State Farm Says Employees Targets of Katrina Criminal Probe

At least two employees of State Farm Fire and Casualty Co. are targets of a criminal investigation of the insurer’s handling of policyholders’ claims after Hurricane Katrina, the company disclosed in court papers.

State Farm attorneys are asking a judge to protect four employees, including Alexis “Lecky” King and Lisa Wachter, from being questioned under oath by lawyers in civil cases while they are under investigation by Mississippi Attorney General Jim Hood.

Hood’s office has told an attorney for both King and Wachter that they are both targets of the attorney general’s investigation, according to State Farm lawyers.

State Farm also says a federal grand jury is expected to issue a subpoena for a third employee, Mark Drain, to testify before the panel. However, it’s unclear whether Drain is a target of either the state or federal investigation, the company says.

U.S. Magistrate Judge Robert Walker already has ruled that Drain, King, Wachter and a fourth employee, David Randel, can be questioned under oath by lawyers representing State Farm policyholders.

State Farm is asking Walker to reconsider, however, saying the employees would risk incriminating themselves if they are compelled to testify in civil cases while facing possible criminal probes.

“State Farm’s interest in having a fair opportunity to defend itself in this civil proceeding would also be jeopardized if the depositions of these four individuals are permitted to go forward,” State Farm attorneys wrote.

Hood confirmed earlier this year that his office is investigating whether insurance companies have fraudulently denied claims after Katrina. U.S. Attorney Dunn Lampton has neither confirmed nor denied that his office is probing similar allegations.

Efforts to reach a spokeswoman for Hood late Tuesday night was not immediately successful.

Richard “Dickie” Scruggs, a lawyer who sued State Farm on behalf of hundreds of policyholders, claims the insurer pressured engineers to alter reports on storm-damaged homes so that claims could be denied. State Farm has denied that allegation.

King was a co-coordinator of State Farm’s catastrophe team on Mississippi’s Gulf Coast after Katrina, while Wachter was a trainer responsible for overseeing State Farm adjusters, according to Scruggs.

“These people were involved in the decision-making on every single claim,” Zach Scruggs, Richard Scruggs’ son and law partner, said Tuesday. “They’re relevant to every case we’ve got against State Farm.”