Many homeowners do not realize that standard homeowner’s policies do not cover flood damage. Rather, flood insurance typically must be obtained through a separate policy under the National Flood Insurance Program (NFIP). The federal government makes flood insurance available for discounted rates that do not correlate to actuarial risks through this program. A key aspect of the NFIP authorizes private insurance companies to issue such policies in their own name under the Write Your Own Program (WYO). While the private insurer issues the policy and administers claims, the government actually pays claims up to $250,000 for flood-based building damage and $100,000 for flood damage to personal property.
Private insurance companies often issue both a standard homeowner’s policy for which the carrier is liable and a WYO flood insurance policy backed by the federal treasury. This creates an obvious conflict of interest when a hurricane causes damage because the private insurer can avoid liability by characterizing the damage as being caused by water rather than wind. To mitigate this obvious potential for abuse, insurers under the WYO program owe a fiduciary duty to policyholders. Unfortunately, there have been significant reports of manipulated and undisclosed expert reports and similar fraudulent tactics committed by insurers in processing Hurricane Katrina claims. Insurers have used these tactics to shift liability for claims from private insurers to the federal government by misrepresenting the principle cause of the damage.
The U.S. Court of Appeals, Fifth Circuit recently upheld a relator’s qui tam claim under the False Claims Act for just such a practice. The relators were adjusters for State Farm who brought a qui tam action alleging that their employer submitted false claims to the government for payment on flood policies. The relator’s lawsuit alleged that the insurer unlawfully shifted responsibility for damage to the homes of Gulf Coast residents from homeowner’s insurance policies to the federal government through the WYO program. They indicated that this shift was accomplished by characterizing damage caused by Hurricane Katrina as water damage.
Most homeowners would probably find the evidence provided by the relators as extremely disturbing. The relators testified that shortly after the hurricane, a meeting with adjusters was organized by a State Farm trainer who provided the following instruction: “[w]hat you will see is, you will see water damage. The wind wasn’t that strong. You are not going to see a lot of wind damage. If you see substantial damage, it will be from water.”
Further, the policy of the insurer prior to Katrina was to conduct line-by-line and item-by-item estimates of home damages using a program referred to as Xactimate. Because of the high volume of claims, FEMA authorized insurers to employ an expedited procedure for two kinds of claims: (1) homes swept of their foundation by flood water; and (2) homes with standing water. Any other claims were supposed to be adjusted using the insurer’s normal procedures. The relators presented evidence that State Farm disregarded this directive and used an alternative software program referred to as Xactotal, which estimates value based on construction quality and square footage. Although this alternate method did not involve a line-by-line analysis, it appeared to include such an evaluation.
The relators also disclosed that Brian Ford of Forensic Analysis Engineering produced a report indicating that the damage to the insured’s home (which was a test case) was primarily caused by wind damage. In their qui tam action, they also indicated that State Farm refused to pay the expert and withheld his report from the insured’s NFIP claim file. A note on the front of the report read “Put in Wind [homeowner’s policy] file – Do NOT Pay Bill DO NOT discuss.” State Farm then obtained a subsequent expert that concluded water was the principal cause of the damage. Evidence also was presented that a State Farm representative pressured the Forensic Analysis engineer with the loss of future business if he did not find flood damage as the primary cause of loss.
The trial court awarded the relators the maximum possible share on the test claim of thirty percent which amounted to $758,250 (treble damages on the $250,000 policy limit for damage to the home) plus a civil penalty of $227,475, and an extensive award for attorney fees and court costs. State Farm appealed the decision, indicating that the facts were insufficient to support the verdict. The appellate court found the evidence was sufficient to establish the fraudulent claim and ruled that the relators were entitled to additional discovery to establish other claims.
This is an example of the important role that whistleblowers serve by exposing attempts to misappropriate public funds and engage in other conduct that defrauds the public or creates threats to public safety. At Barrett Law, we are here to help individuals who have the courage to step forward and expose such wrongdoing. Our experienced Mississippi Qui Tam Attorneys work diligently to pursue the maximum compensation for our clients. Contact our firm today at (800) 707-9577 to schedule your free consultation, so we can answer any questions you may have regarding your claim.