Insurance Law

U.S. Attorney declines to intervene in Rigsby 'whistleblower' lawsuit (at this time)

By David Rossmiller

How long has it been since Katrina came ashore? More than two years and five months.  You would think that would be enough time for the government to make up its mind whether it has reason to believe the allegations of the Ex rel. Rigsby False Claims Act lawsuit, or whether it has reason to believe the allegations are pure bunk. 

The government is ready to do neither.  In response to Magistrate Judge Robert Walker's order of last year that the government must elect by January 31 whether to intervene in the case or let it slide, the U.S. Attorney's office dropped back 15 yards and punted. 

By Order dated August 7, 2007, the Court indicated that the Government must make its election regarding intervention on or before January 31, 2008, and it has indicated to the United States that no further extensions of time would be permitted. The Government's investigation has not been completed, as certain potentially relevant information has not become available. As such, the United States is not able to decide, as of the Court's deadline, whether to proceed with the action. Accordingly, the United States hereby notifies the Court that it is not intervening at this time.

However, under 31 U.S.C. § 3730(c)(3), the United States retains the right to intervene in this case at any time “upon a showing of good cause,” and the Government’s investigation of and attention to this case will continue.

Here's a copy of the government's response. Before this response, I predicted privately that the government would not intervene in this lawsuit for several reasons.  What U.S. Attorney in his right mind wants to deal with the implications of this lawsuit? It alleges fraud on the part of insurers, in part because they allegedly paid out federally backed flood insurance for homes that were damaged or destroyed by wind, thereby minimizing or eliminating their own wind payments while ripping off the U.S. Treasury.

Great story, until you realize all the places it leads. Even if it is true, what do you do with the fact that it was the government itself that waived proof of loss after Katrina, to speed flood payments and get money in the hands of homeowners as quickly as possible?  Who's defrauding who? What do you do with the fact that policyholders applied for and accepted the flood payments? If the flood payments were wrongful, so was the acceptance of them, and there is no way around that fact.  Either the money was legit to compensate legit flood damage, or insurers paid it knowing it was a charade and policyholders took the money under false pretenses.  So if you're going to accuse insurers of a rip-off, you had better be ready to go around and start demanding money back from the policyholders.  Is that going to happen? Only if the government has taken leave of its senses, only if they've said adios to reality -- the public would rise with pitchforks and torches. 

I myself have seen no convincing or persuasive evidence that the allegations of Ex rel. Rigsby are correct.  I know many of you disagree with me.  Let us set ideology aside for a moment and remember that the scenario depicted -- overpayment of flood money and underpayment of wind money -- could occur only in limited circumstances.  Areas where flood was without dispute the main or only agent of damage to homes, such as in New Orleans, would be ineligible for potential inclusion -- no wind damage, no potential overpayment of flood money.  Also, where flood damage to homes was in fact equal to or greater than the amount paid out (the maximum flood policy limit was $250,000), the potential issue with underpayment of wind damage is not a rip-off of federal money, but rather legit payment of flood money and wrongful failure to pay wind damage.

So the universe of potential instances of the alleged fraudulent conduct is confined to homes where it can be proven there was (1) wind damage but no flood damage, yet flood payments still occurred: (2) flood damage that was smaller than the amount of flood insurance paid, and where wind payments were either not made or were less than was warranted by the credible proof of wind damage.  Do you see what I'm saying? The number of cases where these potential facts apply is a relatively small percentage of the total number of Katrina claims.  And when you look within this universe, you are faced with the issue of how do you prove the flood payment was excessive in relation to the damage?  This can be a very difficult determination, and it would have to be done by the government hundreds if not thousands of times to prove its case.  Let's remember another thing -- whose name is on this lawsuit? That's right, Kerri Rigsby.  Who approved the federal flood payment to Thomas McIntosh that has become so famous in the McIntosh v. State Farm case? That's right, Kerri Rigsby.  Before setting out on the trail, think where it leads. 

Question: with the U.S. Attorney trying to occupy some gray zone where it is not formally repudiating this case but also not endorsing it, where does the case sit with the main lawyer behind Ex rel. Rigsby, Dickie Scruggs, otherwise occupied?  Remember this story from December, where AP reporter Mike Kunzelman said that another firm Scruggs hired was hard at work on the case? I wonder whether this case is really active or is ready to be stuck in the litigation wax museum.

Another question: what do you make of the amazingly ambiguous statement in the government response quoted above? "The Government's investigation of and attention to this case will continue."  Is this just typical blah blah blah in a legal filing, some kind of word pillow so the paragraph doesn't fall down and go boom? Or is there a hidden message here about the federal grand jury's investigation? Inquiring minds want to know. 

I had more to write on other subjects for today, but downstairs I heard my wife watching a PBS documentary on Judy Garland and I had to break away and catch that.  The way she could sing, the way she threw herself into every song and totally believed in it, well, she was almost as good as Frank Sinatra.  Not much will pull me away from blogging, but dang, Judy Garland? All that talent, it's like she is the figure of Adam in that painting in the Sistine Chapel, like she was personally touched by the hand of the Creator himself.  You can't miss something like that.  I'll get back to the other stuff when I can. 

Full post as published by Insurance Coverage Law Blog on February 01, 2008 (boomark / email).