The ruling supports a verdict that found State Farm ordered two claims adjusters to incorrectly classify wind damage as flood damage to shift liability to the governmentin order to spare the company from having to pay out a claim. The company had such authority because years prior to the hurricane, State Farm issued both federal government-backed flood insurance policies and general homeowners policies.
State Farm was liable for wind damage, while the federal program was liable for covering flood damage. Two former insurance adjusters — sisters Cori and Kerri Rigsby — filed a lawsuit alleging they were told to misclassify the damage.
The Rigsby sisters filed the lawsuit under the federal False Claims Act, which allows citizens to start fraud claims on behalf of the government. If successful, damages awarded are shared between the government and the citizens.
The sisters won the case in 2013 but State Farm sought to have the case dismissed because one of the lawyers in the case leaked the existence of the lawsuit to the media, when the case was supposed to remain secret for two months under a confidentiality provision in the False Claims Act.
In the unanimous decision, Justice Anthony Kennedy said State Farm was incorrect in its assessment of the provision. He wrote that Congress enacted it to avoid alerting defendants about investigations, not to safeguard the reputation of the accused.
“State Farm tried to escape the fraud verdict against it by citing a technicality, and the Supreme Court joined the court of appeals and the district court in rebuffing that attempt,” Tejinder Singh, a lawyer who argued the case for the Rigsby sisters, said.
State Farm said it was “greatly disappointed” by the decision.
Hurricane Katrina made landfall Aug. 29, 2005, and as New Orleans’ levees failed, about 80 percent of the city flooded. More than 1,800 people died.