Whistleblower Suit Says Allstate Cheated Feds After Katrina

Chad Hemenway
National Underwriter News
September 29, 2010

Late last week Allstate Insurance Company was informed it is the subject of a whistleblower lawsuit filed more than three years ago.

The suit alleges Allstate fabricated insurance documents to inflate the amount of flood loss suffered by three clients the whistleblower represented in connection with homeowners insurance claims disputes against the insurance company.

Attorney John H. Denenea Jr. filed the lawsuit in U.S. District Court in New Orleans on behalf of the federal government and claims Allstate "knowingly fabricated" insurance documents to decrease its own claims payments and inflate flood losses at the expense of the federal government, in violation of the False Claims Act.

Flood losses are not covered by a standard homeowners policy. Flood insurance is provided by the federal government's National Flood Insurance Program.

The lawsuit remained under seal without Allstate's knowledge while the government decided whether to take up the case. On Sept. 21, an order from Judge Carl Barbier unsealed the case, noting that the government "is not intervening at this time." Application by the government over the years to extend the seal will remain unseen by the public or Allstate and federal authorities can request deposition transcripts and intervene at any time as the case moves on, according to court documents.

Mr. Denenea is a "relator" in the suit, and, having direct and independent knowledge of the allegations, brought the suit on behalf of the government. He said he gave the government all the information he had before filing the lawsuit, according to court documents.

Mr. Denenea could not immediately be reached for comment.

An Allstate spokesperson said, "As a practice, Allstate does not comment on pending litigation and therefore we will be unable to provide comment at this time."

Mr. Denenea is seeking a trial and to have Allstate pay three times the amount of damages the government has sustained as a result of the company's alleged fraud plus civil fines and the cost of the litigation.

According to the lawsuit, if the government decides to pick up the case, Mr. Denenea is seeking between 15 percent and 25 percent of the proceeds of the action or settlement of the case.

If the government stays out of the case, Denenea seeks between 25 percent and 30 percent of the proceeds.

Allstate is involved in another similar lawsuit with similar allegations brought by insurance adjusters, Branch Consultants, and filed in the same court. Allstate had been excluded from the case, but in August was added back to the list of defendants, which includes others insurers.

A well-known whistleblower lawsuit filed in Mississippi by sisters Cori and Keri Rigsby against State Farm is still pending. The Rigsbys were once represented by prominent "Tort King," Richard Scruggs, who is now in federal prison for his role in bribing a circuit court judge.

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