Who are the moles? The question was like a parlor game for employees of State Farm Insurance Co. after Hurricane Katrina, one they nervously played during coffee breaks or in the parking lot after work.
Richard “Dickie” Scruggs, a prominent lawyer of tobacco litigation fame, created a stir by announcing in March that two “insiders” were helping him build cases against insurers for denying claims for Hurricane Katrina losses.
Their identities remained a mystery until the day in early June when Cori and Kerri Rigsby — employees of a company that contracted with State Farm — told a supervisor they were cooperating with Scruggs.
That startling admission — and their subsequent resignations — ended a risky charade. The Rigsbys say they spent months collecting reams of internal State Farm reports, memos, e-mails and claims records before they gave them to Scruggs and state and federal authorities.
The sisters, who managed teams of State Farm adjusters, say the documents show that the insurer defrauded policyholders by manipulating engineers’ reports so that claims could be denied.
“I think we’ve given him the smoking gun,” Cori Rigsby, 38, told The Associated Press during a recent interview at the home she shares with her sister near Ocean Springs.
State Farm spokesman Phil Supple said the Bloomington, Ill.-based company is reviewing the sisters’ allegations but hasn’t been allowed to question them.
“State Farm’s employees are committed to conducting themselves in an ethical and appropriate manner,” Supple said. “Any suggestions to the contrary are simply wrong.”
Hundreds of homeowners on Mississippi’s Gulf Coast have sued their insurance companies for refusing to pay for millions of dollars of damage from Katrina. A judge who presided over the first Katrina insurance trial ruled this month that Nationwide Mutual Insurance Co. must pay for damage caused by wind but not from flooding, including storm surges.
The first of Scruggs’ cases against State Farm is scheduled to be tried early next year, and he said the Rigsbys’ cooperation has been invaluable in building his case.
Scruggs is no stranger to whistleblowers: Jeffrey Wigand, a former Brown & Williamson Tobacco Corp. executive, helped Scruggs and other lawyers secure a multibillion-dollar settlement with tobacco companies in late 1990s. The case was portrayed in the 1999 movie “The Insider,” starring Al Pacino and Russell Crowe.
The Rigsby sisters were both eight-year employees of E.A. Renfroe, a firm that helps State Farm and other insurers adjust disaster claims. Although they weren’t State Farm employees, the company issued them computers and business cards that identified them as State Farm representatives. They also had confidentiality agreements with State Farm.
“We have always been proud to work with State Farm,” Cori Rigsby said.
The sisters say that pride faded, however, as they began to suspect the company was pressuring engineers to alter their conclusions about storm damage so claims could be denied.
Kerri Rigsby says her suspicions grew in November after finding a handwritten note attached to an engineer’s report that read: “Put in Wind file — DO NOT pay bill. DO NOT discuss.”
She said the engineer’s report, dated Oct. 12, concluded that Katrina’s wind caused most of the damage to a Biloxi policyholder’s home. That should have been good news for the policyholder, she noted, since State Farm’s policies cover damage from wind but not water.
But when Kerri Rigsby pulled the policyholder’s file, she said she found a subsequent report based on a second inspection of the home Oct. 18. This time, the same engineering firm concluded that water caused most of the damage, according to the report, which the AP reviewed.
“The policyholder did not get a copy of the one that said wind,” said Kerri, 35. “He should have gotten lots more money.”
It wasn’t the only case in which State Farm’s engineers drafted conflicting reports on storm damage, according to the Rigsbys. They say managers were surprised and disappointed that many initial engineering reports blamed damage on wind.
“That’s when they went into a frenzy and started mass-canceling all these engineering reports,” Cori said.
Kerri says “the bible” for State Farm adjusters was a “cookie-cutter” report, prepared by Haag Engineering Co. of Dallas, which concluded that rising water, or wind-driven storm surge, was responsible for most of Katrina’s damage in Mississippi.
“If it didn’t match the Haag report, then it wasn’t accurate,” Kerri said.
Supple, the spokesman for the insurance company, said State Farm ordered engineering reports for less than 2 percent of the more than 100,000 claims it received in Mississippi after Katrina. State Farm also says it made payments on more than 60 percent of the claims involving engineers. Supple rejected the allegation the company pressured engineers to change their conclusions.
“State Farm’s claims-handling practices have been in a public fishbowl,” he said. “With the world watching, we’ve done what we do every day, and that’s be fully up front in all aspects of our claims work.”
The Rigsbys say they didn’t know what to do with the information they had gathered until their mother, Pat Lobrano, arranged a meeting with longtime friend Scruggs in February.
The sisters say they ultimately printed out and copied roughly 15,000 pages of claims records. In addition to providing the material to Scruggs, they say they gave copies to Mississippi Attorney General Jim Hood and U.S. Attorney Dunn Lampton’s offices on June 5, the same day they told a supervisor they were cooperating with Scruggs.
Hood, whose office is investigating whether State Farm fraudulently denied claims, declined to comment on the Rigsbys’ allegations. A spokeswoman for Lampton also would not discuss the matter.
In March, a state judge ordered State Farm to turn over copies of its Katrina engineering reports to Hood.
After the sisters resigned, Scruggs hired them to help his legal team with lawsuits filed on behalf of hundreds of policyholders. The Rigsbys wouldn’t say how much Scruggs is paying them, but they say it’s less than what they earned from their insurance jobs.
“Our whole lives are upside down,” Kerri said.
Why would they do it? They say they wanted to help their neighbors get their claims reopened and paid.
“We don’t know what the future is going to hold,” Cori added, “but we sleep a little better.”