Being accused of insurance fraud is a serious offense. Regardless of the circumstances, your reputation is on the line. In this case, State Farm was alleged to have defrauded the United States government by avoiding the payment of storm claims under homeowners’  insurance policies. State Farm was said to have improperly shifted the burden for the storm damage to the Federal government, thereby reducing its own expenses. The appeal involved a procedural issue. State Farm tried to argue that disclosure of the False Claims Act lawsuit to the media instead of allowing it to remain confidential should result in the claim being dismissed.

The Supreme Court on Tuesday handed a victory to two whistleblower sisters by upholding a jury verdict that found State Farm defrauded the U.S. government when the insurance company assessed damage caused by Hurricane Katrina along the Gulf of Mexico coast in 2005.

The court ruled 8-0 to reject State Farm’s challenge to a 2015 lower court decision upholding the verdict in a 2006 lawsuit brought by sisters Cori and Kerri Rigsby under the False Claims Act, which lets people sue on behalf of the government over allegations it has been defrauded.

The United States Supreme Court issued an opinion written by Justice Anthony Kennedy, that said “the seal requirement is intended to benefit the government because it prevents those suspected of defrauding it from being alerted about a potential case alleging that fraud took place.”

As a result, “it would make little sense to adopt a rigid interpretation of the seal provision that prejudices the government by depriving it of needed assistance from private parties,” Kennedy wrote.

The Obama administration took the position of the whistleblowers who reported the misconduct.

The jury determined State Farm had committed fraud. State Farm was ordered to pay $758,000 in damages plus almost $3,000,000 in attorney fees. The jury award was appealed to the Court of Appeals who affirmed the jury verdict before the appeal was made by State Farm to the United States Supreme Court.

The overall cost to the insurer isn’t known. Undoubtedly State Farm incurred significant attorney fees and costs in the litigation attempting to avoid the judgment. It was clearly expensive litigation with a negative outcome for the insurance company.

In most jurisdictions insurance fraud, whether accusations against an insurance company or claims that the insured committed fraud, are a question of fact. The importance of whether insurance fraud is a question of law or question of fact determines who will make the ultimate decision. Questions of fact are typically resolved by a jury. Legal issues are settled by the court with the judge making the final determination. Appellate courts tend to be reluctant to reverse a decision on a question of fact if the trial transcript indicates there was a fair trial.

Fraud committed in an insurance claim usually requires a higher level of proof than a typical lawsuit. For example, bad faith in Oklahoma must be established by a preponderance of the evidence, a lower standard. Insurance fraud, however,  has a higher standard, clear and convincing evidence. In other words, the evidence and proof at the jury trial must show by clear and convincing proof that insurance fraud occurred.

The clear conclusion is insurance fraud is serious. It should never be taken lightly by anyone, an insurer or an insured. It can prosecuted both as a civil action seeking money damages or as a criminal action. Legal counsel should be retained immediately at the first indication that someone is going to accuse you of fraud or bad faith.