U.S.A Ex Rel. Branch Consultants v. Allstate Ins. Co

• Decision Date: 24 January 2011
• Docket Number: CIVIL ACTION NO: 06-4091,SECTION: R(1)
• Parties: UNITED STATES OF AMERICA EX REL. BRANCH CONSULTANTS, L.L.C. v. ALLSTATE INSURANCE. CO., ET AL.
• Court: U.S. District Court — Eastern District of Louisiana

UNITED STATES OF AMERICA EX REL. BRANCH CONSULTANTS, L.L.C.

v.ALLSTATE INSURANCE. CO., ET AL.

CIVIL ACTION NO: 06-4091

SECTION: R(1)

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

Dated: January 24, 2011.

ORDER AND REASONS

In this False Claims Act case arising out of Hurricane Katrina, defendants American Reliable Insurance Company, Standard Fire Insurance Company, Colonial Claims Corporation, Liberty Mutual Fire Insurance Company, SIMSOL Insurance Services, Inc., American National Property & Casualty Company ("ANPAC"), Fidelity National Insurance Company, and Fidelity National Property and Casualty Insurance Company ("Fidelity") have filed motions for summary judgment. In addition, all of these defendants plus Allstate Insurance Company and Pilot Catastrophe Services, Inc. have filed motions to dismiss. Because the Court lacks jurisdiction over Branch's claims, defendants' motions are GRANTED, and this case is DISMISSED.

I. Introduction

This case arises out of the aftermath of Hurricane Katrina. The storm struck southern Louisiana and Mississippi in late August of 2005, causing damage in the billions of dollars. In numerous places, particularly within New Orleans, homes and commercial property were damaged by the wind and rain generated from the hurricane, as well as by flooding that inundated the area.

Although insurance against wind and rain is available from private insurance companies, flood insurance generally is not. "It is uneconomical for private insurance companies to provide flood insurance with reasonable terms and conditions to those in flood prone areas." Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir. 1998). In 1968, the federal government established the National Flood Insurance Program ("NFIP"), which provides flood-insurance coverage "at or below actuarial rates, " and payments on these insurance policies are made with federal money. Jd. The NFIP is in turn administered by the Federal Emergency Management Agency. In 1983, FEMA established a program within the NFIP known as "Write Your Own" ("WYO"), which allowed certain private insurers to issue standard, government-guaranteed flood insurance policies in their own names. See generally 44 C.F.R. § 62.23. FEMA drafts the policies and the insurers cannot alter them without governmental approval. Id. §§ 61.4(b), 61.13(d); see also Dwyer v. Fidelity Nat. Prop. & Cas. Co., 565 F.3d 284, 285 (5th Cir. 2009). The private companies under WYO act as "fiscal agents" of the United States and are responsible for adjustment, settlement, payment, and defense of claims under the policies. 44 C.F.R. § 62.23(d)-(g). Payments under the policies, however, "ultimately come[ ] from the United States treasury." Dwyer, 565 F.3d at 285.

The damage caused by Hurricane Katrina resulted in a tremendous number of NFIP claims. On account of this strain, FEMA relaxed the requirements for submitting proofs of loss to claim flood damage. Specifically, when policyholders did not dispute the insurance company's adjustment, FEMA waived the proof-of-loss requirement and allowed the claim to be paid on the basis of adjuster's reports. See Monistere v. State Farm Fire & Cas. Co., 559 F.3d 390, 394-95 (5th Cir. 2009); Eckstein v. Fidelity Nat. Prop. & Cas. Jns. Co., 07-4567, 2009 WL 1870558, at *4 (E.D. La. June 29, 2009).

Branch Consultants brought this qui tam action in 2006 on behalf of the United States government under the False Claims Act ("FCA"). Branch accuses certain WYO insurance companies and adjusters that were involved in the adjustment of NFIP flood claims after Katrina of fraud in the administration of the flood insurance program. Branch alleges that the circumstances after Katrina gave the defendants complete control over adjustments andpayments under NFIP policies and allowed them to systematically overstate the amount of flood damage sustained by properties covered by NFIP policies.

Specifically, in what the Court has described as the "loss-shifting" claim, Branch alleges that the defendants attributed damages to flooding that should instead have been attributed to wind or wind-driven rain. This in turn increased the amount of money that the government was obligated to pay under the individual flood policies, and accordingly reduced the amount that insurance companies were obliged to pay under the wind/homeowners policies they allegedly wrote. Put differently, Branch alleges that defendants shifted the costs of paying for wind damage to the government by fraudulently claiming that the damage was caused by flooding. The government allegedly subjected these claims to less scrutiny than it would have in typical circumstances because of the expedited claims-handling process that was put in place after Katrina.

In the complaint, Branch provides examples of properties that it alleges were the subject of this fraud. For each property, Branch identifies the insurance company that allegedly issued the applicable NFIP and wind policies. Further, Branch alleges the existence of a broad fraudulent scheme extending beyond the exemplar properties. This scheme allegedly resulted in the submission of myriad fraudulent insurance claims to thegovernment.

The loss-shifting claim was Branch's only theory until it filed its Second Amended Complaint over three years after filing the original complaint.¹ The Second Amended Complaint added what the Court has described as the "inflated-revenue" claim. In that claim, the defendants allegedly overstated the amount of flood damage by inflating the prices of the components of their flood adjustments and including items in those adjustments that did not require replacement. Defendants' incentive to make false claims under this theory was not to avoid paying wind losses, but rather to recover inflated fees, as the fees they recovered under the NFIP were based on the amount of claims paid. Thus, the insurer's incentive under the inflated-revenue claim was not to pass off losses it would have otherwise sustained, but rather to maximize the fees it was paid for participation in the NFIP program. When Branch added this claim in the Second Amended Complaint, it added no new exemplar properties. Nor did Branch alter its allegations concerning the exemplars, i.e., that all or most of the damage to those properties was caused by wind, not flooding.

This case had a substantial procedural history even before Branch filed the Second Amended Complaint. In October of 2007, the section of this Court previously assigned to this casedismissed it entirely.² The Court found that a pending case in the Southern District of Mississippi included similar FCA claims against Allstate and then-defendant State Farm Insurance Company. Because the Mississippi case was filed first, the Court ruled that this suit was barred under the FCA's "first-to-file" rule.³Branch appealed this decision to the Fifth Circuit, which held that the first-to-file rule barred only Branch's claims against State Farm and Allstate. The Fifth Circuit affirmed the dismissal of those two defendants, reversed the dismissal of the other defendants, and remanded the case.⁴

After remand, the case was reassigned to this Court. The defendants then moved to dismiss on the grounds that Branch was not an "original source" under 31 U.S.C. § 3730(e)(4) and that Branch failed to plead its claims with sufficient particularity under Rule 9(b) of the Federal Rules of Civil Procedure. In October of 2009, the Court held that, based on the allegations in the First Amended Complaint, Branch had adequately pleaded that it was an original source of its allegations.⁵ The Court also determined that, with respect to most of the defendants, Branch's allegations met the requirements of Fed. R. Civ. P. 9(b).

In December of 2009, Branch moved for leave to file a Second Amended Complaint.⁶ In that complaint, Branch added the inflated-revenue claim and it reinstated Allstate and Pilot as defendants. On August 13, 2010, following an appeal of the Magistrate Judge's order, the Court granted Branch leave to file the Second Amended Complaint, ⁷ and Branch filed that complaint the same day.⁸ Before the Court granted Branch leave to file the Second Amended Complaint, the defendants, other than Allstate and Pilot, filed motions for summary judgment directed at Branch's loss-shifting claim. Additionally, all of the defendants have now filed motions to dismiss Branch's inflated-revenue claim. Those motions are now before the Court.

II. Legal Standard

The Court will resolve this case under the FCA's first-to-file and public disclosure jurisdictional bars. The Court will adjudicate the first-to-file issue under Rule 12(b)(1), which requires dismissal of an action if the court lacks jurisdiction over the subject matter of the plaintiff's claim. In ruling on a Rule 12(b)(1) motion to dismiss, the court may rely on (1) the complaint alone, presuming the allegations to be true, (2) the complaint supplemented by undisputed facts, or (3) the complaint supplemented by undisputed facts and by the court's resolution of disputed facts. Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 424 (5th Cir. 2001); see also Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996). The plaintiff bears the burden of demonstrating that subject matter jurisdiction exists. See United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 54 (1st Cir. 2009); Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981). A court's dismissal of a case for lack of subject matter jurisdiction is not a decision on the merits, and the dismissal does not ordinarily prevent the plaintiff from pursuing the claim in another forum. See Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977).

As to the public disclosure bar, the Fifth Circuit has held that this jurisdictional issue is intertwined with the merits and is thus a matter for summary judgment. United States ex rel. Reagan v. East Texas Medical Center Regional Healthcare System, ...