The Scruggs Katrina Group filed a federal lawsuit in Mississippi today accusing State Farm, an engineering firm and an adjusting concern of a racketeering conspiracy it alleges had defrauded a group of coastal homeowners out of $3.97 million.

Their action followed a court move by State Farm yesterday, which asked a judge to have attorney Richard Scruggs and Scruggs Katrina Group thrown off a Hurricane Katrina claims case for ethical violations.

A State Farm spokesman, Fraser Engerman, said the new suit is “Scruggs using one of the oldest tricks in the books–if you're attacked, deflect. He said last summer, 'If you don't win it, you spin it.”'

Mr. Engerman said that Alabama U.S. District Court Judge William M. Acker Jr.'s request last week to have Mr. Scruggs charged with criminal contempt in a Hurricane Katrina-related case had surprised the attorney.

Named as defendants in the Scruggs Katrina Group suit were: State Farm Mutual Automobile Insurance Company, State Farm Fire and Casualty Company, Forensic Analysis & Engineering Corp., Robert Kochan (the owner of Forensic), E.A. Renfroe & Company Inc., and Renfroe owners Gene and Jana Renfroe.

The suit, filed on behalf of more than 100 plaintiffs, seeks compensatory and punitive damages, treble damages for racketeering, and attorneys fees.

It charges that the defendants engaged in breach of contract, conspiracy, mail fraud, wire fraud and obstruction of justice.

The racketeering conspiracy, the 101-page complaint charged, involved gaining entry to properties “allegedly to inspect hurricane losses” and obtaining scientifically dishonest inspection reports in order to attribute losses to policy exclusions for water damage.

It accused the defendants of altering reports with findings of compensable wind damage, and conducting sham re-inspections to falsely obtain reports finding damage due to excluded water damage.

According to the complaint, the racketeering enterprise is “ongoing and functions as a continuing unit,” adding that the company used the technique of “falsely contrived inspection reports” in Oklahoma in 1999, where the company employed Haag Engineering and Renfroe to “globally deny” hundreds of claims. The result there was a $13 million verdict against the insurers, according to the complaint.

The court papers also allege that the defendants used contrived inspection reports in the course of settlement mediations conducted by the Mississippi Insurance Department.

Before mediation sessions were held, it was charged that State Farm attorneys gave their witnesses scripted dialogue “to demoralize policyholders and create the impression that no degree of forensic evidence would convince State Farm and/or Renfroe to pay the full value of their insured hurricane damages.”

Among the evidence mentioned in the suit were a number of e-mails. According to other court papers, the law firm obtained up to 15,000 pages of documents that were secretly copied by two Renfroe adjusters, who are now on the Scruggs firm's payroll.

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Scruggs Files Rackets Suit Against State Farm

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