Judge Denies State Farm Bid to Stop Prosecutor from Reviewing Docs

April 13, 2006

A judge in Gulfport, Miss. has refused to restrict Mississippi Attorney General Jim Hood from reviewing documents that State Farm Insurance Co. is required to turn over to other investigators in Hood’s office.

State Farm attorney Robert Galloway had argued it is a conflict of interest for Hood to oversee a criminal investigation of State Farm’s alleged fraudulent denial of policyholders’ claims after Hurricane Katrina, while he also is pursuing a civil case on behalf of the state against State Farm and other insurers.

“It’s not unusual or anything personal,” Galloway said. “It’s a question of whether or not there’s an appearance of impropriety, a conflict of interest.”

Hood is investigating allegations that Bloomington, Ill.-based State Farm manipulated engineering reports to deny thousands of claims after the Aug. 29 hurricane smashed homes and businesses along the Mississippi Gulf Coast.

Last month, Circuit Judge Steve Simpson ordered State Farm to turn over copies of its Katrina engineering reports to Hood’s office. The judge also ordered Hood’s office to set up a “Chinese wall” that would keep the documents out of the hands of lawyers with civil cases against State Farm, including attorneys in Hood’s own office.

In a written ruling Tuesday, Simpson said “The Attorney General is presumed to be an ‘honest, impartial, and capable official, and (he) should be permitted to exercise (his) discretion in such matters which the law invests in him’ and his oath of office demands.”

The judge also noted that all the attorneys had been cautioned against “making extra judicial statements” or releasing information about the grand jury’s proceedings.

Hood said there’s nothing in the documents that will help him build a civil case against State Farm.

“There’s just a total separation between them,” Hood said. “I’m going to be personally involved in this grand jury investigation because I want to make sure it’s done right.”

During the hearing, Simpson had acknowledged that he is “somewhat powerless” to block the state’s top law enforcement officer from overseeing a criminal case, but questioned how Hood can be certain that the documents will not help his civil case.

“That’s easy to say now. We don’t have the records yet,” Simpson said. “We could all be surprised.”

Simpson asked Hood to explain how it became public that the grand jury was investigating allegations that State Farm allegedly is manipulating engineering reports to deny policyholders’ claims. Hood denied that he was a source of that information.

“It’s difficult to keep a matter like this quiet,” Hood said. “There’s been absolutely no proof that we’ve leaked any information that’s improper.”

On Tuesday, Susan Q. Hood, the company’s claims vice president, said in a statement that State Farm was ready to address any concerns, old or new.

She said State Farm had received more than 657,000 claims as a result of hurricanes Katrina, Wilma and Rita and has paid policyholders more than $5.4 billion.

“A series of storms of this magnitude obviously presents extraordinary challenges,” Susan Hood said. “Despite our best efforts, a small number of disputes will occur.”

“Our associates are dedicated to conducting themselves in an ethical and appropriate manner,” she said. “Suggestions to the contrary are simply wrong. State Farm does not accept anything less from our employees, agents and vendors.”

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