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SCOTUS Rules That State Farm Defrauded Federal Government Post-Katrina

Posted in Our Blog on December 7, 2016


In the aftermath of the devastation caused by Hurricane Katrina in 2005, the insurance company State Farm routinely and deliberately misidentified damage caused by wind as damage caused by flooding. Flood damage claims are paid by the federal government under the National Flood Insurance Program, while wind damage claims are paid by the insurance companies themselves. This understandably creates an incentive for insurance companies to blame flooding over other types of damage whenever possible, and doing so after Katrina saved them considerable amounts of money… at the expense of the taxypayer, of course.

In 2013, two State Farm insurance adjusters took action against the company to stop this fraudulent practice. They filed a lawsuit using the False Claims Act, which allows citizens to sue companies on behalf of the government; the False Claims Act is an invaluable tool for whistleblowers trying to hold powerful corporations in check. The lawsuit succeeded and State Farm was ordered to pay $750,000 in damages.

State Farm appealed the suit, seeking to have it dismissed by a higher court on the grounds that the plaintiffs’ attorney had emailed a sealed document related to the case to a reporter, violating court rules for sealed documents. The District Court rejected this argument, as did the Court of Appeals, and today the US Supreme Court ruled against the company, effectively closing the matter.

This ruling, from our nation’s highest court, is important for a number of reasons. For one, it demonstrates the importance of the False Claims Act. As Justice Anthony Kennedy notes in his Opinion for the Court, “At the time (of the law’s writing), ‘perhaps the most serious problem plaguing effective enforcement of the FCA was ‘a lack of resources on the part of Federal enforcement agencies.'” In other words, the federal agencies in charge of regulating the most powerful corporations often don’t have the resources to fight effectively. The FCA provides another form of regulation, empowering private citizens to assist the government in holding the powerful accountable.

Secondly, the ruling is a victory for those of us who have fought the insurance companies in the wake of natural disasters such as Katrina. Our firm won a victory in court against State Farm in 2007, when State Farm erroneously claimed that our clients’ home was damaged by flooding rather than wind, a perfect example of the company-wide policy of trying to pass the buck off to the taxpayer.

We need all the tools in our arsenal to hold powerful corporations accountable, to ensure they don’t take advantage of people just because they have the resources to do so. This ruling by the Supreme Court drives home how important it is that the current vacancy on the Court is not filled by a justice more friendly to corporate interests than ordinary Americans, that our protections against corporate interests are strengthened, not weakened.