In Katrina False Claims Act case, EDLA strikes defendant insurer’s allegations against its policyholders

by Ben Vernia | March 2nd, 2010

Judge Sarah Vance of the EDLA on February 12 granted a motion to strike third-party claims brought by Fidelity National Ins. Co. in its answer to a whistleblower’s qui tam complaint. The case was brought by a consulting company against numerous insurance companies which wrote, and subsequently, adjusted policies under the National Flood Insurance Program (NFIP). The relator alleged that in the hurricane’s aftermath, the US waived proof of loss requirements when the policyholder did not dispute the insurer’s adjustment. In this relaxed environment, the relator claimed, insurers passed off wind damages as flood damages, causing losses to the federal government which underwrote the NFIP.

In its answer, Fidelity brought allegations against its policyholders. After surveying the federal civil rules governing joinder, the Court concluded that the claims were asserted as simple third-party claims under Rule 14. But, the Court noted, courts had ruled that the False Claims Act restricted the application of this rule, on the grounds that the Act is “focused upon the deterrence and detection of fraud and not the allocation of fault or damages.” The False Claims Act provided no right to bring claims for indemnity or contribution.

In addition, Judge Vance observed that Fidelity had not, as required under R. 14, provided an explanation why the policyholders may be liable to the company for all or part of the claim against it, and in asserting the claim as the purported fiscal agent of the government, the company was acting in a different capacity entirely than the one it was in as a defendant. Finally, the court rejected the insurer’s argument that the claims could be brought because they were independent of the damages sought by the US. This was based on a case (US ex rel. Miller v. Bill Harbert Int’l Const. Co., Inc., 505 F.Supp.2d 20 (D.D.C. 2007)) dealing with compulsory joinder; in those circumstances, denying the claims in the FCA case would extinguish them, raising due process concerns.

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