State Farm to probe Haag firm

Published 5:04 pm Friday, September 22, 2006

State Farm has ordered an independent investigation into one of its vendors and suspended work with Haag Engineering Co. based on an Oklahoma jury’s finding that the insurance company used Haag reports to maliciously deny policyholder claims, a newspaper reports.

State Farm’s top executives have not publicly announced the “moratorium” on work with Haag or the investigation, but they recently were forced under court order in Oklahoma to submit to questioning about the company’s claims practices, The Sun Herald reported Thursday.

The practices are now being scrutinized in Mississippi as a result of Hurricane Katrina.

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If State Farm had it to do over again, Chairman and CEO Edward B. Rust Jr. admitted, his company would not have used Haag to assess Hurricane Katrina damage.

“Based upon what I know now,” Rust said, “I’m supportive of the moratorium and the review. And we, you know, did not have that knowledge prior to this.”

Haag maintains that its engineers have for 82 years dedicated themselves to providing opinions “based solely on the facts and sound engineering principles.”

In advising Haag of the moratorium on June 5, State Farm’s top claims executive, Susan Q. Hood, wrote that her confidence in Haag remains, but conflicting jury opinions out of Oklahoma prompted her decision.

Oklahoma attorney Jeff Marr took sworn testimony on Sept. 6 and 7 from Rust, second-in-command Vincent J. Trosino and Hood in conference rooms at the Doubletree Hotel in Bloomington, Ill., where the company is headquartered.

None of the executives could produce any paperwork generated by the investigation, offer any details about findings or say when they expect a report from the independent counsel heading the probe.

“I don’t think there is an internal investigation,” said Marr, who has been battling State Farm for the past six years on behalf of 71 policyholders whose homes were hit by a 1999 tornado. “I think it’s just the latest in a series of tactics to try to put some spin on what they’re doing.”

Marr said his cynicism springs from the court system’s history with State Farm’s claims handling practices.

In Marr’s Oklahoma case, a jury in May awarded policyholders Donald and Bridget Watkins $13 million. The jury found State Farm “recklessly disregarded its duty to deal fairly and act in good faith” with the Watkinses and acted with malice.

The next phase of the case will be to determine damages for the 70 other State Farm policyholders whose claims were examined for State Farm by Haag Engineering.

Eight years later in south Mississippi, claims adjusters and sisters Kerri and Cori Rigsby are accusing the company of ordering biased engineering reports to minimize or deny Hurricane Katrina claims.

They secretly gathered 17,000 pages of documents and turned them over to U.S. Attorney Dunn Lampton and Mississippi Attorney General Jim Hood, who earlier this year launched a criminal investigation of the insurer’s Katrina claims-handling practices.

Still, Rust, Trosino and Susan Hood maintained in their recent testimony that any attempt to treat policyholders unfairly would be contrary to State Farm’s culture and policies.

“After all,” Rust said, “the success of this organization is driven by our ability to retain current customers and to attract new customers. The last thing we want to do is be unfair with our customers.”