In a recent Supreme Court decision, State Farm v. Rigsby, a homeowner’s house was damaged by Hurricane Katrina. The homeowner possessed homeowners insurance with State Farm and a flood insurance policy that was administered by State Farm on behalf of the federal government. The claims adjusters assigned by State Farm to handle the homeowner’s claim allegedly were instructed by State Farm to misclassify wind damage as flood damage in order to shift State Farm’s own liability for the loss to the federal government. The claims handlers filed a lawsuit against State Farm under the False Claims Act (FCA), which imposes civil liability on any entity who “knowingly presents . . . a false or fraudulent claim for payment or approval” to the federal government. A jury entered a verdict against State Farm in the amount of almost $3.7 million, which included a treble damages award and attorneys’ fees.
Although the case likely will be remembered by most people for the Supreme Court’s consideration of the purpose of the FCA’s requirement that complaints be filed under seal and whether the dismissal of a complaint is an appropriate sanction when a claimant leaks information regarding the complaint that is under seal, the case also should be remembered for turning the spotlight on the concurrent causation conundrum associated with certain insurance claims, particularly hurricane claims where both water and wind cause the losses. The concurrent causation conundrum arises when a loss is caused by both a covered risk of loss and an excluded risk. Although the Supreme Court did not resolve the concurrent causation conundrum in State Farm v. Rigsby, this essay offers two potential solutions to the problem. One, eliminate the flood exclusion in homeowners insurance policies. Two, broadly apply the “ensuing loss” exception to exclusions contained in property insurance policies.