Did Scruggs have a third insider?

The notion that Scruggs had a third insider located in Bloomington, Illinois – i.e., State Farm’s corporate headquarters – is one that Scruggs does not appear to have ever floated again in any context, be it media appearance or court filing. Scruggs-ologists have wondered, therefore: Had Scruggs just made this story up out of whole cloth, as some sort of psychological warfare gambit? Was he was hoping to psych State Farm out or to coax genuine potential whistleblowers to come out of the woodwork? Or had there really been a third insider? Or had there been static over the phone line, resulting in a reporter’s having simply misunderstood what Scruggs had been saying? (An email sent yesterday to Scruggs’ lead attorney John Keker was not returned, nor was one to Bloomberg reporter Westbrook; an email to Bloomberg reporter Davidson triggered an on-vacation auto-response.)

There is no question that Scruggs believed in psychological warfare. His Scruggs Katrina Group actually went so far as renting a billboard near State Farm’s headquarters in Bloomington, from May to July 2007, to carry the message that “Katrina only destroyed homes. Big insurance has destroyed hope.” (A story about the billboard was carried in the May 24, 2007, issue of the [Bloomington, Illinois] Pantograph, available for a fee at the Pantograph’s web site.)

Back in January, in one of the policyholder cases that Scruggs had filed against State Farm prior his indictment, State Farm issued subpoenas to Scruggs seeking a variety of documents in his possession, including those that he had referenced in the Bloomberg interview of March 30, 2006. Scruggs initially refused to provide them, objecting on relevance and attorney-client privilege grounds “to the extent that they were provided by individuals who are [his] clients or former clients.”

On Thursday, however, a federal magistrate rejected Scruggs’s arguments and ordered any documents responsive to the request to be produced. So Scruggs-ologists may yet be getting an answer shortly to this admittedly less-than-earthshaking, yet tantalizing, little mystery.

Roger Parloff
Fortune
5/20/8