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State Farm underpaid on purpose, ex-workers say

Aug 27, 2006 | McClatchy Newspapers

Two sisters who handled Hurricane Katrina claims for State Farm have turned over records to federal and state investigators because they say the company purposely underpaid or denied coverage for wind damage.

Cori and Kerri Rigsby believe State Farm Fire & Casualty Co. wanted to write off as much damage as possible to the hurricane's unprecedented storm surge covered under the National Flood Insurance Program.

Wind damage covered under State Farm homeowner policies was minimized, they say, through the use of biased or altered engineers' reports that attributed all or most damage to surge.

The company hoped to further benefit from policy language that says wind damage is not covered when water contributes.

Claims managers were told to memorize the language, the Rigsbys said.

"This thing hit, and they went into panic mode," said Kerri Rigsby, who now serves as a consultant, along with her sister, to a group of lawyers suing insurance companies over Katrina claims.

"They thought, 'If we have to go in and pay these claims, it's going to be billions. And we just can't do that.' And I think they truly believed it was water, and they were going to make sure that's how it went."

State Farm representatives in Bloomington, Ill., the home office, say what the women describe would be contrary to the company's claims practices.

"We have retained a third party to conduct an extensive review of Katrina, which would include interviews of these persons," spokesman Dick Luedke said. "Unfortunately, their lawyers haven't allowed our investigation team to meet with them."

He added, "In the process of handling hundreds of thousands of claims from Katrina, I would be surprised to find we did not make a few honest mistakes."

James Shortley, claims manager for the National Flood Insurance Program in Washington, said his agency has found no evidence that State Farm or other insurers overcharged the federal government.

Half a dozen FEMA inspectors spot-checked properties along the Gulf Coast, he said.

However, Rep. Gene Taylor, D-Miss., a State Farm customer who is suing the company, believes NFIP officials and private insurers are too cozy.

He said State Farm found no wind damage at his Bay St. Louis home, which he thinks is preposterous.

The National Flood Insurance Program has paid $2.4 billion on 18,934 residential and commercial claims statewide. As of July 31, State Farm had paid just over $1 billion on 79,386 residential, commercial and boat claims statewide.

In past catastrophes, the Rigsby sisters found their claims work for State Farm rewarding.

They were employed as claims adjusters, trained professionals who determine the cause of property damage and the amount owed under the policy. They were employed by damage assessment firm E.A. Renfro, but have handled State Farm claims almost exclusively in recent years.

They were glad to come back to the Mississippi Coast, their home, to help State Farm with Katrina claims. Both were claims managers.

They worked out of State Farm offices and each supervised a team of claims adjusters.

The first departure from standard procedure, they said, was State Farm's decision to order engineers' reports on all severely damaged properties subjected to tidal surge and wind. Normally, trained adjusters examine the property.

The Rigsbys said flood claims were paid before engineers even apportioned wind and water damage.

Once the Rigsbys decided State Farm was intentionally mistreating policyholders, they said that they wanted to do something about it.

They spent an entire weekend printing out computer records from State Farm's system. The task was so large they recruited three friends to help.

"This thing hit, and they went into panic mode."

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