Court: State Farm Committed Fraud in Katrina Case

April 9, 2013 — -- Two Hurricane Katrina whistleblowers have shown that a State Farm insurance company committed fraud against the federal government in the mishandling of a homeowner's claim after the devastating 2005 storm, according to a federal jury in Mississippi.

The decision came Monday in the course of a long, complex legal battle between State Farm Fire and Casualty Co. and former State Farm independent auditors Cori and Kerri Rigsby. In 2006, the Rigsby sisters appeared in a series of exclusive ABC News reports in which the sisters claimed they had witnessed "widespread" fraud at the State Farm offices in Biloxi and Gulfport, Miss.

The sisters said then that they saw State Farm supervisors demanding damage reports be buried, replaced or changed so that claims wouldn't have to be paid. One damage report, according to the sisters, was hidden in a special file with a sticky note attached to it saying, "Do not pay bill. Do not discuss."

"Katrina was devastating, but so was State Farm," Cori Rigsby said in 2006.

Shortly after the ABC News report aired, State Farm responded on its website, calling the report "grossly unfair."

WATCH ORIGINAL: 2006 Report on Alleged State Farm Fraud

According to Mississippi's The Sun Herald, a Mississippi court said Monday that State Farm had claimed extensive damage done to a house during the storm had been caused by water. That determination limited the company's liability and allowed State Farm to put off a $250,000 payment on the federal government's National Flood Insurance Program instead.

But after they were presented with evidence from the Rigsby sisters, a federal jury found that State Farm had filed a false report in order to justify the water damage, according to court documents. It had actually been caused by wind, meaning the hefty payout should have come from the homeowner's State Farm policy, not the NFIP.

The insurance company was ordered to pay the federal government the $250,000 back in addition to other damages to be determined.

While the decision was restricted to a single case of fraud, The Sun Herald reported it could potentially open a review of "thousands" of other, similar claims -- some of the most startling featured in ABC News' original reports.

State Farm spokesperson Jeff McCollum said today the company "disagrees" with the jury's decision.

"This verdict defies the clear evidence we presented at trial over the past two weeks," McCollum told ABC News.

The Sun Herald reported State Farm is likely to file an appeal, but McCollum would only say the company was "reviewing [its] legal options."

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