In an insurance related case, the United States Supreme Court affirmed the Fifth Circuit's decision that State Farm was not entitled to a dismissal of a qui tam case involving its claims-handling after Hurricane Katrina. State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, ___ U.S. ___, 137 S. Ct. 436 (2016).
Before Katrina, State Farm issued two types of policies to homeowners: (1) Federal Government-back flood policies and (2) its own general homeowner policies. After Hurricane Katrina, State Farm's policies were responsible for wind damage, and the government policies were responsible for flood damage. Therefore, it was in State Farm's interest to classify hurricane damage as flood-related.
Cori and Kerri Rigsby were former claims adjusters for one of State Farm's contractors, E.A. Renfroe & Co. The adjusters were responsible for visiting the damaged homes of State Farm's customers to determine the extent to which a homeowner was entitled to an insurance payout. The Rigsbys claimed that State Farm instructed them to misclassify wind damage as flood damage in order to shift State Farm's liability to the government.
In 2006, the Rigsbys filed their qui tam complaint under seal. Qui tam actions are filed under the Federal Claims Act (FCA). The FCA imposes civil liability on an individual who "knowingly presents . . . a false or fraudulent claim for payment or approval" to the Federal Government. One who initiates a meritorious qui tam suit receives a percentage of the ultimate damages award, plus attorney's fees and costs. The FCA requires that the complaint be filed in camera and remain under seal for at least 60 days, and is not to be served on the defendant until the court so orders.
In January 2007, the District Court lifted the seal in part. In August 2007, the District Court lifted the seal in full. The government, which has the option to intervene in qui tam cases, declined to do so.
In January 2011, State Farm moved to dismiss the Rigsby's suit because they had violated the seal requirements. Their former attorney, Dickie Scruggs, had e-mailed a sealed evidentiary filing that disclosed the complaint's existence to various journalists. The fraud allegations were discussed in the media, but not the existence of the FCA complaint. After the seal was lifted in part, Scruggs disclosed the existence of the suit to various other media outlets.
The District Court decided against dismissal. State Farm did not request some lesser sanction. The case went to trial, resulting in a victory for the Rigsbys. The Fifth Circuit affirmed the denial of State Farm's motion to dismiss, determining that automatic dismissal due to the seal violation was not required by the FCA.
The Supreme Court agreed that a violation of the FCA's seal provision did not impose the harsh rule of dismissal. Although the statute said that a complaint "shall" be kept under seal, it said nothing about the remedy for a violation of the rule. The FCA included a number of provisions that did require, in express terms, the dismissal of a realtor's action. Here, it was proper to infer that, had Congress intended to require dismissal for a violation of the seal requirement, it would have said so.
