Louisiana district court dismisses insurance adjustment qui tam on first-to-file grounds

by Ben Vernia | January 12th, 2012

In a ruling in U.S. ex rel. Sonnier v. Allstate Ins. Co. on January 10, Judge James J. Brady of the Middle District of Louisiana dismissed a qui tam suit brought by an independent insurance claims adjuster against Allstate Insurance. Under the federal flood insurance program, insurance companies were authorized to write flood insurance policies and adjust any claims. The relator alleged that when adjusting hurricane damage claims on homes carrying both federal flood insurance and Allstate-issued wind insurance policies, the company shifted losses onto the federal program by allocating a greater percentage of damage to flooding, and valued the flood claims at higher values using inflated prices.

The company argued for dismissal on a number of grounds, but Judge Brady only reached the first: that the suit was barred by the FCA’s first-to-file rule (31 USC 3730(b)(5)) because four previous suits had raised loss-shifting allegations.

The relator argued first that the rule did not apply because the unit-price manipulation he alleged differed from the prior suits’ allegations, but conceded that two of the suits’ amended complaints made similar allegations. These suits were ineffective to bar him, he contended, because in dismissing them, another judge had only relied on their original complaints, and because the first-to-file rule does not apply when the earlier-filed case is a sham (a question the Fifth Circuit had left open in its decision affirming the dismissal of one of the suits, U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 (5th Cir. 2009).

Judge Brady rejected both attempts to distinguish the prior cases, finding that both the original and amended complaints in one of the prior cases were filed when the relator brought his case, and that the FCA does not provide for any exceptions to the first-to-file rule; in any case, the Court reasoned, the prior case was not dismissed because it lacked particularity, making the relator’s reliance on Walburn v. Lockheed Martin Corp. inapposite.

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