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Fifth Circuit reverses Katrina false claims dismissal

[JURIST] The US Court of Appeals for the Fifth Circuit [official website] on Wednesday reversed a lower court ruling [opinion, PDF] that dismissed a suit resulting from Hurricane Katrina [JURIST news archive] brought on behalf of the US against eight flood insurers. The original suit, brought by Realtor Branch Consultants under the qui tam provisions of the False Claims Act [31 USC § 3730 text], alleged that insurance companies who participated in the Write Your Own (WYO) [materials] flood insurance program of the Federal Emergency Management Agency (FEMA) [official website] improperly passed the cost of flood damage to areas affected by Hurricane Katrina onto the government. The US District Court for the Eastern District of Louisiana [official website] dismissed the suit because two defendants, Allstate Insurance Company and State Farm Fire and Casualty [corporate websites], were also named in a pending Mississippi District Court case, States ex rel. Rigsby v. State Farm Insurance Co. (Rigsby), alleging the same offense. The Fifth Circuit affirmed the dismissal of Allstate and State Farm, and reversed the dismissal of those companies not named in the Mississippi suit. Explaining their decision not to extend the first-to-file bar to the remaining six defendants, Judge Catharina Haynes said:

Rigsby does not allege a true industry-wide fraud or concerted action among a narrow group of participants. Rather, looking only at the facts pleaded ... Rigsby implicates, at most, four specific WYO insurers among the approximately ninety-five WYO insurers conducting business in the Louisiana and Mississippi areas during Hurricane Katrina. Thus, Rigsby tells the government nothing about which of the ninety-one other WYO insurers ... if any, actually engaged in any fraud.
The court declined to rule on the insurers' alternative argument, that the suit should be dismissed because a qui tam suit is improper if the information is publicly known, ruling that the first determination should be made by the district court.

Damage from Katrina has resulted in several insurance-related suits. A prior fraud claim against State Farm [JURIST report] was dismissed in April 2008 by a federal court in Mississippi as without an actionable basis. Earlier that month, the Fifth Circuit vacated $2.5 million in punitive damages [JURIST report] awarded to a Mississippi couple in an action against State Farm. Allstate and State Farm were also among the insurance companies sued for conspiring to fix payouts [JURIST report] by Louisiana's Attorney General in November 2007. The US District Court for the Southern District of Mississippi has a collection of Hurricane Katrina insurance orders and opinions [materials].

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