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Allegations by whistleblowers and plaintiffs’ lawyers that State Farm Fire & Casualty Co. used a “one-size-fits-all” engineering report to deny policyholders’ Katrina-related claims are stirring up Mississippi’s southern federal district. State and federal prosecutors and grand jurors are looking into allegations that insurance claims were denied on the basis of a biased engineering report. The allegations were brought to light by two claims adjusters who had worked for an Alabama risk management firm under contract with Bloomington, Ill.-based State Farm. Richard T. “Flip” Phillips of Smith, Phillips, Mitchell, Scott & Nowak of Batesville, Miss., an attorney representing Judy M. Guice in a mass tort on behalf of Mississippi homeowners who lost their homes, alleges that State Farm’s tactics reveal “a calculated strategy of wrongful claims denial.” Guice v. State Farm Fire & Casualty Co., No. 06-cv-1 (S.D. Miss.). “If they’re allowed to do this, the lesson the insurance industry will have learned is that in mass catastrophe situations, a calculated course of across-the-board, wrongful claims denial and trying one case at a time pays,” Phillips said. State Farm spokesman Phil Supple said that the company has been resolving claims fairly and is cooperating with state and federal probes into its activities. Loretta L. Worters, vice president of the New York-based Insurance Information Institute, an insurance industry-funded group, said that the accusations were merely the plaintiffs’ lawyers latest attempt “to see what, if anything, will stick-both through the media and in a court of law.” “First, it was the so-called hurricane deductible (which does not exist), then it was the supposedly vague policy language (which, in fact, a judge has ruled is clear); now it is unfounded charges of conspiracy. As each one of [their] arguments gets shot down, [they try] a new tactic,” Worters wrote in an e-mail. Underlying the litigation is the issue of whether the damage to policyholders’ homes was caused by Katrina’s high winds, which most policies cover, or by the storm surge and high waters, against which many policyholders were not insured. The southern district of Mississippi so far has denied class certification on the ground that each case involves its own set of circumstances as to the percentage of wind to water damage. But the plaintiffs allege that State Farm used a “generic engineering report . . . which concluded that all of the hurricane damage to property on the Mississippi Gulf Coast was caused by storm surge and not by hurricane wind,” in essence to deny all of their claims, according an amended complaint filed in McFarland v. State Farm Fire & Casualty Co., No. 06-466 (S.D. Miss.). Plaintiffs further allege that State Farm is following a pattern of fraudulent claims handling that was established in Oklahoma, Texas and other jurisdictions around the country. A federal grand jury in Jackson, Miss., that is investigating these allegations reportedly asked to see the record and transcripts of an Oklahoma insurance claim case in which a state jury awarded $9.9 million in punitive damages in May to a homeowner who sued State Farm after a tornado destroyed his home in 1999. Watkins v. State Farm Fire & Casualty Co., No. CJ-2000-303 (Grady Co., Okla., Dist. Ct.). In a related development, a recent State Farm motion for a protective order identifies by name two of five State Farm employees who are possible targets of state and federal criminal investigations and grand jury proceedings over claims-handling issues. State Farm has sought to prevent its employees from being deposed in civil matters while the criminal probes are pending. Plaintiffs’ lawyers support their allegations regarding State Farm’s claims handling with at least 15,000 documents copied and disclosed to them and to state and federal law enforcement authorities by Cori Rigsby Moran and Kerri Rigsby, sisters who were formerly adjusting Katrina claims for State Farm through their former employer, E.A. Renfroe & Co. of Birmingham, Ala. The sisters reportedly now work for Richard F. “Dickie” Scruggs of Oxford, Miss., who represents the McFarland plaintiffs. He did not return a call for comment. Renfroe is now suing Moran and Rigsby in federal court in Alabama, seeking injunctive relief and unspecified damages for the sisters’ alleged breach of contract and violation of the Alabama Trade Secrets Act. E.A. Renfroe & Co. Inc. v. Moran, No. 06-1752 (N.D. Ala.).

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