The U.S. Fifth Circuit Court of Appeals upheld a jury verdict that an insurer submitted a false record to the U.S. government in violation of the False Claims Act (FCA) by excluding engineer reports and presuming flood damage in administering a claim after Hurricane Katrina. The qui tam lawsuit, brought by two former insurance adjusters, was tried on a single claim, and, after upholding the jury’s verdict that the homeowners’ damage was not compensable flood damage, the Fifth Circuit reversed the trial court’s denial of the plaintiffs’ request for further discovery on other allegedly false claims. U.S. ex rel. Rigsby v. State Farm Fire & Cas. Co., Cause No. 2015 WL 4231645 (5th Cir. July 13, 2015).
The two plaintiff adjusters acted as independent insurance adjusters and claimed that the insurer sought to shift its responsibility to pay wind damage claims to the government through the National Flood Insurance Program by classifying damage as caused by flood instead of by wind. The trial court denied the plaintiffs’ request for discovery as to other allegedly fraudulent claims handling by the insurer on the basis that it would be costly and far ranging. The trial court did state that it would consider the propriety of additional discovery should the plaintiffs prevail on the merits. The jury rendered a verdict that the insureds suffered no compensable flood damage and that the insurer had submitted a false record. The trial court denied insurer motions for new trial and judgment notwithstanding the verdict. Both parties appealed.
The Fifth Circuit held that the insurer’s motions were properly dismissed as the plaintiffs adequately pled claims of fraud in bringing their lawsuit and possessed personal knowledge so that they were a proper “original source” under the FCA, vesting the district court with subject matter jurisdiction. It also held that the jury could reasonably find on the evidence in the record that the insurer knowingly submitted a false record in violation of the FCA. It further held that the plaintiffs were entitled to additional discovery because their allegations and trial evidence extended far beyond the realm of a single claim, including meetings with supervisors at which adjusters were instructed generally to push the flood coverage and to relax rules and requirements for adjusting flood claims.