Federal Judge Separates Whistle-blower Lawsuit From State Farm Counterclaim

A federal judge has elected to separate State Farm's counterclaim against two sisters who filed a whistle-blower lawsuit against the insurer following Hurricane Katrina, and the sisters' lawsuit will be tried first.

According to court documents, Judge L.T. Senter, sitting in U.S. District Court in Southern Mississippi, said the whistle-blower lawsuit brought by former insurance adjusters Kerri and Cori Rigsby will be heard separately from State Farm's counterclaim because "a single proceeding is likely to hopelessly confuse the jury on the merits of both claims."

The Rigsby sisters worked for private claims adjusting firm, E.A. Renfroe & Co., hired by State Farm after the storm in 2005. The sisters' accusations led to the filing of a landmark case by Mississippi couple Thomas and Pamela McIntosh. At the side of then-prominent attorney Richard "Dickie" Scruggs, the sisters accused State Farm of fraud for allegedly changing the reports of engineers in order to shift payments to the National Flood Insurance Program. The sisters allegedly took and handed to Scruggs, who paid the sisters as "consultants," thousands of claims documents they say support the charges, which State Farm has denied.

State Farm has filed a counterclaim seeking damages. The insurer alleges the Rigsbys "schemed to abuse and exploit their access to State Farm's confidential computer systems and policyholder records," court records say.

Senter said trying the counterclaim after the Rigbys' lawsuit against State Farm is "more likely to lead to a just resolution of both claims." The judge ordered a pretrial schedule be made by Magistrate Judge Robert H. Walker.

In August, Senter ruled the sisters could testify against State Farm. The insurer looked to dismiss the lawsuit. Testimony will be limited to the McIntosh claim, because it is the only case in which Senter said the Rigsbys have direct, first-hand knowledge (BestWire, Aug. 13, 2009). The McIntosh couple and State Farm agreed to settle on $250,000 for the McIntosh home, which was destroyed in the 2005 storm (BestWire, Sept. 15, 2008).

Scruggs now is serving time in a federal prison after pleading guilty to his role in attempting to bribe a Mississippi judge in another case over the split of attorneys' fees in previous settlements with State Farm.

The claims documents the Rigsbys are alleged to have misappropriated will not be admissible during the whistle-blower trial, Senter said. The sisters were ordered as part of a settlement in a separate federal case with E.A. Renfroe in Alabama to turn over the documents.