Hurricane Katrina Insurance Companies Accused of Fraud Against Government

The Associated Press is reporting that the U.S. Department of Justice is weighing whether to intervene in a lawsuit that accuses insurance companies of overbilling the federal government for flood damage from Hurricane Katrina. A team of lawyers filed the “whistleblower” action in April 2006 on behalf of two sisters who worked for a company that helped State Farm Insurance Co. adjust policyholder claims on the Mississippi Gulf Coast after the August 2005 storm.
The whistleblower statute required that the lawsuit remain under seal so the United States Justice Department could investigate and consider intervening in the case. U.S. Magistrate Judge Robert Walker in Gulfport, Miss., ordered the case unsealed Monday, even though the federal government had argued that its disclosure would “compromise (its) ability to conduct an adequate civil investigation of this case.”
State Farm, Nationwide Insurance Co., Allstate Insurance Co., USAA Insurance Co., and several engineering firms that contracted with the companies are named as defendants in the suit. The lawsuit accuses the insurance companies of pressuring engineers to falsify reports so storm damage could be blamed on flood water instead of wind, which would shift the financial burden to the National Flood Insurance Program. The insurance companies contend their homeowner policies cover damage from wind but not rising water, including storm surge. Insurers sell separate flood insurance policies that are subsidized by the federal government.

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