A federal judge in Mississippi has refused to dismiss a False Claims Act suit against State Farm Fire & Casualty Co. The lawsuit, filed by two sisters who worked as claims adjusters for an independent contractor hired by State Farm to help process claims after Hurricane Katrina, alleges that State Farm inflated and overpaid homeowners’ claims for flood damage. The insurer then committed fraud by submitting the overblown claims to the federal government for reimbursement, the lawsuit claims.

The whistleblowers in the lawsuit are Cori and Kerri Rigsby, who worked for an independent contractor retained by State Farm, E.A. Renfroe & Co. Inc. The Rigsbys allege that State Farm paid $250,000 in benefits to homeowners Thomas and Pamela McIntosh for flood damage caused by Katrina, and then submitted a $250,000 claim to the federal government under a plan that allows for such reimbursement to insurance companies in cases of flood damage. In truth, say the whistleblowers, the flood damage to the McIntosh home was not that high. Thus, a portion of State Farm’s claim to the government was false and fraudulent in violation of the federal False Claims Act.

The whistleblowers’ lawsuit makes allegations about the McIntosh claim in particular, but alleges that State Farm repeatedly engaged in the same misconduct in an attempt to offset its losses in the payment of wind damage benefits as a result of Katrina. The federal government reimburses insurers for flood damage claims, but claims for wind damage must be borne solely by an insurance company.

Federal Judge L.T. Senter Jr. in Mississippi refused to dismiss the whistleblowers’ lawsuit, but did throw out their claim against State Farm that they were wrongfully terminated in retaliation for reporting the insurer’s fraudulent conduct. Judge Senter noted that the Rigsbys had been employed by Renfroe, not State Farm. No evidence was presented, observed the court, that State Farm had the authority to fire the whistleblowers. Nor could Judge Senter find a single case under the False Claims Act in which someone other than a whistleblower’s actual employer had been held responsible under the statute’s anti-retaliation provision.

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