A Mississippi grand jury probing State Farm Insurance Co.’s handling of claims after Hurricane Katrina heard testimony this week from two sisters who turned over reams of internal claims records to investigators while they worked for the company, a person with direct knowledge of the proceedings said Thursday.
Cori and Kerri Rigsby, former employees of a company that contracts with State Farm, contend the documents show that the insurer defrauded policyholders by manipulating engineers’ reports so that claims could be denied.
The sisters gave copies of the records to Mississippi Attorney General Jim Hood, who sued State Farm and other major insurers for refusing to cover at least $2 billion in damage from Katrina’s storm surge.
Hood also launched a criminal investigation into allegations that State Farm fraudulently denied claims after the Aug. 29, 2005, hurricane. State Farm attorneys say a federal grand jury is conducting a separate but similar probe.
State Farm has denied pressuring its engineers to conclude that Katrina’s water, not wind, was responsible for damage to homes. The company has paid for damage it attributes to wind but not to rising water, including storm surge.
The Rigsby sisters were among several witnesses who testified Wednesday when the grand jury convened in Pascagoula, the person with direct knowledge of the proceedings said. The person asked not to be named because the grand jury was still in session.
The grand jury’s seating comes as State Farm continues to negotiate a possible settlement with Hood and lawyers for hundreds of policyholders who sued the Bloomington, Ill.-based insurer for denying claims.
One of the conditions of any settlement with State Farm is that Hood end the grand jury’s probe, according to people with direct knowledge of the negotiations.
State Farm spokesman Fraser Engerman declined to comment on the grand jury’s probe, but said, “We have been cooperating fully with the state and federal investigations.” A spokeswoman for Hood said she can’t comment on grand jury proceedings because they are secret.
The Rigsbys are former employees of E.A. Renfroe & Co., a Birmingham, Ala.-based insurance adjusting firm. Renfroe assigned them to help State Farm adjust claims on Mississippi’s Gulf Coast after Katrina.
In an interview last year with The Associated Press, the sisters said their concerns about State Farm’s claims practices prompted them to cooperate with attorney Richard “Dickie” Scruggs, whose legal team sued State Farm on behalf of hundreds of policyholders.
The sisters say they turned over thousands of pages of internal State Farm records to Scruggs, Hood and U.S. Attorney Dunn Lampton’s office.
Scruggs, who calls the Rigsbys “whistleblowers,” hired them as consultants after they resigned from E.A. Renfroe last year. Renfroe has sued the sisters, accusing them of violating the Alabama Trade Secrets Act and breaching confidentiality agreements with the company.
Hundreds of Gulf Coast homeowners have sued State Farm and other major insurers for denying their claims after Katrina.
Last week, a federal jury in Gulfport awarded $2.5 million in punitive damages to State Farm policyholders Norman and Genevieve Broussard, who sued the company for refusing to pay for any damage to their Biloxi home.
Another trial for a State Farm policyholder’s suit is scheduled to start Monday. The company asked for the trial to be postponed, but U.S. District Judge L.T. Senter Jr. ruled Thursday that the case will proceed as scheduled.
State Farm attorneys argued in court papers that a “barrage of publicity” about last week’s multimillion dollar verdict may have tainted a jury that already has been picked to hear testimony for next week’s trial.
Senter, however, said postponing the trial would needlessly disrupt the court’s schedule. He promised to question the jury and remind them “not to be swayed” by any media coverage.
Last Thursday, before jurors awarded punitive damages to the Broussards, Senter ruled that State Farm is liable for $223,292 in storm damage to their home.
The judge’s decision to take part of the case out of jurors’ hands appeared to stun lawyers on both sides. State Farm is expected to appeal the verdicts.
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