'Damaging' Internal E-Mails Blast State Farm on Katrina Damage Claims

April 12, 2007 12:50 PM

Joseph Rhee Reports:

State_farm_memo_nr Internal company e-mails obtained by ABC News reveal that engineers complained of being pressured by State Farm Insurance to change damage reports of homes ravaged by Hurricane Katrina. 

One official of the engineering firm, Forensic Analysis and Engineering Corp. (FAEC), wrote that he had "a serious concern about the ethics of the whole matter."   

The FAEC e-mails center on the case of Mississippi Gulf Coast homeowners Thomas and Pamela McIntosh, featured in a report by ABC News "20/20."  An initial FAEC evaluation of the McIntosh property, commissioned by State Farm, concluded, "The interior damage of the structure is primarily the result of the failure of the windows, walls and doors due to the wind."  Wind damage is covered under State Farm policies. 

After the report was delivered to State Farm, however, an internal FAEC e-mail stated that State Farm catastrophe coordinator Alexis "Lecky" King told the company it was being fired because "our engineers obviously could not tell the difference between wind and water and our reports were wrong."  State Farm does not pay for water damage.  According to the e-mail, King "said they were not accepting our opinion and would now have to send another firm out to get it right." 

In response to King's action, an FAEC vice president sarcastically wrote, "Lecky...seems to be a very highly qualified adjuster to be making engineering conclusions that are more accurate than ours."  The V.P. added, "I really question the ethics of someone who wants to fire us simply because our conclusions don't match hers...in my opinion we need a more rational and ethical client to be dealing with."

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FAEC CEO Bob Korchan took State Farm's decision seriously, noting in an e-mail that King felt eyewitnesses and local engineers were biased towards homeowners. 

The FAEC V.P. wrote back to Korchan, saying, "Her concern about the emotional element in the engineer's decision may have some validity (although I doubt it in [this] case).  But what about the obvious fact that SF would love to see every report come through as water damage so that they can make the minimum settlement.  I now see why the Attorney General's office is already involved down there.  She needs to be careful about what she is doing and saying."

Nonetheless, Korchan sent an e-mail to King, stating, "I have directed that future loss investigations will be better supported by photographic evidence."   Korchan told King, "Our engineering staff will be revisiting this site and attempting to further document this loss." 

FAEC then commissioned a second engineering report on the McIntosh home that concluded that water had caused the damage.  As a result, the McIntoshes were only able to collect about $36 thousand on their State Farm claim despite suffering losses of over $1 million.

ABC News was able to obtain a copy from State Farm files of the original FAEC damage report, which included the image of an attached "Post-it" note that read, "Put in wind file - do not pay bill - do not discuss" (pictured). 

The McIntoshes were unaware of the original damage report until a copy was given to them by ABC News.  The McIntoshes have now sued State Farm and FAEC for allegedly undertaking "a fraudulent, illegal, tortious, and unethical course of conduct."

Zach Scruggs of the Scruggs Law Firm, which represents the McIntoshes and hundreds of other Katrina homeowners, called the FAEC e-mails "the most damaging evidence I've seen that State Farm coerced, fired, and threatened engineers to get them to change reports." 

Scruggs says the e-mails also confirm the accounts of two State Farm insiders who told their story exclusively to "20/20."  Sisters Cori and Kerri Rigsby, who had worked for years as independent adjusters for State Farm, say they saw Alexis King go to great lengths to pressure outside engineers to prepare reports concluding that damage was caused by water, not wind. 

According to Cori Rigsby, "She pulled out an engineer report, and she was flipping through it, 'Can you believe this engineer said wind damage?  Call this company and tell them that if they don't change their report, we're not paying their invoice.'"

State Farm spokesperson Fraser Engerman said he could not discuss any specific e-mails because of the ongoing litigation.  Engerman, however, noted that the e-mails in general "clearly show that State Farm is looking for dependable engineering reports."  Engerman said State Farm employees are "committed to acting in an ethical manner."   

FAEC CEO Korchan has testified in court that he never felt his company was pressured by State Farm to reach a specific conclusion and that engineering reports were redone because the originals relied on faulty information.

Meanwhile, the Rigsby sisters' allegations regarding State Farm's actions have sparked criminal probes by state and federal investigators. 

Last year, in a deposition on an unrelated court case in Oklahoma involving State Farm, Alexis King refused to answer questions about her alleged involvement in cases of altered engineering reports in Mississippi.  Eighty-seven times, King stated that "because of the ongoing state and federal investigation, on advice of counsel, at this time, I must invoke my constitutional right to remain silent."  King repeated the phrase even when asked what route she took to get to the deposition.

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April 12, 2007 | Permalink | User Comments (27)

User Comments

Well, I am not suprised. Corporations it seems will do anything to make money and keep money out of the hands of the people they serve.

Posted by: john | Apr 12, 2007 1:31:02 PM

I have had SF car & life insurance for over 25 years. Used to have home owners through SF when I was married. Makes me want to switch to a different company. Thank god I have never had to put in a claim.

Posted by: KATHY | Apr 12, 2007 2:00:02 PM

So people pay to have their property protected, but when they make a claim , not only do insurance companies not want to pay and even alter reports and documents to avoid doing so, but they also raise your rate because they had to pay out.

Insurance is FRAUD, and all the insurance companies are the reason. Someone needs to stick it to them, like maybe the idiots in congress, that are on their payrolls.

Posted by: Ron | Apr 12, 2007 2:07:43 PM

Why is anyone surprised by this?
State Farm = Legalized Mafia

Posted by: michele | Apr 12, 2007 2:08:26 PM

like they/we say the rich get richer and the poor suffer because of that greed
let's all send our rep. in washington a thank you note. oh,let's not forget the lobbist

Posted by: joe pena | Apr 12, 2007 2:10:27 PM

The news reports of the conduct of State Farm, in providing adequate claim compensation for not only the victims of Katrina and Rita, but in other situations as well, are causing me to distrust the company, and I will be looking to make a change in my coverage, just in case I might someday expect a claim to be paid.

This is abhorrent conduct, to say the least.

Posted by: Rick McDaniel | Apr 12, 2007 2:12:18 PM

I think it is time for an American boycott of State Farm. We should all take our business elsewhere. They are supposed to be there when needed. Clearly, they are not.

Posted by: Teresa | Apr 12, 2007 2:16:10 PM

This story and others like it need to be kept in mind when the insurance companies, their paid-for politicians and media apologists start harping on "tort reform." What they mean by that phrase is that they want to ensure that people suffering grievous injuries are never able to be fully compensated for their losses. For every "McDonald's hot coffee lawsuit" there are hundreds of cases like that of the MacIntoshes -- stories we normally hear nothing about.

Posted by: MICHAEL O'CONNOR | Apr 12, 2007 2:16:49 PM

First of all the behavior of State Farm in this matter is absolutely appalling. Secondly, the butt kissing that CEO Korchan of FAEC does to keep State Farm's business is just as appalling. Both should be prosecuted for ethics violations.... Again it seems like the little guy gets the screws put to him or her...What a fine country we live in!

Posted by: Dave | Apr 12, 2007 2:32:44 PM

not surpriseing to me, for past 3 to 4 years ran a service first shop for state farm, it was a regular occurance for state farm adjusters to under pay the shops & customers, they tried to cut corners everywhere they could. they also out & out lied on many occasions about many things.they were hush hush cant tell, secretive all the time.

Posted by: james | Apr 12, 2007 2:36:45 PM

I have my own pet peev with State Farm. What I did learn was that their claim of "as a good neighbor State Farm is there" is false advertising. If my neighbors treated me they way that my State Farm agent did I would be moving.

Posted by: Pat | Apr 12, 2007 2:45:08 PM

As a Mississippi Gulf Coast resident and surviving and recovering Katrina victim, I have heard it all. State Farm can take back their slogan "like a good neighbor, State Farm is there" and shove it where the sun doesn't shine!!!

I believe I speak for everyone on the Coast!

Toni - Ocean Springs, MS

Posted by: Toni | Apr 12, 2007 2:49:59 PM

This is the reason that I will not renew my house and auto insurance with State Farm. I do not trust them. The bottom line is always money.

King must have been put under much pressure by her bosses, CEO and CFO to lie and to refute the evidence.

Posted by: Lee | Apr 12, 2007 2:57:49 PM

Message to Randy Down in the emails:

Randy, you did a fine job for standing up for what is right. Not too many people in this day and age would do that. You did good.

Bob: You need to be fired. Plain and simple.

Lecky: I bet you would be singing a different tune if it was your house. Grow up and learn to be human again. After all, is the money coming out of your bank account ??? No, it's not. Everyone pitches in for insurance for times like this. Then if someone needs part of that money to rebuild their home, it's suppose to be there for them. The word "Home" does not mean toy or trinket. It means Home. If you were more grown up and human, you would understand that.

Posted by: Todd | Apr 12, 2007 3:20:52 PM

First of all the behavior of State Farm in this matter is absolutely appalling. Secondly, the butt kissing that CEO Korchan of FAEC does to keep State Farm's business is just as appalling. Both should be prosecuted for ethics violations.... Again it seems like the little guy gets the screws put to him or her...What a fine country we live in!

Posted by: Dave | Apr 12, 2007 3:29:41 PM

Insurance=we are served by criminals in "legal" business blessed by corrupted gov.

Posted by: enough | Apr 12, 2007 4:03:01 PM

I have personally had a claim with State Farm and found them to be very prompt and considerate of my needs.

Where are the stories about Allstate, Farmers, and the other smaller companies who were also involved in the disaster? At least State Farm paid living expenses for those who were put out during the Hurricane. State Farm agents in different states were writing checks right and left to those who were in shipped to different cities.

All you are focusing on is negative information that possibly isn't true. Why can't you report something that is positive?

Posted by: KEITH | Apr 12, 2007 4:18:01 PM

I'm glad I have Nationwide. They have never given me a problem. State Farm should be investigated, fined heavily and made to pay all the claims of their customers in the gulf coast region. I have lost respect for State farm.

Posted by: Linda | Apr 12, 2007 4:21:20 PM

After reading this article it is time for me to seriously take my 15 years of business with State Farm elsewhere. As a degreed engineer, the last thing I would need in the event of a disaster would be some flunky D or C level grad like Alexis King leveraging professional engineering reports on a claim.

Posted by: Rod | Apr 12, 2007 6:49:37 PM

What about Allstate, Nationwide, Farmers and the rest. Quit picking on State Farm. I have been with them for years and their service has always been prompt and fair! ABC, along with NBC and CBS are liberal and biased and anti-big business. I don't believe half of what I read or see from them.

Posted by: Gary Hertel | Apr 12, 2007 8:00:39 PM

to the guy enough who said we shouldn't focus on negative reports. are u kidding me? YOu think this is all innuendo when now there's documented internal emails about their corruption. Just because u have a good relationship with that company doesn't mean squat. They are trying to not pay a fantastic amount of money that they owe. Insurance companies make billions off the money u give them. They take that money and invest it themselves. Insurance companies in the past 20 years have increased revenue probably ten fold. Of course they have to keep reporting news like this cuz it's BIG NEWS. And something should be done about things like this. It's the reason we have media. yeah statefarm was writing checks left and right cuz it's their freaking JOB!! that's what they're paid to do. But they obvioulsy weren't paying enough. Heck i can look like a saint if i just pay half my debts and say look i paid these people but when i owe the other half.

Posted by: concerned one | Apr 12, 2007 8:09:39 PM

The negative press State Farm is receiving is appropriate for an insurance company run like a mob company. State Farm has written most of the law in Texas courts when it comes to auto and home insurance claims/damage. It' s my belief they have more judges in their pocket than one could ever believe. It's a shame people get cheated by companies like this but one can only hope that people will see the light, not be lazy, and move to other more legally and reputable insurance companies.

Posted by: Carey | Apr 13, 2007 2:06:42 AM

Historically, insurance companies were really betting organizations. You bought insurance because you were betting you might have a problem; insurance companies took the risk because they were betting you wouldn't. At some point, in the last 30 years, insurance companies decided they were no longer in the risk business; they only "bet" on sure things. Now they only want to "insure" you if they can be sure you won't ever file a claim and they can take your money and run. Allstate is not the only company whose hands are stained with greed.

Posted by: Lynda | Apr 15, 2007 12:39:36 PM

The reality is that except for State Farm and maybe one other company, most of the other Insurance companies settled with their policy holders paid up early with the best possible outcome that they could. Unfortunately the Biggest Dog(State Farm) believes that they can play by their own set of rules. When a dog goes wild, he needs to be collared and trained.

Posted by: Hal in V | Apr 17, 2007 4:28:31 PM

i am so mad at this time . late sturday night our foundation wall fell in . we call state farm's claim hot line , to report the damage. couldn't get our agent's home phone number. the following monday morning we contacted the agent to ask for some help. the agent has never been on our property to look the damage , the adjuster came by on today to tell us that ground water ,earth moving was not covered in any ploicy. i'm wondering how amny home owners with full size basement , know this ? so i'm out approx. $10,000 . the biggest reason i'm upset i just watched a commerical , priding themselves on that "family" touch.

Posted by: tony m | May 9, 2007 8:30:18 PM

To all of you who choose to build on the coast and continue to rebuild on the coast - buy flood insurance! That way we can all subsudize your lifestyle. Funny thing is, other than Mississippi and their kangaroo courts, SF is still writing business in coastal areas, not many others are. When you are the biggest and the best, you are the biggest target.

Posted by: koman | May 21, 2007 10:22:58 PM

I was an adjuster at SF. They are all about SF and don't really give a damn about people. The environment is akin to a cult. They get you in, increase your pay, loan you money through the credit union then you're sucked in like the old factory steel mill towns. Beholden to the company for life. Very clickish to say the least. Scary company to work for because I've seen adjusters fired for minor infractions after 20 even 25 years. I believe every thing that was posted and I know every one implicated. Would not doubt it for a minute.

Posted by: mike | Dec 23, 2007 11:34:00 AM

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