US: New Orleans - Judge withdraws call for federal intervention in insurance probe

Judge withdraws call for federal intervention in insurance probe
July 09, 2007 7:40PM

By Rebecca Mowbray
Business writer

A federal judge on Monday withdrew his call for the U.S. Department of Justice to take over prosecution of a whistleblower case alleging that insurance companies defrauded the National Flood Insurance Program after the agency argued that it had not had sufficient time to investigate the case.

On June 5, U.S. District Court Judge Peter Beer ordered Attorney General Alberto Gonzales and the U.S. attorneys in Baton Rouge and New Orleans to intervene in the suit brought by a group of ex-insurance adjusters known as Branch Consultants LLC against seven homeowners insurance companies and their subcontractors. Beer asked that they intervene by July 9 or appear in court July 11 to explain their lack of involvement.

Last week Assistant Attorney General Peter Keisler in Washington, D.C., and U.S. Attorney David Dugas in Baton Rouge said they think Beer's June 5 motion was the first time a court had ever ordered the U.S. government to intervene in a qui tam suit, or whistleblower action brought by private individuals on behalf of the U.S. government.

But in a filing, Keisler and Dugas said the government has not been able to independently verify that there is a basis for alleging that the insurance companies behaved fraudulently by submitting false claims to the government for payment when it's handling so many other challenges after Katrina.

"Intervention in a qui tam suit is a significant step that the government only takes on the basis of full and careful investigation," the response said. "Because the United States assumes direct control of and responsibility for a qui tam suit upon intervention, the government cannot simply accept a relator's allegations on faith alone."

But that doesn't mean they're not interested, Keisler and Dugas said in their motion. "The government wishes to emphasize that its decision not to intervene at this time was not formally a declination of this matter, nor was it a judgment that the relator's allegations lack merit or should not proceed."

The "significant, detailed allegations" deserve a "full and careful investigation," the court filing said, and "the United States remains highly interested in the progress of this particular case and intends to remain heavily in its development."

Allan Kanner, attorney for the Branch Consultants, said he's pleased with the judge's ruling. "All we want is to get to the truth of the matter. This enables us to focus on the merits of the allegations," he said.

The Justice Department's reluctance to get involved has little to do with the case at hand, Kanner said, and more broadly reflects a Bush administration stance not to get involved in whistleblower suits. Had the judge or the Justice Department dug in their heels, it could have resulted in lots of delays and distractions in how insurance companies handled flood claims. "It's a great result," Kanner said.

Patrick Burns, director of communications at Taxpayers Against Fraud, a nonprofit that supports filing whistleblower suits to rout out government fraud, noted that the U.S. attorney's office in Baton Rouge is coordinating the Katrina fraud task force and is legitimately busy right now. If the Department of Homeland Security hasn't been able to get the wind claim files to go with the flood claim files and actually check out what happened at homes that received flood insurance payments, then lawyers at the Justice Department don't have much to go on.

"They were careful to say, 'We're not saying no, you've just got to give us time,' " Burns said. "What they're saying is, 'When we jump in a case, everybody knows there's a bullet in the gun,' " but they haven't been able to load the bullet yet, because there hasn't been enough investigation.

Named in the complaint are Allstate Insurance Co., State Farm Fire and Casualty Co., Liberty Mutual Fire Insurance Co., Fidelity National Insurance Co., American National Property & Casualty Co., Travelers, American Reliable Insurance Co., Pilot Catastrophe Services Inc., Crawford & Company, Allied Claims, NCA Group Inc., Simsol Insurance Services Inc., and other unidentified parties. Scottsdale Insurance Co. had been erroneously named in the original complaint and has been terminated as a defendant.

In the suit, Branch alleges that insurance companies have been systematically ripping off the federal government by billing the National Flood Insurance Program for hurricane wind or rain damage that should have been covered by private homeowners insurance policies. They say they have readjusted hurricane claims on 150 homes, and have found that in all cases the flood damage was overpaid and the wind damage was underpaid. The average overpayment by the National Flood Insurance Program was 66 percent, and some homes received flood payments even though they endured no flood damage.

In Monday's order, Beer said the case will remain unsealed and will proceed. A hearing is scheduled for July 18 on a request for insurance companies to produce correspondence and other documentation related to the development of emergency policies at the National Flood Insurance Program that loosened the requirements for demonstrating a flood claim after Hurricane Katrina. While those expedited rules are credited for quickly getting money into flood victims' hands, some people now question whether the expedited flood claim procedures made it easy for companies to dump bills on the government without scrutiny.

Although Beer said he accepts the government's explanation for why it is not taking a stronger role in the case, he said the rules for legal discovery will be "sufficient to leave no factual issues unresolved."

In Monday's order, Beer warns the parties that he's serious about the case. "Do not waste each other's time (or that of the court) with 'educational' motions," he wrote.

Rebecca Mowbray can be reached at (504) 826-3417 or rmowbray@timespicayune.com.