N.C. Engineering Firm to be Dropped from Miss. Katrina Insurance Suits

November 15, 2007

North Carolina-based Forensic Analysis and Engineering Corp., has reached a settlement with lawyers who have filed hundreds of lawsuits against State Farm Insurance Cos. on behalf of policyholders whose claims were denied by the insurer after Hurricane Katrina.

Under terms of the settlement, Forensic Analysis and Engineering Corp., which helped State Farm adjust policyholder claims in Mississippi, would be dropped from a federal lawsuit that accuses the insurer of engaging in a “pattern of racketeering” after the storm.

Forensic would be dismissed from several of those suits, including one filed in June that accuses Bloomington, Ill.-based State Farm of violating the civil Racketeer Influenced Corrupt Organization Act, or RICO, in its handling of claims after the Aug. 29, 2005, hurricane.

Zach Scruggs, one of the attorneys who filed the RICO case against Forensic, State Farm and engineering firm E.A. Renfroe & Company Inc., said the settlement will “better enable us to prosecute our cases against State Farm.” Scruggs said he couldn’t elaborate, however, because the terms of the deal are confidential.

In a related development this past week, a federal magistrate in Gulfport, Miss., agreed to lift a court order that had barred Scruggs from providing a federal grand jury with a Forensic employee’s computer hard drive.

U.S. Attorney Dunn Lampton, whose jurisdiction includes Mississippi’s Gulf Coast, served Scruggs with a subpoena for the hard drive. Lampton has convened a grand jury that is believed to be investigating the insurance industry’s handling of claims after Katrina.

Forensic had persuaded U.S. Magistrate Robert Walker to block Scruggs from complying with the subpoena. Now that Walker has lifted the order, Scruggs said his firm is “making arrangements” to turn over the hard drive it obtained from Forensic employee Nellie Williams in July.

An attorney for Raleigh, N.C.-based Forensic wouldn’t immediately comment. State Farm spokesman Fraser Engerman said he wouldn’t comment on the settlement because the company wasn’t involved in the agreement.

“Our position on the (RICO) lawsuit hasn’t changed,” Engerman said, calling it a “regurgitation of every wild allegation that (Scruggs’ firm) has made against us since Katrina struck.”

Scruggs and other policyholders’ lawyers have accused State Farm of pressuring its engineers to altering their conclusions in reports on storm-damaged homes so that claims could be denied. To support that claim, Scruggs’ firm cited a series of e-mails exchanged by Forensic officials in October 2005.

In one e-mail, Forensic president and CEO Robert Kochan describes complaints about the firm’s work made by Alexis King, a State Farm manager in Mississippi.

Randy Down, who was the firm’s vice president of engineering services, responded, “I really question the ethics of someone who wants to fire us simply because our conclusions don’t match hers.” Down later told The Associated Press that he was relying on “secondhand” information about State Farm’s complaints and didn’t directly work on Katrina claims.

Forensic also is named as a defendant in a separate lawsuit that the Scruggs Katrina Group’s lawyers filed against several insurance companies, accusing them of overbilling the federal government for flood damage from Katrina.

The U.S. Department of Justice has until Jan. 31 to decide whether to intervene in that suit. In the meantime, Scruggs said his firm doesn’t have the authority to dismiss Forensic from the case.

“That’s kind of in a holding pattern now,” he said.

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