View this article online: https://www.insurancejournal.com/news/southeast/2008/01/25/86733.htm
Mississippi Attorney General Jim Hood says his office opened a new criminal investigation of State Farm Insurance Cos. that is separate from its earlier probe of the insurer’s “crimes against policyholders” after Hurricane Katrina.
Bloomington, Ill.-based State Farm is suing Hood for allegedly violating an agreement last year to end a criminal investigation of the company’s handling of claims following the Aug. 29, 2005, hurricane.
However, in court papers filed on Jan. 18, a lawyer for Hood said the January 2007 agreement doesn’t give State Farm “blanket immunity” from a new investigation “with a new focus and new genesis.”
“The first investigation involved crimes against policyholders in State Farm’s handling of Katrina related claims,” wrote Hood’s attorney, J. Lawson Hester. “The (new) investigation came about subsequently in time, was directed toward a distinct and separate subject, and arose from sources of information different from those of the first investigation.”
Hood wants a federal judge to lift a temporary restraining order that prohibits his office from conducting a criminal investigation of State Farm’s handling of Katrina claims.
Hood hasn’t publicly identified the new focus of his probe, but State Farm speculates it centers on the company’s handling of claims to the National Flood Insurance Program after Katrina.
Many plaintiffs lawyers and elected officials have accused insurance companies of over-billing the federal government for Katrina’s flood damage. Insurers say their homeowner policies only cover damage from a hurricane’s wind and rain. Damage from rising water is covered by separate flood policies that are sold by insurers but subsidized by the federal government.
State Farm said it would be “factually and legally wrong” for Hood to argue that his new investigation isn’t barred by his January 2007 agreement with State Farm if it focuses on fraud against the federal government rather than fraud against policyholders.
“The Agreement makes no distinction between claims made by policyholders under homeowners policies and claims made under NFIP policies,” Jeffrey Walker, a lawyer for State Farm, wrote in a letter to Hester dated Dec. 13, 2007.
Walker’s letter also notes that federal authorities already are investigating State Farm’s “involvement in NFIP matters.”
“We were not looking and are not looking for blanket immunity on anything,” State Farm spokesman Phil Supple said Wednesday.
Hood’s agreement to end his criminal probe was part of a broader settlement that called for State Farm to reopen and possibly pay thousands of policyholder claims. As part of the deal, the company paid Hood’s office $5 million to cover the costs of his investigation.
In August 2007, however, State Farm received a new subpoena for records from a grand jury. Less than a month later, the company sued Hood in an effort to stop the grand jury’s investigation.
State Farm also accused Hood of using the threat of prosecution to stimulate settlements of civil cases, including those filed by powerful plaintiffs lawyer Richard “Dickie” Scruggs.
Cori and Kerri Rigsby, sisters who secretly copied reams of State Farm claims records and gave them to Scruggs, were among the witnesses who testified before a grand jury before Hood ended his probe in January 2007.
On Sept. 14, a federal judge issued a temporary restraining order that blocked Hood’s office from conducting a criminal investigation of State Farm’s handling of Katrina claims.
Last Friday, Hood asked a different federal judge to dissolve that order. The judge didn’t immediately rule on that request.
In a statement Wednesday, Hood said he is asking U.S. District Judge David Bramlette to dismiss State Farm’s “frivolous” federal suit because the company “has an adequate remedy in state court.”
The dispute between Hood and State Farm was the subject of a closed-door hearing on Nov. 1, 2007, before Bramlette in Natchez, Miss.
A transcript of the hearing shows that lawyers for Hood briefed Bramlette on the new focus of the investigation, outside the presence of State Farm attorneys. When he emerged from that meeting, the judge said he “sees some light coming through the heat and smoke.”
“As Emily Dickinson may say, a certain slant of light, which is encouraging to the court,” Bramlette said.
Hester said during the hearing that the new criminal probe hadn’t proceeded past the grand jury’s subpoena and wasn’t yet a “full-blown investigation.”
Edwin Snyder, a lawyer whom Hood hired as a consultant, said the old investigation addressed State Farm policyholders while the new probe went in a “different direction” that isn’t covered by the January 2007 agreement.
“The operative phrase is ‘Hurricane Katrina claims.’ If it’s unrelated to that and it’s new, it’s available to investigate,” Snyder testified.
Associated Press writer Holbrook Mohr in Jackson, Miss., contributed to this report.