Adjuster Sues Sisters for Releasing State Farm Files

September 27, 2006

A company that contracts with State Farm Insurance Co. is suing two former employees who are helping an attorney build cases against the insurer for denying claims after Hurricane Katrina.

E.A. Renfroe & Co., a Birmingham, Ala.-based insurance adjusting firm, alleges in its lawsuit that Cori and Kerri Rigsby broke the law when they turned over reams of internal State Farm records to attorney Richard “Dickie” Scruggs.

The Rigsbys, sisters who were assigned by Renfroe to help adjust claims for State Farm, contend the documents show that the Bloomington, Ill.-based insurer manipulated engineers’ reports on storm-damaged homes so that policyholders’ claims could be denied.

The sisters resigned from Renfroe after telling a State Farm supervisor in June that they were cooperating with Scruggs, who calls them “whistleblowers.” The Rigsbys also turned over copies of the documents to state and federal authorities.

Renfroe’s lawsuit, filed this month in a federal court in Alabama, accuses the sisters of violating the Alabama Trade Secrets Act and breaching confidentiality agreements with the company.

Renfroe is asking a judge to order the Rigsbys to return the documents they gave Scruggs and to bar them from continuing to disclose information.

Kerri Rigsby said she and her sister knew that being sued was one of the risks of working with Scruggs.

“Nobody wants to be sued,” she said Tuesday. “I’ve never been sued before. I’m not sure how it’s going to play out.”

Zach Scruggs, Richard’s son and law partner, said the lawsuit against the Rigsbys is “an effort to intimidate and silence them just for speaking out about misconduct and fraud.”

Barbara Stanley, an attorney for Renfroe, declined Tuesday to discuss the lawsuit. “We’re going to let the lawsuit speak for itself,” she said.

State Farm has denied pressuring engineers to conclude that Katrina’s water, not wind, was responsible for damage to homes. The company says its policies cover damage from wind but not from flood water, including wind-driven storm surge.

State Farm spokesman Phil Supple declined to comment on Renfroe’s suit, but said, “We have an expectation that our vendors and the people who work for them follow a code of conduct that protects the private information of our customers.”

Scruggs, who helped negotiate a multibillion-dollar settlement with tobacco companies in the late 1990s, is suing State Farm and several other major insurers on behalf of hundreds of policyholders whose claims were denied after Katrina.

In a related development, a federal judge in Mississippi refused to block Scruggs’ legal team from taking depositions from five State Farm managers who worked with the Rigsbys in Gulfport and Biloxi after Katrina.

Scruggs wants to question the five employees under oath for a lawsuit he filed on behalf of Wesley McFarland, a State Farm policyholder whose home was destroyed by Katrina. A federal jury is scheduled to try the case starting on Jan. 29.

State Farm says the five employees were not directly involved in adjusting McFarland’s claim, so the company argued their testimony wouldn’t be relevant. However, U.S. Magistrate Judge Robert Walker ruled Tuesday that Scruggs is free to take their depositions.

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