McKinsey consulted with State Farm on Xactware estimates following Katrina – Schafer v State Farm

If you type “McKinsey” into “Search” at the top of the page, you’ll find a multi-page listing of related SLABBED posts. What you will read, however, is far from a glowing report on a Company that touts, “Our alumni number more than 18,000, and work in virtually every business sector in over 80 countries” on its website.

One of the recurring questions about McKinsey is what role the Company’s consulting played in the way insurers handled policyholders’ claims following Hurricane Katrina. McKinsey was a named defendant in the anti-trust case filed by former Louisiana Attorney General Foti who accused the Company of “advising insurers to ‘stop ‘premium leakage’ by undervaluing claims using the tactics of deny, delay, and defend’ “.

After the case was dismissed, State Farm spokesman Phil Supple commented, “We felt these allegations were completely unfounded from the outset, and we’re pleased the court today agreed with our position”. State Farm continued to maintain that position in Schafer v State Farm, according to the Schafer’s Reply Memorandum in Support of Motion to Compel.

In its Opposition, State Farm stated: “McKinsey has not provided any services or documents to State Farm in connection with the adjustment or handling of Hurricane Katrina property claims, and McKinsey materials accordingly are wholly irrelevant here.” The Gourgues affidavit (attached to State Farm’s Opposition) states, in part: “Since that time [1998], however, McKinsey & Co. has provided no services to State Farm that have impacted the handling of Hurricane Katrina property claims in Louisiana.”

However, the Schafers also say, “This is just not true” and provide supporting documentation for their claim. Continue reading “McKinsey consulted with State Farm on Xactware estimates following Katrina – Schafer v State Farm”

the pause that refreshes – all but five “confidential exhibits” declassified in Schafer v State Farm

SLABBED readers were introduce to Schafer v State Farm in the scheme,  fourth chapter – the blame game:

This is a case about State Farm’s uniform, corporate-wide practice of undervaluing Louisiana insured’s property damage after Hurricane Katrina and Xactware’s active and intentional collusion. State Farm required its adjusters to use the computer program Xactimate to compute the replacement value of damaged property for as much as 60% below the actual market place value.

In the year plus since the scheme was published, the case was denied class status but, alone, Schafer v State Farm is moving toward trial set to begin on the 28th of June before Judge Africk – reportedly the most likable pro-insurance judge on the bench.  Perhaps the best background on the case published on SLABBED is found in the January 2010 post State Farm’s Protective Orders are Dispositive Motions in disguise.

Now for the Order released on PACER today – one I’ve been waiting for since September 3, 2009 when the Schafer’s filed a Motion to Declassify Exhibits“:

The Court has completed the in camera inspection of documents furnished by State Farm in the above captioned matter in connection with the plaintiffs’ motion to declassify and the defendants’ joint motion for return of certain confidential documents…

In essence, plaintiffs have contended the documents exchanged in discovery were wrongfully classified under the existing protective order and should be considered public in nature. Defendants, on the other hand, argue that they are confidential or highly confidential as defined in the protective order and should be returned. Continue reading “the pause that refreshes – all but five “confidential exhibits” declassified in Schafer v State Farm”

Rigsby sisters designate experts and disclose expert testimony – Part 1: Evidence of fraud resulting from State Farm’s use of XACT-Total

…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: Continue reading “Rigsby sisters designate experts and disclose expert testimony – Part 1: Evidence of fraud resulting from State Farm’s use of XACT-Total”

State Farm’s Protective Orders are Dispositive Motions in disguise – more games scheduled for the qui tam Olympics

Companies will soon learn that the best protection and defense against a potentially serious and morale lessening whistleblower suit is to have in place a corporate culture that emphasizes ethical conduct by all involved in the company.

In contrast to the opinion expressed in a lecture at the Brookings Institute, the dockets of Katrina litigation provide ample evidence that the corporate culture of State Farm is one that, instead, views a protective order as the Company’s best protection and defense.  At SLABBED we call the tactic gutting a case to settlement.  However, by any name,  the process begins with a protective order that consistently ends up disposing of so much evidence it effectively disposes of most plaintiffs’ Constitutional right to a jury trial and, in turn, either disposes of the case itself or forces settlement,.

SLABBED has published numerous posts documenting how the routine protective orders granted State Farm have repeatedly been used to shield damaging evidence of State Farm’s claims handling following Katrina. One such post quoted a plaintiff’s attorney who wrote:

It is black-letter law that a litigant who might be embarrassed, incriminated, or exposed to litigation through dissemination of materials is not, without more, entitled to the Court’s protection. Stated otherwise, those types of harm do not constitute “good cause” for entry of a protective order under the Rules…

State Farm has not right to an automatic protection from the public being granted access to evidence of its misconduct in the arena of responding to Hurricane Katrina claims in Mississippi.

Discovery in a qui tam case, more than any other, should be transparent for the Relators stand in the place of the USA which in turn represents the public interest.  We the people, therefore, have a concomitant right to know.  Nonetheless, as SLABBED recently reported in Qui Tam Olympics – the protection game: ex rel Rigsby v State Farm, State Farm filed for a Protective Order seeking to limit the Rigsbys’ discovery. Counsel for the Rigsbys has now filed the Relators’ Response in Opposition :

State Farm asserts that the contested discovery requests “do not pertain to the McIntosh flood claim and amount to mere speculation by the Rigsbys of the type that has been condemned by this Court.” State Farm’s Motion at 6. In fact, the Relators have tailored carefully their discovery requests based on this Court’s August 10, 2009 Order…and  this Court’s related rulings in individual policyholder cases. Accordingly, all of the discovery sought by the Relators seeks information that may lead to admissible evidence regarding whether the Defendants submitted a false claim with respect the McIntosh flood claim. Continue reading “State Farm’s Protective Orders are Dispositive Motions in disguise – more games scheduled for the qui tam Olympics”

Behind door #1 – Xactware come on down!

A number of complaints have been filed with the Justice Department regarding what appears to be an effort to fix prices in the property insurance claims repair business. It involves a company called Xactware, which is a wholly-owned subsidiary of the Insurance Services Organization.

The writer,  an independent business owner, was concerned because the practices in question impact my business, my employees and my family – raising the question:  What practices?

As a practice, insurers, through their adjusting procedures, attempt to impose compliance with these “pricelists” by contractors as a broad group. Because of Xactimate’s position in the industry, at the very least I believe they should be enjoined from presenting their data as a “pricelist”.”

Again, a question is raised: What is Xactware’s data in Xactimate if it isn’t a “pricelist”?

They produce a pricing database, which they market as a “pricelist”, which is actually a database of information of previously submitted settlement numbers for typical processes heavily dependent on “feedback” from insurance companies and from captive contractors who have agreements with those insurers to use the database as a “pricelist”. This methodology results in a self-fulfilling prophecy as insurers and their contracted companies feed back information to establish a “pricelist”…

There is also no doubt that these so-called price lists can be manipulated BOTH downwards and upwards if the client requesting the “price” has a vested interest in doing so.

But, wait, “these client” are insurers –  insurers that own a controlling interest in ISO and ISO owns Xactware. Continue reading “Behind door #1 – Xactware come on down!”

The first bail-out: NFIP accessed by manipulation of construction price data following Hurricane Katrina

Connect the dots.  Russell left a big one in his recent post, Where insurance finally meets the big bailout – AIG a massive ponzi scheme?

They [AIG]would sign a reinsurance contract with an insurance company, take a certain amount of money, and at the same time form a side agreement that essentially said: “We will not pay you on this policy.” Why would the insurance company do this: to lower their capital requirements. And since AIG did not perform much in the way of the services, they could kick some of the money back to the insurance company via an offshore entity which would allow the insurance company to write off all the money paid off to AIG, and then accept back part of the money back as tax free profits.

CLS has been leaving dots on the ALL Board for some time – here’s one from October 2007, for example.

Connect the dots in any fashion and they lead to a  bottom line “short” on reinsurance in the face of the nation’s largest disaster; a legal storm as claims were denied; and to the scheme for a bail-out from the US Treasury via the NFIP.

In a February 2007 report, Congressional Research Service identified two broad sets of post-Katraina claims-adjustment issues that might be relevant to Congress… One set of these relevant issues is centered on the previously discussed policy language on causation; and, the other…

…is the alleged adverse impact on insureds of computerized claims settlement systems and products. Continue reading “The first bail-out: NFIP accessed by manipulation of construction price data following Hurricane Katrina”

If you can’t trust anti-trust, what can you trust?

I’d rather be posting my recipe for Cranberry Daiquiris than tackling anti-trust issues – and probably should do both as there is little entertainment value in the subject.

If you read my earlier post and want more background, I suggest this tag-on of Sop’s from late summer when he stepped in to help me find my way back from an unexpected detour by Road Home.

Although today’s ruling was in federal court; the Katrina insurance antitrust case was filed in State court – and for good reason.  Louisiana has a State anti-trust law, one of the defendants insurers is domiciled in Louisiana, and the alleged price fixing took place in the State.  However, the defendants were successful in their effort to move the case to federal court; and, it appears from the Ex Parte consent motions on the docket, that Buck up Buddy had also been successful in resolving his concerns about Foti’s contracts with private attorneys.

The State’s interest was represented by one of the staff attorneys from the AG’s office, Jane Johnson, who filed a reply memorandum in support of motion to sever as suggested in a related Fifth Circuit ruling on the case now known as Louisiana ex rel Caldwell v Allstate.

The Attorney General proposes what the 5th Circuit ordered, that this Honorable Court decide on the best course of action and is suggesting severing the claim for injunctive relief because 1) that allows more options for this Court in deciding how to proceed, and 2) that is what the Fifth Circuit suggested…

Allstate is only one of the Defendants.  Others insurers named as defendants include State Farm, USAA, Lafayette, Farmers, and Standard Fire.  In addition to the six insurers, there are four other defendants – McKinsey & Company; XACTWAREMarshall & Swift /Beockh, owner of Integriclaim; and Insurance Services Office, Inc – familiar names to SLABBED readers who have followed the scheme. Continue reading “If you can’t trust anti-trust, what can you trust?”

The Scheme: What’s the first case on the docket – the blame game (Chapter 4 qui tam)

Judge I got a boy here who can’t dance
Can’t dance?  Ah
Ninety days, thirty days for boogaloo
Thirty days to learn how to shing-a-ling
And thirty more for the Afro twist
Can’t dance, what is this

What is this? It’s more of the schemethe shing-a-ling part of the scheme to boogaloo Judge Senter. It’s the twist danced with Judge Acker to conceal technology that would prove no documents were stolen. Don’t nobody buzz. Here comes the judge.

What is this? It’s more of the scheme – another one of the games.  First, there were word games; then, mind games; and now, the blame game. The games can be played separately; but, in the scheme they blend and layer- word games blend into mind games; and, the mind game, drama triangle, provides the victim needed to lead the blame game.  The insurance industry fits the role to a tee.

In an attempt to ease feelings of guilt or discomfort about something, the victim-role thinking of Look what you made me do…If it wasn’t for you drives the blame game even when those words are never spoken.  Play the game and shift the blame – others become your victim and they appear guilty instead.

We’ve certainly seen the blame game played since Katrina – often, in fact, most often, it follows one of these themes but not always the same routine:blame the whistleblower, blame the trial lawyers, or blame the victims. The playing field is nationwide; but, since our focus is Katrina, I’ll narrow the field accordingly with examples from here in Mississippi and our neighbor Louisiana andthe four insurers known to have used the Haag report as a claims handling bible of the storm’s damage – State Farm, Allstate, Nationwide, and USAA. Continue reading “The Scheme: What’s the first case on the docket – the blame game (Chapter 4 qui tam)”

Trip down memory lane connects Road Home with Duval's ruling in Louisana antitrust case (Corrected)

Louisiana Federal District Judge Stanwood Duval issued an attention grabbing ruling in an attention grabbing Katrina insurance case filed by former Louisiana Attorney General Charles Foti on his way out the door after losing his bid for re-election last year. The Sun Herald has the story.

A judge has asked a state official to review the validity of private attorneys’ contracts to represent Louisiana’s attorney general in a case over the state’s Road Home hurricane recovery program.

U.S. District Judge Stanwood Duval said insurance company attorneys “persuasively” raised questions Wednesday about whether former Attorney General Charles Foti followed state law when he hired the lawyers. Continue reading “Trip down memory lane connects Road Home with Duval's ruling in Louisana antitrust case (Corrected)”