The Supreme Court on Tuesday appeared unlikely to throw out a jury verdict against State Farm that found the insurance company defrauded the U.S. government when it assessed damage caused by Hurricane Katrina along the Gulf of Mexico coast in 2005.
The eight justices heard arguments in State Farm’s challenge to a 2015 lower court ruling upholding the verdict in a 2006 lawsuit brought by two whistleblowers, sisters Cori and Kerri Rigsby, under the False Claims Act, which lets people sue on behalf of the government over allegations it has been defrauded.
The suit accused the Bloomington, Illinois-based company of improperly seeking to foist the costs of covering Katrina-related damage to a Biloxi, Mississippi home onto the government rather than covering the costs itself.
State Farm argued the claims brought by the sisters, former claims adjusters who worked for the company after the hurricane, should be voided because their lawyer violated a court order requiring that details of the case be kept under seal.
The women’s former lawyer, Dickie Scruggs, had distributed information about the lawsuit to members of the news media. False Claims Act lawsuits are required to be filed under seal and remain private for 60 days.
In 2008, Scruggs was convicted of conspiring to bribe a judge in a different case. He was sentenced to five years in prison.
The jury found that the federal government had been defrauded of $250,000, and State Farm was ordered to pay $758,000 in damages. The sisters were awarded $227,000 for disclosing the fraud under the False Claims Act and almost $3 million in attorney’s fees and expenses.
Based on the one-hour argument, it appeared unlikely the justices will find that Scruggs’ disclosures to the media merit throwing out the 2013 jury verdict. None of the media organizations disclosed the lawsuit’s existence to the public.
Justice Ruth Bader Ginsburg said the seal requirement is intended to ensure defendants like State Farm do not get tipped off about a pending case. If a suit’s existence is disclosed, “the one who is really penalized … is the government” not the defendant, Ginsburg added.
Chief Justice John Roberts said “it rings a little hollow” for State Farm to claim the disclosure harmed the government when the Obama administration has sided with the Rigsbys and has urged that the verdict be upheld.
The Rigsbys said the damage was caused by wind, which would be covered by the owners’ insurance policy with State Farm. But State Farm concluded the damage was flood-related, which instead was covered by the federal government’s flood insurance program.
In 2015, the New Orleans-based 5th U.S. Circuit Court of Appeals upheld the jury verdict.
A ruling is due by the end of June.
(Reporting by Lawrence Hurley; Editing by Will Dunham)
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