State Farm Gets U.S. High Court Hearing in Katrina Billing Case

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People are stranded on a roof due to flood waters from Hurricane Katrina on Aug. 30, 2005, in New Orleans, Louisiana.

Photographer: POOL/AFP/Getty Images

The U.S. Supreme Court agreed to hear State Farm Fire and Casualty Co.’s bid to overturn a finding that the insurance company fraudulently overbilled the government for damage from Hurricane Katrina.

The case tests the U.S. False Claims Act, the law that lets whistle-blowers sue on behalf of the federal government and then collect a share of any funds recovered.

State Farm is fighting a lawsuit by two claims adjusters who say the insurer improperly classified hurricane damage from the 2005 storm as having been caused by flooding, rather than by wind, in order to collect federal reimbursement. A federal jury ruled against State Farm in a test case involving a home in Biloxi, Mississippi, and a judge ordered the insurer to pay more than $3 million in damages and attorneys’ fees.

The high court dispute centers on the consequences for violations of the requirement that whistle-blower lawsuits remain under seal for the first 60 days. That requirement is designed to give the federal government time to investigate a claim and decide whether to intervene.

Federal appeals courts around the country are divided on that question. One court says a violation requires dismissal of a complaint, while others say it depends on the circumstances.

Bloomington, Illinois-based State Farm says independent claims adjusters Cori and Kerri Rigsby and their then-lawyer, Dickie Scruggs, undertook a public relations campaign before the seal was lifted. A federal trial judge and an appeals court rejected State Farm’s request to dismiss the case.

The U.S. Chamber of Commerce joined State Farm in arguing for high court review, saying lawsuits under the False Claims Act have soared in recent years.

The Supreme Court’s decision to take up the case came against the advice of the Obama administration, which urged the court to reject the appeal without a hearing.

The case is State Farm Fire & Casualty v. United States, ex rel. Rigsby, 15-513.

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