Insurance 'insiders' go public

Insurance 'insiders' go public
BY MICHAEL KUNZELMAN
August 28, 2006
Copyright by The Chicago Sun Times
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OCEAN SPRINGS, Miss. -- Who are the moles? The question was like a parlor game for employees of State Farm Insurance Co. after Hurricane Katrina.

Lawyer Richard "Dickie" Scruggs, of tobacco litigation fame, created a stir by announcing in March that two "insiders" were helping him build cases against insurers for denying claims for Hurricane Katrina losses.

Their identities remained a mystery until June, when Cori and Kerri Rigsby -- employees of a company that contracted with State Farm -- told a supervisor they were cooperating with Scruggs.

That startling admission -- and their resignations -- ended a risky charade.

The Rigsbys say they spent months collecting reams of internal State Farm reports, memos, e-mails and claims records before they gave them to Scruggs and authorities.

The sisters, who managed teams of State Farm adjusters, say the documents show the insurer defrauded policyholders by manipulating engineers' reports so that claims could be denied.

"I think we've given him the smoking gun," Cori Rigsby, 38, said during a recent interview at the home she shares with her sister near Ocean Springs.

State Farm spokesman Phil Supple said the Bloomington, Ill.-based company is reviewing the sisters' allegations but hasn't been allowed to question them.

"State Farm's employees are committed to conducting themselves in an ethical and appropriate manner," Supple said. ''Any suggestions to the contrary are simply wrong.''

Worked on tobacco suit

Hundreds of homeowners on Mississippi's Gulf Coast have sued their insurance companies for refusing to pay for millions of dollars of damage from Katrina. The first anniversary of the hurricane is Tuesday.

Scruggs is no stranger to whistleblowers: Jeffrey Wigand, a former tobacco executive, helped Scruggs and other lawyers secure a multibillion-dollar settlement with tobacco companies. The case was portrayed in the 1999 movie ''The Insider,'' starring Al Pacino and Russell Crowe.

The Rigsby sisters were both eight-year employees of E.A. Renfroe, a firm that helps State Farm and other insurers adjust disaster claims. Although they weren't State Farm employees, the company issued them computers and business cards.

"We have always been proud to work with State Farm,'' Cori Rigsby said.

The sisters say that pride faded, however, as they began to suspect the company was pressing engineers to alter their conclusions about storm damage so claims could be denied.

'DO NOT discuss'

Kerri Rigsby says her suspicions grew after finding a handwritten note attached to an engineer's report that read: ''Put in Wind file -- DO NOT pay bill. DO NOT discuss.''

She said the engineer's report concluded that Katrina's wind caused most of the damage to a Biloxi policyholder's home. That should have been good news for the policyholder, she noted, since State Farm's policies cover damage from wind but not water.

But when Kerri Rigsby pulled the policyholder's file, she said she found a subsequent report based on a second inspection of the home. This time, the same engineering firm concluded that water caused most of the damage, according to the report.

"The policyholder did not get a copy of the one that said wind," said Kerri, 35. "He should have gotten lots more money."

It wasn't the only case in which State Farm's engineers drafted conflicting reports on storm damage, according to the Rigsbys. They say managers were disappointed that many initial reports blamed damage on wind.

''That's when they went into a frenzy and started mass-canceling all these engineering reports,'' Cori said.

Kerri says ''the bible'' for State Farm adjusters was a report prepared by Haag Engineering Co. that concluded that rising waters, or wind-driven storm surges, were responsible for most of Katrina's damage in Mississippi.

''If it didn't match the Haag report, then it wasn't accurate,'' Kerri said.

Made about 15,000 copies

Supple, the spokesman for the insurance company, said State Farm ordered engineering reports for less than 2 percent of the more than 100,000 claims it received in Mississippi. State Farm also says it made payments on more than 60 percent of the claims involving engineers.

''State Farm's claims-handling practices have been in a public fishbowl," he said. "With the world watching, we've done what we do every day, and that's be fully up front in all aspects of our claims work."

The Rigsbys say they ultimately copied roughly 15,000 pages of claims records. After the sisters resigned, Scruggs hired them to help his legal team. The Rigsbys wouldn't say how much Scruggs is paying them, but they say it's less than what they earned before.

''We don't know what the future is going to hold,'' Cori said, ''but we sleep a little better.''