let all the depositions occur and then drop subpoenaed documents on the plaintiffs right at the discovery deadline so as to prevent salient questions from ever being asked. This is a time-honored tactic that State Farm could not pull off in non magic jurisdictions which take the federal discovery rules seriously. Anita boils down the larger issues in Walker’s ruling in a recent blog entry:
Walker has decided State Farm should not be required to turn over the reports to former insurance adjusters Cori and Kerri Rigsby, who filed the lawsuit alleging State Farm committed fraud in adjusting Hurricane Katrina claims. The company denies minimizing wind losses by blaming damage on tidal surge covered through federal flood insurance. Continue reading “Miss Dixie on Mississippi Mud and new developments in Ex Rel Rigsby”
I have no idea what part of bifurcate State Farm attorney Bob Galloway doesn’t understand – only that Haag Engineering’s attorney, the infamous “what-do-you-think-of-that-Larry” Canada can’t seem to grasp the concept either. Rigsby Attorney August Matteisa “gets it” but, of course, you have to know your vocabulary words to graduate magna cum laude from Georgetown Law.
Since the word rolls off Judge Senter’s tongue like water (no pun intended) in the pre-trial orders he issues in Katrina litigation, he “gets it”, too. Obviously, Georgetown Law isn’t the only place the word is taught. Judge Senter, as a matter of fact, graduated from Ole Miss Law; so how Galloway missed it is hard to figure. Canada, on the other hand, is an Alabama Law graduate and could have made it out without catching on, despite the fact that Bear Bryant bifurcated the football team.
Robert Frost even wrote a famous poem about bifurcation – “Two roads diverged in a yellow wood, And sorry I could not travel both…” and Joe Diffie sang a bifurcation song all the way to #40 on Billboard’s Hot Country Songs – “Yesterday I missed my exit on my way to Sears…”
Simply stated bifurcate means “divided into two” – and when Judge Senter issues an Order to bifurcated one trial into two, he puts a fork in the road and you follow his directions.
I will hear the evidence on the Relators’ qui tam claim first. I will stay discovery on State Farm’s counterclaim until the trial of the Relators’ claim has been completed, and I will schedule a separate trial to reach the merits of the counterclaim.
“Sharing of information between the Government and the relator does not waive either the attorney-client privilege or the work product protections.” FALSE CLAIMS ACT: WHISTLEBLOWER LITIGATION, §9-4(a)(5), attached as Ex. 1.
The United States District Court for the District of Columbia has now expressly ruled that information shared between the relator, his counsel and the United States is protected from discovery by the joint-prosecutorial privilege. The joint prosecutorial privilege is the Government/relator counterpart to the recognized joint defense or common interest privilege. It is grounded in the language of the False Claims Act itself which empowers the relator to bring the action “in the name of the Government” and awards the relator a percentage of the proceeds recovered by the United States. Such statutory language make clear Congress’ intent to align the interest of the Government with that of the relator.
By law, a whistleblower must file the qui tam Complaint under seal. However, the Complaint is but one of the two documents a whistleblower must file. The other is an evidentiary disclosure. I learned that reading the law journal article authored by Tony DeWitt, the Rigsbys’ former counsel:
Although the filing of the document is jurisdictional and the Act requires that one be filed, it is important to remember that the purpose of the filing is to make the government aware of what evidence the relator has, and what other evidence might be available should it decide to intervene in the case.
Occasional slabbed commenter James Barbieri was kind enough to share his May 2009 law school thesis which thoroughly analyzes the 2 False Claims Act cases against Team Insurance Inc and concludes, as this post title indicates, that the McIntosh adjustment is evidence of fraud against the US Government. For anyone interested in this topic it is an excellent read. Given the recent GAO report on continued financial management problems in the National Flood Insurance Program that Nowdy recently profiled and its implications for the previously completed MID State Fram Market Conduct Study and the Department of Homeland Security OIG’s report I was immediately attracted to this passage which shows that people do get it:
……..OIG and the Mississippi Insurance Department (“MID”) have already conducted sufficient post-Katrina claims analysis to warrant reopening all Katrina files.
OIG published results of an audit of 131 combined wind and flood claims. In the Executive Summary, OIG “concluded that the NFIP did not pay for wind damage for structures included in our sample.” But on page six of the same report, OIG provides evidence of NFIP paying for wind damage:
“Based on the review of files in our sample, we did not find material evidence that the NFIP paid for wind damage. Although 44 out of 131 cases (34%) included errors that related to cause of damage resulting in some degree of duplication, e.g. flood and homeowners policies paying for the same type of damage…, only two (1.5%) of these cases clearly identified wind as the preponderant cause of damage, thus resulting in an improper payment by NFIP in the amount of $432,600.”
Renfroe’s suggestion of mootness by virtue of Scruggs’ satisfaction of the June 5, 2008, contempt judgment is unavailing… The satisfaction of a joint and several liability does not moot the appeal of the debtor satisfying the judgment. See United States v. Balint, 201 F.3d 928 (7th Cir. 2000) (citing Corley v. Rosewood Care Center, Inc., 142 F.3d 1041, 1058 (7th Cir. 1998)) (“Payment of the sanction does not moot the appeal because the appellate court can fashion effective relief to the appellant by ordering that the sum paid in satisfaction of the sanction be returned”)…
That interesting piece of information comes from a footnote in the 11th Circuit ruling vacating Judge Acker’s Order.
The 11th U.S. Circuit Court of Appeals has overturned a federal judge who cited then-attorney Dickie Scruggs for contempt of court…Acker held both Scruggs and the adjusters, sisters Cori and Kerri Rigsby, in contempt of court when the records were not returned to the Rigsbys employer, independent adjusting firm E.A. Renfroe. Acker levied a $65,000 fine to compensate Renfroe’s attorney’s fees in pursuing the records.
Scruggs paid the fine into a holding account and appealed Acker’s decision.
Renfroe, which supplied adjusters to State Farm after Katrina, had sued the Rigsbys in the company’s home state of Alabama for breach of contract. The appellate court held that Scruggs was not a party to the Renfroe vs. Rigsby lawsuit and, therefore, could not be held in contempt. The appellate judges also removed Acker from any further proceedings in the case.
The 11th Circuit ruling has Acker eating his own words:
With the very recent publishing of yet another list of the worst bad faith insurers, this time by the American Association for Justice, the topic of why the public holds these companies in such low esteem again becomes topical.
We’ve well chronicled the dirty tricks and underhanded tactics these socially deviant companies employ to satisfy their relentless thirst for profit but that is not the thrust of this post. Rather, in keeping with today’s theme of “the why” as Nowdy linked my comment on the Yahoo Allstate message board in her Daily slab post I’m expanding on the concepts from that post and in the process explain one of the possible reasons why an insurer with a good reputation in Chubb will be inherently more profitable than one with a bad reputation in Allstate.
When I first met Nowdy and we began to get to know each other I told her my favorite hobby was investing and to that end, the fields of Game Theory and Behavioral Finance were of great interest to me along with their political first cousin Public Choice theory, the latter two economic disiplines being relative newcomers to our body of collective knowledge.
After 20 months of writing here at slabbed I finally get to indulge those passions and perhaps educate our readers on the mechanisms at work that resulted in what became known here on Slabbed as The Scheme, a series of posts by Nowdy that explained the bad behavior of the insurers here after Katrina. In short not only do we tell you who dunnit but also how it could happen in a large organization like State Farm, Nationwide, USAA, Allstate and others. We start with the July-August edition of the Harvard Business Review and Dan Ariely’s article The End of Rational Economics:
In 2008, a massive earthquake reduced the financial world to rubble. Standing in the smoke and ash, Alan Greenspan, the former chairman of the U.S. Federal Reserve once hailed as “the greatest banker who ever lived,” confessed to Congress that he was “shocked” that the markets did not operate according to his lifelong expectations. He had “made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.” Continue reading “Have we seen the end of rational economics? Behavioral Economics explains the Scheme.”
I have no idea why this man is smiling. Until this photograph ran with Anita Lee’s package of stories in today’s Sun Herald, I had never seen his picture, much less had the opportunity to meet him.
Maybe he’s smiling because he’s happy someone finally took a deposition of Lecky King and got answers to their questions.
Just kidding. He looks more like an everyday smiler to me, a generally pleasant person, not one who saves smiles for special occasions. I hope so as he is none other than L.T. Senter, Judge for the Federal Court, Southern District of Mississippi – and king of Katrina litigation on the Coast.
State Farm decided within days of Katrina it was storm surge that obliterated Coast homes near the waterfront, a State Farm claims manager has testified, instructing adjusters to pay federal flood claims but wait for investigations to determine if the company owed money for wind damage.
State Farm’s counsel ignored the obvious and filed a Motion to Amend Answer yesterday that claimed the Rigsbys had dismissed the Company as a defendant in the qui tam case – leading to the only possible excuse for counsel’s action:
it was just my imagination
running away with me.
It was just my imagination
running away with me…