I read with interest this story by Rebecca Mowbray of the Times-Picayune about a case alleging State Farm conspired in restraint of trade during its claims adjusting of Katrina damage in Louisiana. Then I read all the briefs listed at the bottom of this post to check it out.
Read the second paragraph from the story:
The case, Kathleen and Gordon Schafer v. State Farm Fire & Casualty Co. and Xactware Inc. , tackles the corollary to recent allegations that insurance companies have inflated flood damages to take advantage of the National Flood Insurance Program. The suit claims that Louisiana’s largest insurance provider, aided by the insurance industry’s main supplier of construction pricing data, manipulated unit prices for construction materials to systematically lowball homeowners insurance payouts.
First, I don’t see the lawsuit as a corollary to the flood insurance allegations. It alleges State Farm conspired in restraint of trade to depress prices paid for materials in repairing Katrina damage. That doesn’t have anything to do with the flood insurance theory. Second, I don’t see any allegations as to any other insurer State Farm conspired with — you can’t conspire with yourself. Also, allegations of underpricing the cost of materials do not involve cheating policyholders — they get their repairs paid for. Instead, it is the suppliers of rebuilding goods and services who would feel the brunt of undermarket pricing. Actually, the interests of policyholders and State Farm would be aligned in paying less for repairs.
Remember that anti-trust law is designed to protect competition to benefit the consumer. I have a difficult time seeing how the plaintiffs would have been injured by the allegations, even if true. If anyone has a gripe, it would be the suppliers of goods and services, but again, a company unilaterally setting a price it is willing to pay is not restraint of trade. It is simply the price that business is willing to fork over, and if you don’t like it, you don’t have to sell them goods or work for them.
Xactware, the other company mentioned above, provides cost estimates for property insurance repairs. I have no idea whether the estimates Xactware provides are above or below market, but for an anti-trust violation to occur, Xactware’s activities would have to be controlled in some way by State Farm or it would have had to conspire with State Farm, and there would have to be evidence that competition and consumers were harmed somehow by this activity. I didn’t see any evidence of either.
There’s a lot of other stuff in the lawsuit, you should take a look at a couple of the briefs if you have a spare moment. The writing in the briefs was some of the best stuff I have seen in the Katrina cases, crisp, clear and concise.
One final thing: the Schafer lawsuit contains allegations similar to those in another suit, Aguilar v. Allstate, that was dismissed in part. A pdf of Judge Feldman’s order in that case is also listed below.
Here are pdfs of relevant pleadings in the Schafer case: