What’s Next for State Farm After Hurricane Katrina Fraud Verdict is Upheld

Earlier this month, a whistleblower lawsuit verdict against State Farm was upheld by the U.S. Supreme Court.

The high court rejected a challenge filed by State Farm on a lower court decision.

The decision, according to Dan Himmelfarb, a Wash. D.C.-based partner with Mayer Brown’s Supreme Court & Appellate practice, is reflective of the current court – a short, unanimous decision. The narrow opinions released by the court in recent months is reflective of the fact the Court is down a justice. Himmelfarb said there were three similar decisions by the court recently.

There were two questions put forth to the court by State Farm in the case involving allegations that the insurer defrauded the government relating to Hurricane Katrina damage estimates. The first was whether a dismissal is always required and the second was that if it is not, then what is the criteria for dismissal when there is a seal violation.

The questions resulted from a release of information relating to the underlying case made by the plaintiffs’ attorney, Dickie Scruggs. Because the plaintiffs, Corie and Kerri Rigsby, former State Farm employees, had filed the allegations under the False Claims Act, there are requirements that allegations be sealed for 60 days.

The Court said a dismissal was not always required but did not the address the question of criteria for dismissal, instead relying on the lower court’s three factor test, said Himmelfarb.

“When it’s permitted isn’t entirely clear,” said Himmelfarb. “It’s kind of an open question and that will be fought out in the lower courts.”

Because the decision is not specific to the insurance industry, Himmelfarb said that it is equally applicable to defendants in any industry. In addition, because the high court determined it was a discretionary decision on the part of the district courts, it will be hard to overturn these types of decisions.

“Discretionary decisions get reviewed deferentially,” he said.

As a result, the role of the appellate court will be limited.

A couple of open issues resulting from the decision, according to Himmelfarb, are what factors should influence the exercise of discretion and whether the release of information causes reputational harm to the defendant.

A December 14 blog post by Chip Merlin, a property coverage attorney based in Florida, addressed the expectation that the matter will be remanded back to the lower court to decide State Farm’s liability for similar cases.