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As I said in a post earlier today, just when you think things in Mississippi Katrina litigation can't possibly get any stranger, there's something new that tops all the rest. According to the Jackson Clarion Ledger, well-known attorney Dickie Scruggs has been indicted for alleged involvement in a conspiracy to bribe a judge in a dispute over how to divide some $26.5 million in attorney fees. The fees were received as a result of mass settlements of Hurricane Katrina litigation earlier this year. Yesterday, you may recall, the FBI and federal prosecutors raided Scruggs' law offices. I'll be posting updates as the story develops at Insurance Coverage Law Blog.

The Mess in Mississippi keeps getting messier, and just when you think Hurricane Katrina litigation can't get any stranger, something comes along to prove you wrong. Yesterday FBI agents and federal prosecutors served a search warrant on the Oxford law offices of tort baron Dickie Scruggs, who has been in the thick of Katrina litigation of all stripes, including a criminal contempt of court prosecution aimed at him by a federal judge. Once the feds invited themselves in, they stayed all day. Exactly what they were looking for, whether they found it and what case this is connected to, no one is saying. Scruggs' attorney denies any involvement by Scruggs or his firm in wrongdoing, and appears to deny any connection of the search to the criminal prosecution. More at Insurance Coverage Law Blog.

Katrina litigation is still hot

Katrina-related legal developments are happening fast and furious. A sampling: a federal magistrate extended State Farm's injunction against Mississippi AG Jim Hood's criminal investigation of the insurer, while State Farm has filed court documents with explosive allegations of illegal collusion between Hood and prominent attorney Dickie Scruggs; a Louisiana jury returned a bad faith verdict against State Farm yesterday and a juror speaks out on their reasons; the Attorney General of Louisiana has filed yet another of those lawsuits alleging insurer collusion in Katrina claims adjusting; and outgoing Mississippi Insurance Commissioner George Dale says a Fifth Circuit Court of Appeals decision upholding State Farm's anti-concurrent cause language vindicates his approach to insurers and shows that insurance companies actually paid claims money they did not owe because of prior adverse legal rulings at the trial court level.

Things are probably pretty jolly around State Farm headquarters these days: nemesis attorney Dickie Scruggs is being prosecuted for alleged criminal contempt, the insurer is suing Mississippi Attorney General Jim Hood, and today the Fifth Circuit handed the company a decisive win in the appeal of a lower court decision that had declared invalid a key provision of State Farm insurance contracts -- its anti-concurrent cause language. Do you suppose State Farm has put a few cases of champagne on ice in case Hood loses today's general election in Mississippi?

State Farm sues Mississippi AG Hood

I've been following Hurricane Katrina litigation and politics for quite some time, and have seen many odd twists and turns, but this is the most unusual development yet: State Farm, which has been criminally investigated and civilly sued by Mississippi Attorney General Jim Hood, has taken the fight to Hood and has filed its own suit against him, alleging bad faith criminal investigations, unethical collusion with attorney Dickie Scruggs and violations of State Farm's constitutional rights. Read all about it at this post at Insurance Coverage Law Blog, including pdfs of the pleadings. This comes, of course, just days before Mississippi's general election, in which Hood is running for re-election.

Federal Judge Peter Beer yesterday dismissed a Louisiana "whistleblower" lawsuit filed under the federal False Claims Act that alleged massive insurance company fraud on the government in Hurricane Katrina claims adjusting. Beer cited an earlier-filed, similar lawsuit brought by prominent Mississippi trial lawyer Dickie Scruggs on behalf of his clients, the Rigsby sisters, as a jurisdictional bar to the Louisiana case. Both the Louisiana case and the Scruggs-Rigsby lawsuit, Ex rel. Rigsby, have been discussed in recent evidentiary filings by special prosecutors appointed by another federal judge, William Acker, to pursue a charge of criminal contempt against Scruggs. Click here to read my post at Insurance Coverage Law Blog about the two False Claims Act lawsuits and how they factor into the criminal case against Scruggs.

United States v. Dickie Scruggs

The special prosecutors in the criminal contempt of court case against prominent Mississippi lawyer Dickie Scruggs have unveiled more of their evidence against Scruggs in federal court filings in Alabama. Prosecutors accuse Scruggs of willfully violating the terms of federal judge William Acker's injunction in a civil case brought against his clients, Kerri and Cori Rigsby, who took 5,000 to 15,000 pages of State Farm Hurricane Katrina claims files and gave them to Scruggs. The civil case, for breach of their confidentiality agreements, was brought by the employer of the Rigsby sisters, E.A. Renfroe and Co., a State Farm claims contractor.

Prosecutors accuse Scruggs of devising a "sham" strategy of pretending to misinterpret the injunction so he wouldn't have to return the documents as ordered. Instead of sending them back to Renfroe's attorneys, he had at least two conversations with Mississippi Attorney General Jim Hood, a close friend, right after Acker entered the injunction, about fears that Renfroe's attorneys would violate a protective order accompanying the injunction and tell Renfroe and State Farm of the documents' contents. So Scruggs sent Hood the documents, even though the Rigsby sisters had previously provided copies of all the documents to Hood. Scruggs allegedly was trying to find safe harbor in an exception in the injunction for cooperating with law enforcement.

Scruggs did not represent the Rigsby sisters in the civil action, which is ongoing. Instead, the basis of their attorney-client relationship was the documents, as well as a qui tam "whistleblower" claim the sisters brought against several insurance companies, and a wrongful discharge suit they brought against Renfroe, which was filed and then voluntarily dismissed a short time later. Unusually for an attorney-client relationship, Scruggs also hired the two as litigation consultants, after they quit their jobs at Renfroe, at salaries of $150,000 a year. Prosecutors claim Scruggs' motive in violating the injunction was profit -- the documents were valuable to him in litigation and as leverage, particularly as long as he could keep State Farm in the dark about which documents they were and what they said. For recent posts I've written at Insurance Coverage Law Blog on prosecutors' filings, click here and here.

When he was campaigning for governor of Florida, Charlie Crist pledged to do something about skyrocketing property tax rates in the state. And do something he has -- unfortunately, none of it has worked. Crist backed the Legislature's insurance "fix" in January that put Florida government into the insurance business big time, dramatically increasing the amount of risk taxpayers will have to bear if a major hurricane hits the state. The trade-off for this risk was supposed to be that premiums for homeowners insurance rates would tumble. Crist has also lit into insurance companies every chance he gets, calling them out as robber barons and vowing to bring power to the people.

Not surprisingly, central planning and name calling haven't worked -- insurers are even more keen to avoid risk in the state and have dumped coastal policies by the hundreds of thousands, forcing the state-run property insurance program to take on even more taxpayer-backed risk -- Citizen's Property is the state's biggest insurer and keeps on growing. Property insurance rates not only didn't go down by as much as Crist and lawmakers said, most insurers have filed for rate increases, causing Crist to engage in further episodes of table banging and name calling.

Residents of Florida have begun to notice this is getting embarrassing, and one very influential resident -- Jeb Bush, Crist's predecessor as governor -- spoke out against Crist's policies this week, although Bush was careful not to denounce Crist by name. This Wall Street Journal editorial applauded Bush's statements. The Journal quotes from a story by Ray Lehmann, a reporter for A.M. Best who broke the story. Lehmann's original story, and more, is avaiable at this post I wrote at Insurance Coverage Law Blog earlier this week.

Insurers took a few hard knocks at the federal trial court level in Katrina litigation, but on appeal before the U.S. Fifth Circuit Court of Appeals, they have seen much better results. The latest example is Leonard v. Nationwide, a case of great importance where the Fifth Circuit ruled yesterday in favor of Nationwide and declared a key provision in its property insurance contracts -- the so-called anti-concurrent cause language -- unambiguous and enforceable. Because almost all insurers draft their property policies to include such language -- there are a few exceptions -- the industry was watching this case very closely. The result, however, is not much of a surprise: anti-concurrent cause language has widely been upheld.

It was not upheld, however, in the bench trial in Mississippi last year before Judge L.T. Senter Jr. The trial result was mostly OK for Nationwide: its contractual exclusion for flood damages was upheld, Senter basically agreed with the relatively small amount of covered wind damage the insurer paid to Paul and Julie Leonard, and Judge Senter said there were no misrepresentations or other factors that would justify reforming the contract, or in other words, altering the written terms to match a purported prior oral agreement.

However, Judge Senter also said that the insurance policy's anti-concurrent cause provision was ambiguous. Nationwide could not accept this, and had to appeal -- anti-concurrent cause provisions have been a feature of many property insurance policies for more than 20 years and were introduced to contractually prevent what insurers saw as judicial activism that stuck them with losses they never contemplated. As I have explained at great length in numerous writings, including this post today on the Leonard case at Insurance Coverage Law Blog, Senter did not need to rule on the anti-concurrent provisions of the contract at all, because the damage to the Leonard house did not involve concurrent multiple causes of the same damage: instead, the wind and the flood were two single causes of different damage. Single-force causation does not implicate the anti-concurrent cause language for an obvious reason: concurrent causes must be multiple causes, and a cause can't be concurrent with itself. Analysis of causation in property insurance contracts is tricky business, and taking off down the wrong path almost always leads to wrong results. The Fifth Circuit basically upheld Senter's rulings, except it reversed his verdict on the anti-concurrent language. Unfortunately, the Fifth Circuit, like Judge Senter, also said more than it needed to, and its own causation analysis was flawed and probably will lead to some confusion further down the road. The Leonards' attorney, of course, was noted tort lawyer Dickie Scruggs, who, true to form, immediately began spinning. He claims the case will be appealed to the U.S. Supreme Court, which is not much of a threat. The court will have no interest whatsoever in taking a case involving the interpretation of state insurance law.

Over . . . Dale

Just short of two years from the date Hurricane Katrina made landfall in Mississippi, the storm claimed a political casualty: Mississippi Insurance Commissioner George Dale, who got on the wrong side of gajillionaire tort, asbestos, tobacco and insurance policyholder lawyer Dickie Scruggs and was defeated earlier this month by a Scruggs-backed and Scruggs-bankrolled candidate.

Scruggs, who was a driving force behind many of the thousands of Katrina insurance lawsuits in Mississippi, employed his usual style of treating litigation as having three components: law, public relations and politics. Dale, he believed, was too soft on insurance companies and stood in his way. Particularly galling to Scruggs, it appeared, was that Dale put together a deal with State Farm for the insurer to voluntarily review some 36,000 Katrina insurance claims, after a similar deal Scruggs had reached with the insurer to certify and settle a class action was shot down by federal judge L.T. Senter Jr. One might note that Scruggs and other lawyers in the Scruggs Katrina Group lost a big payday when the class action deal did not work.

Dale was serving his eighth term as insurance commissioner when Katrina hit. Before the storm, he planned to retire, but said he felt obligated to see the storm's aftermath through. Scruggs came after Dale hard. He called Dale "political toast" and took out a full-page ad in a Mississippi newspaper depicting Dale as a pig with lipstick, lounging in a beauty shop while State Farm dolled him up to fool the voters, a reference to Dale's acceptance of insurance company money to finance his campaign and his alleged coziness with insurers.

Here is a post I wrote about Dale's defeat in the Mississippi primary. Insurance commissioner is a position that has relatively little power and is one that, normally, few people care about -- what's the name of your state's insurance commissioner? -- but the Dale race attracted more votes than any other on the statewide ballot. Despite the fact the Coastal counties hardest hit by Katrina went against Dale in a big way, he came within a pig's whisker of pulling the race out.

While Katrina litigation has brought further success to Scruggs, he, like Dale, has not remained untouched. As a result of his involvement with the "whistleblower" Rigsby sisters, who took thousands of pages of documents from a State Farm contractor that they and Scruggs claimed showed bad faith Katrina settlement practices, Scruggs allegedly violated an injunction by federal judge William Acker, who appointed special prosecutors to bring charges of criminal contempt against Scruggs.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.