United States ex rel. Branch Consultants, L.L.C. v. Allstate Insurance

265 F.R.D. 266, 2010 U.S. Dist. LEXIS 20725, 2010 WL 582372
CourtDistrict Court, E.D. Louisiana
DecidedFebruary 12, 2010
DocketCivil Action No. 06-4091
StatusPublished
Cited by9 cases

This text of 265 F.R.D. 266 (United States ex rel. Branch Consultants, L.L.C. v. Allstate Insurance) is published on Counsel Stack Legal Research, covering District Court, E.D. Louisiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States ex rel. Branch Consultants, L.L.C. v. Allstate Insurance, 265 F.R.D. 266, 2010 U.S. Dist. LEXIS 20725, 2010 WL 582372 (E.D. La. 2010).

Opinion

ORDER AND REASONS

SARAH S. VANCE, District Judge.

Qui tam plaintiffs move to strike Fidelity’s Third-Party Complaint against its policyholders. (R. Doc. 253). Because Fidelity’s claims do not meet the appropriate standard under the Federal Rules of Civil Procedure and because third-party practice is considerably restricted in False Claims Act actions, the motion is GRANTED.

I. Background

This case arises out of the aftermath of Hurricane Katrina. The storm struck southern Louisiana and Mississippi in late August of 2005, causing damage in the billions of dollars. In numerous places, particularly within New Orleans, homes and commercial property were damaged by the wind and rain generated from the hurricane, as well as by flooding that inundated the area after the storm had passed through the region.

While insurance against wind and rain is available from private insurance companies, flood insurance generally is not. “It is uneconomical for private insurance companies to provide flood insurance with reasonable terms and conditions to those in flood prone areas.” Gowland v. Aetna, 143 F.3d 951, 953 (5th Cir.1998). In 1968, the federal government established the National Flood Insurance Program, which provides flood-insurance coverage “at or below actuarial rates,” and payments on these insurance policies are made with federal money. Id. The NFIP is in turn administered by the Federal Emergency Management Agency. In 1983, FEMA established a program within the NFIP known as ‘Write Your Own,” which allowed for certain private insurers to issue standard, government-guaranteed flood insurance policies in their own names. See generally 44 C.F.R. § 62.23. FEMA drafts the policies and the insurers cannot alter them without governmental approval. Id. §§ 61.4(b), 61.13(d); see also Dwyer v. Fidelity Nat. Prop. & Cas. Co., 565 F.3d 284, 285 (5th Cir.2009). The private companies under WYO act as “fiscal agents” of the United States and are responsible for adjustment, settlement, payment, and defense of claims under the policies. 44 C.F.R. § 62.23(d)-(g). Payments under the policies, however, “ultimately come[] from the United States treasury.” Dwyer, 565 F.3d at 285.

The damage caused by Hurricane Katrina resulted in a tremendous number of NFIP claims. On account of this strain, FEMA relaxed the requirements for submitting proofs of loss to claim flood damage. Specifically, when policyholders did not dispute the insurance company’s adjustment, FEMA waived the proof-of-loss requirement and allowed the claim to be paid on the basis of adjuster’s reports. See Monistere v. State Farm Fire & Cas. Co., 559 F.3d 390, 394-95 (5th Cir.2009); Eckstein v. Fidelity Nat. Prop. & Cas. Ins. Co., 07-4567, 2009 WL 1870558, at *4 (E.D.La. June 29, 2009).

Branch Consultants brought this qui tam action on behalf of the United States government under the False Claims Act. Branch accuses certain WYO insurance companies and adjusters that were involved in the adjustment of NFIP flood claims after Katrina of fraud in the administration of the flood insurance program. It alleges that the circumstances after Katrina gave defendants complete control over the adjustment and payment of the NFIP policies. Specifically, it contends that when defendants adjusted Hurricane Katrina claims, they systematically and on a massive scale overstated the amount of flood losses to the properties they adjusted. In so doing, defendants allegedly exaggerated the amount of money that the government should pay under the individual flood policies, which in turn reduced the amount that the insurance companies would themselves be obligated to pay under wind and rain policies. Stated differently, Branch asserts that defendants “passed off’ the costs of paying for wind damage to the government by fraudulently claiming that the damage was caused by flood. Because of the expedited claims-handling process that was put into effect after Katrina, the government allegedly subjected these claims to less scru[269]*269tiny than it would have in more typical circumstances. Branch alleges that this resulted in the submission of myriad fraudulent insurance claims, which the federal government then paid. In its First Amended Complaint, Branch provides numerous examples of properties that it alleges were the subject of fraud. For each, it identifies a corresponding insurance company that allegedly issued the policy covering the property.

Among these insurance companies are Fidelity National Property and Casualty Insurance Company and Fidelity National Insurance Company (collectively “Fidelity”). Fidelity has filed an answer to Branch’s complaint, and this answer includes a complaint asserting claims against third parties.1 R. Doc. 247. Specifically, Fidelity, acting in its “fiduciary capacity” as a “fiscal agent of the United States,” brings claims against certain of its own policyholders for breach of contract and unjust enrichment, as well as the common-law doctrine of payment by mistake. Fidelity proposes to sue those Fidelity policyholders whose property adjustments Branch put in issue in its complaint against Fidelity. Fidelity alleges that, if Branch proves that Fidelity overpaid its policyholders, these policyholders improperly received payments that are rightfully the property of the United States government.

Branch contends that Fidelity lacks standing to bring these claims, and that the policyholders cannot be brought into this litigation as parties. The government has filed a brief supporting Branch’s position. The Court rules as follows.

II. Discussion

A. Third-Party Practice

1. Categorization of Fidelity’s Claims

As an initial matter, there appears to be confusion as to what Fidelity’s claims actually are and under what procedure Fidelity seeks to bring them into this litigation. In its response to the motion to strike, Fidelity correctly argues that although it labels its claims against the policyholders under the heading “third-party demand” or “third-party complaint,” R. Doc. 247 at 1, 20, the Court may construe mislabeled pleadings as if they were correctly designated. Fed.R.Civ.P. 8(d). Fidelity offers two suggestions as to what procedure and which corresponding Federal Rule of Civil Procedure it seeks to invoke.

i. Rule IS Compulsory Counterclaims

First, Fidelity suggests that its claims are actually compulsory counterclaims that should be governed by Rule 13(a). They are not.

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Bluebook (online)
265 F.R.D. 266, 2010 U.S. Dist. LEXIS 20725, 2010 WL 582372, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-ex-rel-branch-consultants-llc-v-allstate-insurance-laed-2010.