RICO Case Filed Against Katrina Insurer

State Farm is the first insurance company to have a RICO complaint filed against it over Katrina-related insurance claims. RICO stands for Racketeering Influenced and Corrupt Organizations and is a federal law used primarily to take down criminal organizations like the Mafia.

The complaint was filed Thursday in the Southern District of Mississippi by veteran trial lawyer Dickie Scruggs on behalf of two hundred plaintiffs in the class-action suit against the insurer and at least one of the engineering firms it hired to do inspections of storm-damaged homes along the Mississippi Gulf Coast.

The complaint claims that State Farm and Forensic Analysis & Engineering Corporation, among other defendants, devised a scheme to defraud the plaintiffs by using "scientifically dishonest" inspections to say that homes were damaged or destroyed by water or storm surge and not by wind. And inspection reports were changed after they had been filed to show that damage was caused by water and not wind.

And that's the key. State Farm's policies exclude coverage for water damage so attributing damage in inspection reports primarily to water meant the company would not have to make payouts on most water claims. Limiting reports to partial or no wind damage means partial or no wind-damage payouts for State Farm, according to the complaint.

Robert Kochan, owner of Forensic Analysis, was unaware of the RICO complaint but told CBS News that the complaint "is a big stretch." He pointed out that Forensic has been cleared of all previous charges stemming from earlier cases over their inspection work for State Farm after Katrina. "We did not pay anything, owe any fines, we were just released of the charges."

The RICO complaint is based heavily on emails between employees of Forensic that were subpoenaed by the Scruggs Law firm during discovery in a previous case. The emails show a company with a contract that brings in as much as $2500 per inspection report. In the emails, Forensic employees say that State Farm was not happy with the inspection reports.

In this email Lecky King, a manager at State Farm, expresses that unhappiness with one of Forensic's engineers, Brian Ford, who recreated his conversation with King in an email to his boss, Robert Kochan.

Under this kind of pressure, the complaint says, Forensic bent over backwards to give State Farm the kind of inspection reports they wanted; reports that would conclude State Farm did not have to pay big on a claim. This email was sent just two days after the conversation between Brian Ford and State Farm's Lecky King. Engineer Brian Ford had already moved on from the company and Kochan, in this email, tells his key staff, "you know what to do" in terms of 'revisiting' one of Brian Ford's earlier inspection reports that State Farm would not be happy with.

When contacted, Forensic said they had not yet seen the complaint. State Farm did not respond to CBS News.