State Farm accused of hail fraud

OK lawsuits cite denied and lowballed repairs

JC Hallman

Oklahoma Watch

On Oct. 4, 2023, a vicious hail storm battered the Broken Arrow home of Billy and Lacy Hursh. Billy Hursh, 39, a Tulsa police lieutenant and leader of the SWAT negotiator team, was able to spot gouges to the shingles of his steep-roofed four-bedroom house from the ground.

But it wasn’t until a worker got up close that the full extent of the damage was revealed.

“A tree-trimmer got up on the roof and said, ‘You’ve got a hole in your roof,’” Hursh recalled.

Two contractors confirmed that a roof replacement was required; one of them grimaced when he learned who had written the Hurshes’ homeowners policy.

“They were very confident,” Hursh

said. “But they said, ‘Oh, State Farm is never going to pay out on this.’” The Hurshes’homeowners policy explicitly stated that accidental damage to their dwelling would be covered; nevertheless, an adjuster judged the roof to be in fair condition.

State Farm offered the Hurshes approximately $1,400.

They appealed to no avail. Eight months later the Hurshes’ home was hit by hail again. This time, State Farm acknowledged damage, but continued to hold that the total cost was below their deductible.

The Hurshes borrowed against the equity in their home to pay for a new roof: $22,000.

As a first-time homeowner, Billy Hursh recalled a rollercoaster of emotions.

“It’s a roof – it’s not the most emotionally arresting thing in the world,” Hursh said. “But it’s your home. I’m trying to do the right thing. I’m trying to take care of my home, and this is why I had homeowners insurance. So you get hopeful, but then it’s all a disappointment. It’s frustrating and really discouraging.”

In April, Hursh took legal action, becoming one of upwards of 200 cases of policyholders waging years-long – and ongoing – battles against State Farm. Thousands of pages of filings in the Hursh case and many others, in two waves of deceptively modest civil actions, revealed allegations of an insidious scheme worth billions of dollars, perpetrated by Oklahoma’s largest writer of homeowners insurance.

This case was not about $1,400, judge said

On Nov. 7, in a lull in a sedate pretrial proceeding in the ongoing Hursh case, District Court Judge Amy Palumbo offered a wry response when argument whittled down to a discussion of the $1,400 State Farm had offered the Hurshes. The stakes of the case were actually much higher, an attorney observed.

“Oh, I knew that this case was not about $1,400 when I wound up with seven J.D.s in my courtroom arguing over the definition of the word ‘document,’” Palumbo said, in her cavernous courtroom on the eighth floor of the Oklahoma County District Court building in Oklahoma City.

A short time earlier, Palumbo had observed that the Hursh case was the tip of an iceberg.

“Y’all appear to have many, many, many cases with State Farm,” Palumbo said.

In the main, Palumbo was addressing a tableful of attorneys from Oklahoma City law firm Whitten Burrage; the team included founding partners Reggie Whitten, who defended insurance companies for twenty years before becoming a plaintiff ’s attorney, and former Chief Judge of the United States District Court for the Eastern District of Oklahoma Mike Burrage.

In 2008, Whitten Burrage won the largest class action jury verdict in Oklahoma history, a $130 million award against Farmers Insurance Co.

Arguments in the Nov. 7 proceeding and a detailed examination of petitions in numerous State Farm cases revealed what Whitten Burrage has alleged.

In 2020, a mysterious meeting in a State Farm high-rise in Illinois cooked up a pernicious scheme, the petitions said.

A Wind Hail Model Enhancement Team – a star chamber, one petition called it – was formed to oversee a practice of pre-denying claims of hail damage. Adjustors were trained to refuse total roof replacements, the petitions said, and State Farm colluded with the global consulting company Accenture and Haag Engineering, a firm that provides forensic damage assessment, to distort the definition of hail and disguise policy terms.

The goal was to reduce hail claim costs by 50%, the petitions said.

The initiative was rolled out in June 2020 in Dallas County, Texas, the petitions said, and was quickly extended to three other hail states, including Oklahoma. Within six months, the program was expanded to the rest of the country. In open court on Nov. 7, Reggie Whitten and Mike Burrage put it simply.

“You got a scheme when you are going to reduce the claim before it even happens, and make billions,” Burrage said.

“We have people all over the state who don’t know why they are being cheated,” Whitten said. “They cheated hundreds of millions in Oklahoma between 2020 and 2023, and billions more in the United States.”

Attorney Lance Leffel of Oklahoma City was present to defend State Farm.

Leffel did not deny the special State Farm meeting or the pilot program in Texas. Rather, he objected to how those events were characterized.

“We heard all these adjectives: cheating, fraud, and on and on,” Leffel said. “But adjectives are not evidence.”

Leffel described the meeting as a group of people gathering to decide whether to adopt a new feature on claims adjustment.

“To hear them argue, every time a board gets together to discuss their business is some big sinister meeting,” Leffel said.

The Nov. 7 pretrial hearing was mainly about making documents available – internal communications, performance evaluations, training manuals, a document entitled The Art of the Conversation purportedly about how to talk to policyholders, and so on.

Leffel argued that the cost for State Farm to review what would need to be shared was onerous: more than $5 million.

That was a drop in the bucket compared to what was at stake, Whitten Burrage lawyers responded.

“State Farm does NOT want the Oklahoma or national public to see these documents,” one petition said.

Neither Leffel nor the Whitten Burrage attorneys agreed to speak on the record for this story.

A State Farm media representative declined a request to interview the company’s general counsel, Keesha-Lu Mitra.

State Farm disclosed the terms

Two months before, a critical juncture arrived in an earlier set of State Farm cases brought by Whitten Burrage.

Oklahoma Watch, not long after it published its first story on hail and insurance, was tipped off to what easily could have been mistaken for an unremarkable proceeding.

“You should consider attending a hearing in Judge Palumbo’s courtroom at 2:00 PM on August 20, Nida v. State Farm,” an anonymous text read. “It is relevant to your reporting on homeowners insurance rates.” The texter refused to identify themselves.

Like the Hursh case, the hearing and the petitions in the Nida case sketched the outline of a prolonged legal battle.

State Farm’s wind-hail initiative triggered lawsuits, the petitions revealed. Policyholders who suffered tens of thousands of dollars in roof damage found that State Farm either denied claims outright, the petitions said, or lowballed claim payments on the argument that damage was preexisting or normal wear and tear.

In a case that ran parallel to the Hursh case, State Farm offered $4,400 on a claim for damages to a Claremore home; an independent contractor estimated damages at $31,000.

The homeowners called lawyers; across Oklahoma, Whitten Burrage accumulated 125 cases of denied hail

claims. The battle lasted years. Whitten Burrage fought to compel State Farm to produce documents that would prove the alleged scheme. After a nearly year-long fight to appoint a special discovery master, Whitten Burrage won expanded access to documents and their ability to depose executives.

Very little would become public. Nevertheless, shortly after the documents were shared and depositions began, State Farm settled each case individually – all 125 cases. Terms of the settlements would not be disclosed.

Then something strange happened: State Farm itself disclosed the terms.

Court proceedings revealed that State Farm submitted some of the confidential settlement amounts to the Comprehensive Loss Underwriting Exchange, or CLUE, a LexisNexis-powered report that makes the claim histories of policyholders available to third parties.

The CLUE disclosures resulted in additional harms, Whitten Burrage attorneys argued. When insurers saw reports detailing roof damage settlements, their clients were either denied new coverage entirely or their premiums went, well, through the roof.

What was really at stake

Ostensibly, the Aug. 20 hearing on a consolidation of nine of the total 125 cases was about motions State Farm had submitted to kill the effort to make their documents public.

What was truly at stake – in terms of raw dollars – was revealed in open court.

Burrage cited a CLUE report that revealed that just one of the Whitten Burrage cases had settled for $3 million.

The house in question was worth only $250,000.

“How could there be a $3 million loss on such a home?” Burrage asked. “Is there some tax advantage to State Farm taking a loss? That’s why we need the discovery. We need to know how widespread this is, and why it’s being done.”

State Farm did not deny that settlement amounts had been wrongly revealed; Leffel argued that the disclosures had been accidental.

That didn’t matter, Whitten Burrage attorneys said. The damage was done, and there was no way to track who may have disseminated the disclosures after they had been made available.

The Aug. 20 hearing ended with Palumbo denying State Farm’s motions.

The Nida case is ongoing.

“Don’t tell them you’re a good neighbor”

A funny thing happened after the

“We heard all these adjectives: cheating, fraud, and on and on. But adjectives are not evidence.”

Lance Leffel

Attorney representing State Farm