Now, Kelly wants to know if they can bill State Farm twice, once for the honest report, and once for the fraudulent one. On Jan. 10, 2006, he writes:

This is a report we redid. SF mailed me back the original that was submitted by Manny and Brian, which was signed by them as a final report. The issue was that they had concluded wind and I concluded predominantly water. While I did not specifically address any additional compensation from SF, in the other two reports of similar problem, we just corrected the report without any additional fees. I don't know if you want to consider this or not, just let me know. I'd like to bring the reports over to State Farm this morning.

Listen, I'm just summarizing the allegations in the complaint. All the real work has been done by the Scruggs firm. And, yes, I know these are allegations. The exhibits could be taken out of context or could, for all I know, be complete forgeries. But I doubt it.

I'll include one more case because it shows what happened when an "original" report made it—quite by luck—into the hands of a policyholder. Keep in mind while you read this an insurer's obligation under the law to deal fairly with policyholders. Those obligations exist because the law recognizes the insurers and insureds are not two equal parties to a contract. Insurers, having already been paid, control the information and the ultimate decision on whether a policyholder will recover. This is, in the end, a trust-based system. Think about that when you think about insurance generally.

The Mullins, of Hancock County, rented a modular home that was lifted from its moorings and carried to the middle of the street, turned 180-degrees around. No water marks were found. Eventually, Forensic's Manon (the fired one) wrote a report and told the Mullins it would be forthcoming soon.

State Farm denied the claim.

The Mullins, however, wanted to see the report. In the fall of 2005, Terri Mullins, an inspector with the New Orleans P.D., called Forensic HQ in Raleigh, N.C., and speaks to "Wendy" (Wendy Nichols, a receptionist), who tells her the report is done but can't be sent without State Farm's permission. Mullins goes to her SF agent's office, asks "Kimberly," another receptionist, to call Wendy and tell her its OK to send the Manon report. The two clerks are not in on the plan; Wendy faxes the Manon report to Kimberly, who gives it to Mullins.

Mullins doesn't know this, but Kochan had already sent engineer Kelly to "re-inspect" the house. SF emails and call logs show that agents are telling Mullins that "the" report isn't done yet, even though the Manon report was logged filed on Dec. 6.

On Dec. 9, Mullins, fed up, drives to the SF cat office in Biloxi and asks for the report again, confronting an SF supervisor, Kevin Young, who says no report has yet arrived. Mullins then shows him the faxed Manon report, concluding that the "primary and predominant cause of damage to the Mullins property was due to hurricane force winds."

Young replies: "Where did you get this?"

All of a sudden, having just denied it existed, Young goes in back and finds the "official" Forensic report, signed by John Kelly, that says "rising water produced and caused the loss."

But there's more. Scruggs found emails that showed how this report had been massaged. First, on Oct. 24, Kochan emails Williams in Reno and Sammis in the RV, suggesting that water be included, at least in part:

I suggest that the conclusion be altered to indicate that it was a combination of both and not primarily the wind.

In deposition, Kochan later admits writing the word "DRAFT" over Manon's report, even though he had already co-signed it as final as Forensic's "peer reviewer."

Finally, any mention of wind is removed altogether.

Eventually, Kelly will be recruited to "alter and rewrite" dozens of reports, then go on to write original reports attributing damage to water.

The complaint goes on. The examples are laid out in systematic and numbing detail. There are names, dates and places.

People read this blog, I assume, because they are curious about how insurers responded on the Gulf after Hurricane Katrina.

Two years later, we're beginning to get the picture.

Thanks to Ida.

Originally posted on July 9, 2007 on InsuranceTransparencyProject.com Copyright © 2007 by Dean Starkman. Reprinted with permission.