Judge Dismisses Portions of Katrina Lawsuit in Mississippi

September 10, 2008

A Mississippi couple who accused their insurance company of using fraudulent Hurricane Katrina damage reports to keep from paying claims now says there’s no evidence the insurer acted negligently or in bad faith.

A judge dismissed the bad faith portions of the lawsuit on Sept. 8, once considered a key piece of Katrina litigation, after the couple requested he do so.

After initially accusing State Farm Fire & Casualty Co. of using doctored engineering reports to deny portions of their claim, Thomas and Pamela McIntosh said in a court motion this week that “there is no credible evidence that State Farm engaged in bad faith” or negligence.

It’s not clear if the McIntoshes’ change of heart is due to some type of deal in the case, filed in October 2006.

“I’m not really at liberty to say everything I know for various reasons and I don’t think people should speculate too much on the outside trying to look in as to what the various parties are doing right now,” the McIntoshes’ attorney, William “Chip” Merlin of Tampa, Fla., said Sept. 8 in a phone interview.

The McIntoshes are still suing for money they believe is owed under State Farm’s contractual obligations, Merlin said, but are no longer seeking punitive damages for alleged misconduct.

The lawsuit was considered the centerpiece Katrina litigation for now-imprisoned attorney Richard “Dickie” Scruggs, once among the most prominent — and feared — tort attorneys in the country.

“It is sad that it has taken two years to get to this point. And it is appalling Dickie Scruggs was allowed to game the system and use his unfounded allegations in this case to dupe politicians and prompt scandalous headlines and stories from the news media,” State Farm spokesman Jonathan Freed said.

Scruggs had publicly claimed that two “whistleblowers” provided him documents that proved State Farm used conflicting engineering reports to deny portions of the McIntoshes’ claim by blaming damages on water instead of wind. The allegation got significant attention because Scruggs had used a corporate insider in the 1990s to wrest billions of dollars from tobacco companies. That case was portrayed in the 1999 film “The Insider,” starring Al Pacino and Russell Crowe.

This time, the so-called whistleblowers — two sisters who worked for E.A. Renfroe and Co., a firm that provided damage assessments for State Farm — were disqualified as witnesses because Scruggs paid them $150,000 a year. Scruggs was ordered to return hundreds of internal State Farm documents the women took while working at Renfroe.

In the meantime, Scruggs was caught up in an unrelated judicial bribery scheme and sent to prison for five years.

Attorneys associated with Scruggs were also kicked off the McIntoshes’ case because they knew about the payments to the sisters — Kerry and Cori Rigsby.

Now, in the motion filed this week, the McIntoshes said “State Farm had a reasonable basis for taking the position it did” regarding their coverage.

The motion requested the dismissal of portions of the lawsuit that sought punitive damages based on breach of contract, negligence and bad faith, which had allegedly caused the couple emotional distress. Fraud allegations had already been dismissed.

“It is clear in the motion filed by the McIntoshes’ current lawyers there is not and never was evidence showing bad faith or negligence by State Farm,” Freed said.

While neither State Farm nor the McIntoshes’ attorney will say if there was a settlement, court documents say the McIntoshes “consulted with State Farm and Renfroe, who do not object to this motion. The parties have also agreed that all parties will bear their own costs and attorneys fees.”

Scruggs was indicted in March along with his son and several associates after being caught on an FBI surveillance recording discussing attempts to bribe a judge for a favorable ruling in a dispute over $26.5 million in attorney fees from a mass settlement of Katrina cases.

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