Companies Accused of $8B Flood Program Ripoff

Their New Orleans attorney, Allan Kanner, said they are a group of adjusters who had worked for the insurance industry, but "jumped to the side of the angels."

As a matter of law, federal qui tam lawsuits that seek to recover government monies are sealed for a minimum of 60 days, unless the government seeks an extension. Mr. Kanner said he moved to have the case unsealed when the government failed to take action.

The case was examined by the U.S. Attorney's Office in Baton Rouge, La.

Listed in court papers only as a Georgia corporation, Branch Consultants has no phone listing in Metairie, La.

According to the group's complaint, insurers and adjusters grossly overstated flood damages to properties, and benefited by their misstatements because the damage should have been "attributed to wind or similar causes that are covered by homeowners insurance policies–policies that the insurer defendants have typically issued themselves."

The complaint charged that "this scheme is pervasive and has caused the government to pay hundreds of millions if not billons of dollars in fraudulent flood insurance claims."

Companies found to submit fraudulent flood claims are liable for triple the damages sustained by the government, and additional penalties of up to $11,000 per claim.

Branch said it inspected hundreds of properties in and about Southern Louisiana, where flood claims had maxed out or nearly maxed out the flood coverage, and found at the same time there were underpayments for wind damage.

Mr. Kanner said the group's evidence, in addition to insurance company adjuster reports, included photos and some videos.

The complaint cited a number of examples of what Branch found, including an apartment complex where $96,000 in flood insurance was paid even though there was "no flooding by rising waters in any of the four units."

"It's Adjustment 101. If there is no water in the house, why are you maxing out flood insurance coverage?" said Mr. Kanner.

The examination, he said, confirmed a broad pattern inside and outside the New Orleans levees, including cases where homes were torn off the foundation slab.

"It's been estimated the damage may be $8 billion in fraudulent damage to the government flood program," he said.

Mike Trevino, a spokesman for Allstate in Northbrook, Ill.–the lead defendant in the case–said the company had not seen papers in the suit, but the carrier "remains confident of its claims-settlement practices following Hurricane Katrina, and we are committed to resolving all claims fairly and appropriately."

Phil Supple, speaking for another defendant, State Farm, in Bloomington, Ill. said: "We remain confident we have handled claims properly and fairly in the aftermath of Hurricane Katrina."

The other named targets of the action are Liberty Mutual Fire Insurance, Boston; Fidelity National Insurance Company and Fidelity National Property And Casualty Insurance Company, Jacksonville Fla.

American National Property & Casualty Company, Springfield, Mo.; Scottsdale Insurance Company, Scottsdale, Ariz. and St.Paul Travelers Cos, Saint Paul, Minn.

Pilot Catastrophe Services, Inc., Mobile, Ala; Crawford & Company, Atlanta; NCA Group, Inc., Indianapolis; Simsol Insurance Services, Niceville, Fla. and Allied Claims, Inc., Fort Lauderdale, Fla.