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The Associated Press has reported that the U.S. Department of Justice is contemplating intervening in a New Orleans lawsuit accusing several major insurance companies of fraud for paying off engineers in order to falsify claims. The “whistleblower” suit filed in the name of two sisters who worked for a company that contracted with State Farm, names State Farm, Nationwide Insurance Co., Allstate Insurance Co., USAA Insurance Co., and several engineering firms that contracted with the companies as defendants.

The suit accuses insurance companies of pressuring engineers to falsify reports so storm damage could be blamed on floodwater instead of wind, which would shift the financial burden to the National Flood Insurance Program. The companies say their homeowner policies cover damage from wind but not rising water.

In other words, the suit alleges that the insurance companies paid engineers to say that the property damage that was done was not covered by their policies, passing the buck to the already strapped federal government and U.S. taxpayers. The Justice Department’s interest lends credibility to the suit’s claims. This seems to me to be a situation warranting punitive damages for insurance bad faith and fraud. If proven, this sort of conduct needs to be appropriately punished and the only way to punish a large corporation, such as the insurance carriers involved, is to hit them in their bottom lines.

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