Mississippi Katrina Report: No Insurer Fraud Pattern

November 3, 2008

State Farm Fire & Casualty Cos. made questionable decisions in handling Hurricane Katrina claims, but a nearly two-year study found no pattern of fraud in Mississippi, according to a state agency report released Oct. 30.

The 42-page report by the Mississippi Insurance Department, which regulates insurers in the state, contradicts allegations of widespread fraud that followed the unprecedented storm in August 2005.

Among the study’s findings:

-Some claims were not handled appropriately, but there was no specific violation of the Unfair Trade Practices statute and no pattern of violations of the insurance fraud statute.

-There were questionable decisions and irregularities, but no scheme or plan to systematically mistreat policyholders.

-After numerous complaints and accusations by policyholders, State Farm agreed to reopen some cases and paid an additional $88 million.

State Farm spokesman Jonathan Freed said the report “clearly shows that examiners found no violations of state law or regulations, allegations of fraud and abuse were baseless, and, where mistakes were discovered in claims handling, we corrected them.”

The Bloomington, Ill.-based company came under intense scrutiny after the storm. Attorney General Jim Hood opened at least two criminal investigations and allegedly threatened to indict company executives. High-powered tort attorneys filed dozens of civil lawsuits.

There were allegations that the company used fraudulent and conflicting damage assessment reports to deny claims.

The insurance department’s report, however, said what “appeared to have been designated as changed reports were often drafts or unsigned reports that had not been reviewed by the signing engineer.”

“Not all the changes resulted in conclusions favorable to State Farm,” the report said.

A criminal investigation of the company’s practices by Hood’s office appears to be closed, but a federal investigation continues, the report said.

Hood’s office would not comment on Oct. 30. The U.S. attorney’s office in Jackson would not confirm or deny an ongoing investigation.

The handling of insurance claims after Katrina continues to be a sore topic among many coast residents. At least one coast group continues to push state lawmakers to study ways to improve homeowner rights.

Insurance Commissioner Mike Chaney said in a release that he’s “very aware that not everyone will be pleased with the conclusions reached in the report.”

“This report finds State Farm did some things right and some things wrong,” he said.

The report specifically questions allegations made by Cori and Kerri Rigsby, two sisters who worked for an engineering firm that provided damage assessments for State Farm.

The sisters provided thousands of State Farm documents to famed attorney Richard “Dickie” Scruggs, who is now in prison. Scruggs called the sisters “whitleblowers,” and said they had proof that State Farm pressured engineers to change damage reports.

The insurance department’s report said the allegations of fraud “deteriorated throughout the course of the investigation” and “simply could not be substantiated.”

It also said one of the sisters admitted using Scruggs’ client list “to assist in accessing the State Farm database” when she secretly copied documents. A federal judge has already disqualified the sisters as witnesses on Katrina cases because they were on Scruggs’ payroll.

While the report found no fraud, it did say that some adjusters were inexperienced, the company sometimes failed to pay when there were wind damages and it did not always properly document damages.

The insurance department’s report was based on a study of 800 homeowners’ claims — a sampling of about 43,000 filed in Mississippi’s six southernmost counties and interviews with those involved.

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