Hundreds of Katrina Victims Sue Insurance Companies

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Losing a home can be devastating. But some Hurricane Katrina victims say they've been left high and dry by insurance companies. Hundreds of Gulf Coast homeowners are suing after their claims were denied. Farai Chideya talks to Mississippi attorney Richard Scruggs who represents a number of policy owners filing lawsuits.


From NPR News, this is NEWS & NOTES. I'm Farai Chideya.

Losing a home can be devastating, but some Hurricane Katrina victims say they've been left high and dry by insurance companies. Hundreds of Gulf Coast homeowners are suing after their claims were denied. A number of those lawsuits are pending against State Farm in Mississippi. State Farm is accused of altering storm-related reports to deny policyholders based on flood damage. Later, we'll hear from a representative for State Farm.

But first, a look at a case making headlines. Wesley McFarland's home was destroyed by Katrina. The 83-year-old physician filed a lawsuit against State Farm in a Mississippi federal court. It's one of about 1,200 complaints that the firm of his lawyer, Richard Scruggs, plans to bring against insurers. In a related case, Scruggs also represents sisters, Cori and Kerri Rigsby, two whistleblowers who both worked for a contractor for State Farm. They say managers committed fraud by insisting that engineering reports be changed.

Earlier, I spoke to Mr. Scruggs by phone. He told me the Rigsby sisters had passed along more than 17,000 pages of records.

Mr. RICHARD SCRUGGS (Attorney): They did the right thing. Before they (unintelligible) but on my advice handed them over to the federal and state law enforcement authorities. And at the same time told State Farm that they had done so. And they said, well, we're going to suspend your work until we look into this further. And then within a matter of days tried to send their in-house lawyers around to interview them. At that point they advised State Farm's lawyers that they were retained by counsel and that I was their counsel. They then did nothing further to try to interview them, but instead instigated a lawsuit by EA Renfroe to try to determine what documents had been turned over to the federal and state law enforcement authorities so they would know what the cards were in the law enforcement decks, so to speak.

CHIDEYA: Are you also representing Wesley McFarland, who's a gentleman who has been trying to get additional payments for the coverage he had from State Farm?

Mr. SCRUGGS: Yes. We do represent Dr. McFarland. Dr. McFarland is an 83-year-old gentleman, retired physician on the Gulf Coast; a very well respected man. He and his wife lived in a home in Bay St. Louis. It was completely destroyed by the hurricane. They thought they had coverage. They had both flood and homeowner's coverage on their home. They received very quickly their flood check from State Farm. Many people don't know that State Farm and the other major insurers are agents for the federal government as well as agents for themselves; they're agents for the federal government in selling and adjusting flood laws.

So they very quickly got the money for their flood insurance and then were sent a so-sorry letter for the balance of their claim and went through a very humiliating mediation process in good faith - this is before they had hired me or any other lawyer - and were told that was all they're going to receive, which was only a small fraction of what their home was worth. Since then, Mrs. McFarland suddenly died just a couple of months ago. Obviously, she was a wonderful lady in her early eighties who was just so traumatized by this entire mess.

CHIDEYA: Now are these two cases or these two sets of individuals that you're representing connected? That is, do the documents that Cori and Kerri Rigsby secured have an impact on cases like the case that you were just talking about?

Mr. SCRUGGS: Very much so. It turned out by coincidence that one of the Rigsby sisters was the State Farm representative at this trumped-up mediation with the McFarlands where they were told that they would be offered nothing on top of their fractional flood payment. And I think that's what pushed the Rigsby sisters over the edge. They just were not willing to go along with that type of business practice any further.

CHIDEYA: So when you say trumped-up mediation, you believe that State Farm already went into this saying we're just going to deny this claim. We're not going to budge an inch.

CHIDEYA: That's right. Or they will open and close the faucet, so to speak, on mediation depending upon the political and social pressure. Interestingly, one of the criteria for how much a family would receive in mediation - if they received anything at all, it would never be what they were owed under the policy.

One of the criteria, though, was whether the homeowner was a believable witness in court. And the people who where there for the mediation on behalf of State Farm we're told to evaluate them for the power they would have with a jury; they'd pay more money regardless of how much damage their house was if they felt they would make good witnesses. A pretty outrageous way to adjust a loss.

CHIDEYA: Billions of dollars of insurance claims are now being decided, settled on, thrown out. What significance do you think or do you hope that the cases that you're working on will have in this whole process?

Mr. SCRUGGS: First and foremost, I'd like to get enough money in the hands of the families that we represent to give them at least the benefit of the bargain that they thought they had with their insurer. Most have lost their homes and have no money or resources to do anything but live in a small, cramped FEMA trailer, and many have lost their jobs and because their businesses have been destroyed. Beside that, is to try to correct the business practices that lead to this and the State Farm claims adjustment model; not just State Farm, the other companies are doing similar things.

State Farm's the one we really got the goods on now, and they're the largest insurer of homes on the Gulf Coast. But this is a sort of a game plan they've put into play in California when the Northridge earthquake destroyed many homes there. And they did the same thing in Florida. So this is a sort of a game plan they just roll out to try to sweat down and slow roll and low-ball people who are in desperate straits.

CHIDEYA: Richard Scruggs, thank you so much.

Mr. SCRUGGS: Thank you, Farai.

CHIDEYA: That was attorney Richard Scruggs, who represents Cori and Kerri Rigsby and policyholder Wesley McFarland.

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