Friday, March 6, 2015

HURRICANE SANDY: BURIED ADJUSTER REPORT RAISES NEW FRAUD ALLEGATIONS AGAINST FEMA FLOOD INSURANCE PROGRAM













MARCH 5, 2015




Humphrey Uddoh wrote a letter to a federal judge in New Jersey last month about two insurance adjusters who appeared at his Jersey City home after Superstorm Sandy in 2012 -- one a welcome guest, the other quite suspicious. 

The first man, Uddoh says, assessed that the home had sustained flood damage totaling at least $80,000. The second man, Uddoh says, showed up under false pretenses, but eventually admitted the true nature of the visit: An insurance company had dispatched him to “undercut” the initial estimate.




Incensed, Uddoh threatened to call the police. He then watched the man “scatter like a vermin,” almost knocking over one of Uddoh’s neighbors on the sidewalk before he jumped into an SUV and peeled away.




The mysterious visitor “put the ‘pedal to the metal’ and screeched out of his parking spot so fast that he left burned black tire marks behind,” according to the 187-page document Uddoh filed with a federal district court in New Jersey early February.




The letter has won Uddoh a new hearing in a case that illustrates deeper problems within the Federal Emergency Management Agency’s embattled National Flood Insurance Program, already reeling from allegations of widespread fraud. Uddoh said he now has evidence that a common document was first wrongfully altered and then kept hidden by his insurance carrier and a powerful private law firm that has served FEMA for decades. 




The document that Uddoh unearthed -- an adjuster’s report -- is the cornerstone of nearly every insurance claim. Thousands more people are at risk of having received manipulated adjusters’ reports, and reduced claims payments, attorneys say. “If that part of the process is manipulated, altered, or tainted, the entire process is manipulated, altered and tainted,” said Uddoh’s lawyer, Mitchell B. Shpelfogel.




Both Uddoh’s insurance carrier, Selective Insurance Co. of America, and one of its attorneys from the firm Nielsen, Carter & Treas LLC declined to comment for this story, citing the pending litigation.




A lawyer for the adjusting firm, CNC Catastrophe & National Claims, also declined to comment, citing a judge’s dismissal of the company’s involvement in the case. The firm reached a settlement agreement with Uddoh in January.




Questions about adjusters’ reports add another dimension to the public outcry over engineering reports. Allegations that insurers used altered engineering reports while handling Sandy claims sparked an ongoing criminal investigation in New York, prompted mass-settlement negotiations between FEMA and attorneys for homeowners, and this week fueled a demand for congressional oversight hearings. FEMA administers the program that provides flood insurance to 5.3 million policyholders. It functions in partnership with private insurance companies that issue payments to homeowners with federal dollars, and, in turn, earn fees for selling policies and handling claims.   




Cleanup efforts within the agency are under way. FEMA’s recent settlement negotiations have centered on about 2,000 cases in New York and New Jersey courts. Yet the U.S. senators from those states have continued to voice concerns that not all evidence of potential fraud has been revealed and that more homeowners are entitled to payouts -- leading to a breakthrough development this week. Sen. Robert Menendez, D-N.J., announced Wednesday night new commitments from FEMA’s lead negotiator, Brad J. Kieserman, its deputy associate administrator for insurance, on individual claims and programmatic reforms.  




Kieserman agreed FEMA will review all claims of lowball payments “due to fraud or bad practices,” even if the homeowners involved did not file lawsuits. Kieserman also said FEMA will make available “all iterations of engineering reports,” according to the announcement.




Still, attorneys are moving quickly to obtain and review a new set of documents: adjusters’ reports. The Merlin Law Group, representing clients in more than 300 pending Sandy flood-insurance lawsuits, is in the process of serving subpoenas to the independent adjusters and the adjusting firms that are contracted by insurance carriers. “We want the draft copies of the estimates, and email exchanges between them and the carriers,” said lawyer Charles R. Mathis IV.



If those estimates were pared down by insurance carriers and if homeowners “were paid a small percentage of what they should have been, then they were absolutely harmed,” Mathis said.




FEMA paid more than 135,000 insurance claims after Sandy, a total of more than $8.1 billion. Among those claims, 90 percent had adjusters’ reports. In contrast, between 10 percent and 13 percent had engineering reports, according to Texas-based attorney J. Steve Mostyn, who is negotiating the settlement framework with FEMA on behalf of homeowners.




Mostyn represents the homeowners in the case that first brought “secretly” rewritten engineering reports to light, Raimey v. Wright National Flood Insurance. He has now agreed to represent Humphrey Uddoh, as well.  



“I believe there’s going to be a much larger second group that has to do with manipulated adjuster reports, in some cases fraudulent,” Mostyn said.



A FEMA representative declined to comment on Uddoh’s case, but said, “We expect every insurance company we partner with to share FEMA’s values of putting survivors first.”




Uddoh said the evidence he now has shows Selective fraudulently reduced his claim from the $80,000 the original adjuster set aside. The final estimate he was issued back in 2012 totaled $334. The new report he obtained shows an estimate of $16,170. Shpelfogel said he believes even the newly uncovered version was altered, and that repairs to Uddoh’s home -- which he hasn’t been able to complete -- could ultimately top $150,000.




What’s more is that Selective maintained that no other version existed, Shpelfogel said. Despite spending nearly two years in litigation with Selective and CNC, Uddoh managed to obtain the new copy only when he settled part of the case with CNC in January. “The continued lies and cover-ups is why we’re still in litigation,” Shpelfogel said.




Until last month, Uddoh, a lawyer by trade, represented himself in the lawsuit. He was up against a law firm -- Nielsen, Carter & Treas -- that has a long history with FEMA. Partner Gerald Nielsen has represented National Flood Insurance Program carriers since 1988. He is a noted speaker on the workings of the NFIP, and a fixture at the National Flood Conference, an annual gathering of executives from insurance companies, banks, adjusting firms and engineering firms.




FEMA pays the legal bills for defense attorneys when homeowners sue on their flood-insurance claims. Nielsen’s comments about how much defense lawyers would earn from Sandy litigation have drawn heightened scrutiny. Last June, he predicted that defense fees from Sandy were “likely to exceed the total costs” from the previous 20 years combined, reaching $100 million. In December, the two U.S. senators in New York requested that the Government Accountability Office audit the flood-insurance program’s legal fees, quoting directly from Nielsen’s statements in the federal court for the Eastern District of New York. In mid-February, FEMA confirmed it had so far spent $12.4 million on outside attorneys for Sandy lawsuits.




Shpelfogel and Mostyn argued that they see another troubling pattern: In several cases involving allegations of manipulated damage reports, as well as evidence that has not been produced in litigation, the Nielsen firm is a “common denominator,” Shpelfogel said.




Gerald Nielsen did not respond to requests for comment. 




In the Raimey v. Wright case, U.S. Magistrate Judge Gary R. Brown found in November the altered engineering report was “concealed by design” from the homeowners and that Wright’s counsel “violated its obligations” to turn over evidence. In that same order, Brown sanctioned Wright’s attorneys, which included lawyers from the Nielsen firm.




Shpelfogel and Mostyn are suing Nielsen, Carter & Treas in a class-action racketeering suit, alleging the firm took part in a scheme to reduce flood-insurance payments, based on altered engineering reports.




Uddoh filed suit against Selective and CNC in April 2013, and attempted to subpoena documents from the original adjuster -- an outside contractor who was not an employee of the adjusting firm. In a previous conversation with Uddoh, this adjuster “spoke of the pressure that CNC was subjecting him to” and “stated his directive by CNC and Selective to lower his $80,000 damage award,” according to Uddoh’s court filing.




An attorney with Nielsen, Carter & Treas intervened in that subpoena attempt. Court documents show that lawyer Kristie Mouney emailed Daniel Jules April 11, 2013, “instructing that you not provide any response to” Uddoh’s subpoena.



Looking back, Mostyn said, “Uddoh had to fight very, very hard to get his documents.” A hearing on evidence in the case is scheduled for May 18.



Source: www.ibtimes.com

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JUDGE IN SUPERSTORM SANDY LITIGATION:  Alarmingly, one attorney prominently involved in coordinating the defense of the WYO carriers has predicted that the defense of these cases could cost more than $100 million, a figure that likely exceeds the cost of settling all of the cases at full value

On December 2nd, the Court entered Case Management Order No. 13 (CMO #13) where the Court explained some of the obstacles the parties were having with the mediation process. The number of Hurricane Sandy cases has grown to over 1,200. The Court noted that to date, approximately 25% of the cases originally filed have successfully resolved through the expedited discovery and mediation process. Another 490 cases were since filed and currently over 600 cases are scheduled for mediation or in the process of mediation.
In order for mediations to proceed more expeditiously, the Court has ordered additional requirements for the parties in CMO #13:
The Parties must comply with CMO #12 regarding the selection of a mediator.
Mediations will no longer be conducted in Louisiana.
Plaintiff must participate actively in the mediations. Unless it is regarding an issue involving privilege, they must be available to answer questions about their claim since the mediation process is confidential.
Parties should consider having adjusters and/or engineers present for mediations where the issue involves a difference of agreement between adjusters’ estimates or engineering experts’ conclusions.
No party can unilaterally terminate the mediation—only the mediator may decide if the session should be adjourned and reconvened at a later date.
At least 30 days prior to the mediation, Plaintiff must send a written demand to Defendant’s counsel that includes a detailed description of Plaintiff’s position regarding areas of disagreement, including any critiques of defendant’s experts or adjuster’s conclusions, and which is supported by all documentation. If documents are not provided 30 days before the mediation, they will not be used at the mediation and may also be excluded from trial.
Within two weeks of receipt of the Plaintiff’s demand, Defendant must notify Plaintiff’s counsel about gaps in documentation and any areas of disagreement.
Mediators will hold a pre-mediation conference two weeks before the mediation. They will review items listed in a checklist which was directed to the mediators on November 20, 2014.
It is left to the discretion of the mediator to adjourn the mediation conference if necessary to obtain more information, however, if parties indicate they are ready for mediation and later indicate that they could not settle due to missing information, sanctions may be imposed.
If the parties reach an impasse about issues such as foundation damage that requires expert testimony, the parties must jointly notify the court, preferably before the mediation, so that a hearing can be held expeditiously and allow the mediation to proceed more smoothly.
Finally, the Court reminds the parties that sanctions may be a possibility if the Court discovers dilatory tactics or a lack of good faith by a party or its counsel.

 UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

ORDER
IN RE HURRICANE SANDY CASES
14 MC 41


THIS DOCUMENT APPLIES TO:
ALL RELATED CASES
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CASE MANAGEMENT ORDER NO. 13

In January 2014, the undersigned Committee of Magistrate Judges (“the Committee”) was appointed by the Board of Judges in connection with the more than 800 cases then filed arising from Hurricane Sandy.  Among other things, the Committee was tasked Ato recommend procedures to ensure proper case filing . . . to establish a plan for expedited discovery, and to facilitate the efficient resolution of these matters in a manner designed to avoid the duplication of effort and unnecessary expense. CMO No. 1 at 1 (Feb. 21, 2014).  The number of Hurricane Sandy cases has since grown to more than 1,200.   Through the concerted efforts of the undersigned, who have held hundreds of conferences and issued more than a dozen case management orders, along with an unprecedented expenditure of resources by the Court, the Committee designed and implemented an expedited discovery procedure.   In addition, the Court expanded its mediation panel and provided training specifically tailored to the issues raised in these cases.
To date, approximately 25% of those cases originally filed have been successfully resolved, largely through this expedited discovery and mediation process.   Although another approximately 490 cases have since been filed, currently over 600 cases are scheduled for mediation or in the process of mediation.   Others, filed more recently, are in various phases of the Committee’s procedure; some are in the process of being served; some are awaiting answers; and still others are exchanging discovery pursuant to CMO Nos. 1 and 8.   While the procedure has, by and large, been embraced by the parties, in some instances, resolution of the cases has been thwarted by what can only be described as dilatory and unreasonable actions by certain counsel.
To be clear, there are many reasons for heightened diligence in these cases.   There are, of course, victims who, more than two years after the storm, remain unable to get review of their claims.  On the other hand, because of the structure of FEMAs WYO Flood insurance program, the defense of these claims is funded by the taxpaying public; thus, care must be taken to ensure both that claims are legitimate and properly documented and that they are litigated in an cost-effective manner.   At the same time, prolonged litigation, with its attendant expense[1]  and ultimate delay in the efficient resolution of these cases benefits neither the storm victims nor the public.   In CMO No. 3, the Committee reminded counsel of these imperatives:
Counsel for all parties are reminded, as set forth in CMO #1, that these cases present a massive undertaking and require the balancing of serious, competing interests.  See CMO #1 at 2 (Athe Court must ensure that victims of the storm, many of whom were rendered homeless for a time and who may be left without the necessary records or access to qualified contractors to effect repairs, receive an expeditious review of their claims, while at the same time, safeguarding insurers from meritless or inflated claims@).  As such, this is not a time for business as usual. Extraordinary circumstances call for extraordinary measures.   And counsel are not only expected, but required, to work diligently, cooperatively and reasonably to help ensure a fair and efficient resolution of these cases.   See Local Rule 26.4 (requiring cooperation among attorneys).

CMO No. 3 (April 7, 2014) at 7.

Yet, repeated exhortations by the members of the Committee appear to have gone unheeded.   In fact, while the Committee recognizes that many counsel in these cases have proceeded in good faith, in an unacceptable number of cases, attorneys -- in some cases those with responsibility for a large number of cases -- have acted in a manner that is objectively unreasonable or seemingly calculated to delay efficient resolution of the cases.
On November 25, 2014, the Committee held a Liaison Counsel conference (“the conference”) with Plaintiffs’ and Defendants’ Liaison Counsel, representatives from FEMA, and any other counsel in Hurricane Sandy cases who wished to attend, in an attempt to address the issues that seem to be hindering successful mediations.   This Order provides certain procedures to deal with those problems that have been identified to the Committee.

A.   Failure to Participate in Good Faith During Mediation
Despite the clear mandate of this Committee, as well as applicable rules and law, directing counsel to participate in good faith in mediation and settlement discussions, in certain instances, counsel for both plaintiffs and defendants have failed to do so.
In several cases reported to the Committee, defense counsel have, while appearing at mediation sessions, refused to participate in settlement talks, claiming that they have not received necessary documents or other information from plaintiffs.   See, e.g., Weber et al. v. Allstate Ins. Co., 13-cv-6752 (DE [84]) (explaining that “Defendant came to mediation with no offer and no intention of settlement.   Defendant refused to discuss or even consider Plaintiffs’ estimate. Defendant categorically refused to participate in any meaningful, good faith discussion about resolving Plaintiffs’ . . . claim”); Yannello et al. v. Allstate Ins. Co., 13-cv-6720.   These refusals to participate have followed court conferences in which defendants counsel have represented to the Court that they have received all of the information needed to proceed to mediation.   Had defense counsel conferred with counsel for plaintiffs or contacted the Court prior to the scheduled mediation to indicate what they still needed, steps could have been taken to avoid wasting the time of counsel and the mediators.   Such conduct can only be viewed as dilatory.
In another instance, after mediation had failed to resolve the case, defense counsel advised the Court thatdepositions of the Plaintiffs, their engineer, their contractor and the public adjuster are necessary to complete discovery.  Stapleton v. Wright, 14 CV 470 (DE [57]).  Although counsel are well aware that the Court has, with the input of counsel for both sides, narrowly tailored discovery in these matters in an effort to reach a fair and efficient resolution, without any reasoned explanation of the need for this additional discovery, the Committee is left to conclude that in refusing to settle cases absent such extensive discovery, defense counsel is seeking to unreasonably delay resolution of the these cases and inflate the costs and fees required to conduct such discovery.   Given the modest amounts at stake in many of these cases, and in light of the fact that litigation is being funded by the taxpaying public, it seems highly unlikely that such a broad unilateral expansion of discovery would reasonably be warranted.
Counsel for plaintiffs have fared only marginally better.   Defendants cite to the regulations issued by FEMA to argue that, in the absence of documentation showing what was repaired, the costs of those the repairs, and detailed estimates of the costs necessary to repair any other covered items, defendants are not authorized to compromise claims.   Defendants complain that in many instances, plaintiffs have not produced the necessary items prior to the date of mediation, only to appear at the mediation sessions with pages of invoices and documentation that are not tied directly to specific items of damage, requiring counsel to spend hours sifting through the documents for the first time during the mediation session.
The problems created by this last minute production of documents have been further complicated, in some instances, by the fact that plaintiffs have not actually been present or even available to answer questions during the mediation.[2]  Thus, there have been cases where, without plaintiffs= assistance, it has been difficult to determine what repairs have been made and what receipts reflect payments for those particular repairs.
As a result of complaints of plaintiffs’ repeated violations of their discovery obligations, the Committee has issued multiple warnings to the firm of Gauthier Houghtaling & Williams, which represents the vast majority of plaintiffs in these cases. See, e.g., No. 14 MC 41 (DE [472] at 31) (warning Gauthier attorneys that there will be “most dire consequences” for failure to comply with the CMOs). In response, John Houghtaling, a managing partner of the firm, stated to the Committee: “I receive the message,” assuring the Committee that the firm had the appropriate resources to meet its obligations. Id. Apparently, though, the message has not been received. On November 7, 2014, based upon the firm’s failure to comply with multiple discovery orders in two cases, Magistrate Judge Brown imposed a monetary sanction on the Gauthier firm pursuant to Fed. R. Civ. P. 37(b)(2)(A). See No. 14 MC 41 (DE [636]).

In part, plaintiffs’ inability to comply with their discovery obligations stems from the fact that they are often faced with a moving target in terms of what has been demanded and what is eventually required by defendants. For example, in at least one case, plaintiff had provided a contractor’s invoice demonstrating that repairs to storm damaged property had been made.  The handwritten invoice, endorsed by the contractor and signed “paid” was deemed insufficient by defendant’s counsel, who stated that, in the absence of cancelled checks, the insurer would require the production of plaintiffs’ bank statements in order to demonstrate cash withdrawals.  In a subsequent letter to the Court further explaining its position, counsel for defendant Allstate stated: “[h]andwritten notations indicating that a bill or invoice has been “paid in full,” however, are not sufficient proof of payment as required by the NFIP but are merely evidence that a cost has been incurred.” Fitzpatrick v. Allstate, 13 CV 6768 (DE [78]). At the conference, the representative from FEMA indicated that this type of proof was in fact acceptable to FEMA because it could, if necessary, be verified directly.[3]
Defendants report that these problems of insufficient documentation have been exacerbated in some instances by plaintiffs’ counsel’s refusal to permit their clients to speak or answer questions at mediation.  This refusal undermines one of the fundamental functions of the mediation process and is contrary to this Committee’s determination to forego lengthy depositions of plaintiffs in every case, so long as they were present at the mediation to fill in evidentiary gaps in the documentation and answer questions about repairs. To the extent that plaintiffs’ counsel expressed concern that their clients might be subjected to a “depositions” during the mediations or asked irrelevant harassing questions, the Committee reminded counsel that mediators would help prevent any improper conduct and counsel will be present and capable of objecting to any improper inquiries.
During the conference, Professor Charles Platto, an expert on insurance law and one of the Court’s Hurricane Sandy mediators, conveyed his thoughts on some of the problems he has encountered in attempting to resolve the NFIP flood cases.  In essence, he indicated that the attorneys often came to the mediation session with no demand, no offer, and having failed to conduct an analysis of their client’s evidence.  He urged the parties to confer well in advance of the mediations, to be prepared to explain their positions, specifically, where their estimates of damage differed and to have provided the documents supporting the plaintiffs’ claims.  Patricia Lambert, Esq., counsel for Harleysville Worcester Insurance Company and Nationwide Fire Insurance Company, indicated that she viewed the mediations as a “process,” not a one-time event, and she described a willingness on the part of her client to continue discussions even after the first mediation session had ended.  Like Professor Platto, she urged plaintiffs’ counsel to be prepared prior to the mediation to not only identify where the adjusters’ estimates differed but to explain why plaintiffs believed that a certain item was covered or cost more than the defendants’ adjuster had allotted.
Finally, apart from the issue of counsels’ conduct during the mediations, in many cases, counsel for both parties have chosen to conduct mediations in Louisiana for the convenience of the lawyers, even though plaintiffs generally do not travel to attend these sessions.  While Louisiana may be convenient for the lawyers, many of the plaintiffs live in New York; the properties at issue are located in New York, as is the evidence and potential witnesses, such as experts and adjusters, who are generally from New York.  The need for plaintiffs, and sometimes adjusters and experts, to be present at the mediations has proven to be a critical factor in some mediations.  As noted, the absence of the plaintiffs at the mediations defeats one of the purposes of the mediation - namely, to facilitate the informal exchange of information to help resolve disputes about repairs and costs of repairs.  In at least one instance, counsel cited the absence of the plaintiffs at the mediation, who could only be available by phone, as the central reason behind the failure of the process.  Since defendants have not been permitted to depose plaintiffs, it is no longer acceptable to conduct mediations if the plaintiff is not present and available to answer questions.
Furthermore, the scheduling of mediations - particularly those in Louisiana - has unnecessarily delayed resolution of these actions.  Frequently, the Court has set short deadlines for mediation only to be informed by counsel that the mediations had been scheduled months into the future.  In one case, Denora v. Allstate Ins. Co., 14-cv-6925, even though the Order sending the case to mediation had issued on September 2, 2014, defendants indicated that the reason the mediation could not be scheduled until March 2015 was an inability to coordinate the schedules of the chosen mediator and the one and only corporate representative assigned to attend the mediations in all 200 plus cases involving this defendant.  In another set of cases, counsel reported that they were unable to retain a mediator from the Eastern District of New York panel, even though there are 85 trained mediators ready and willing to undertake mediations in these cases.  The Committee member in charge of monitoring that case was obliged to assign a mediator.
The conduct that has led to these delays will no longer be tolerated. While there are some insurance carriers on both the wind and flood sides that have been able to successfully settle a good percentage of their cases, others have had less success.  Accordingly, after hearing the complaints and suggestions of the parties and considering the helpful comments of Professor Platto, the Court ORDERS as follows:
1) The parties are to comply with CMO No. 12, which sets forth a new procedure for the selection of mediators and should obviate any complaints that Eastern District of New York mediators are not available to conduct mediations within the time frame ordered by the Committee. If the parties are unable to select a mediator themselves, the Committee will select one for them.
2) There will be no further mediations conducted in Louisiana.  The presence of the plaintiffs, and in some instances, the adjusters and/or other experts, is critical to the success of the mediation process.  To the extent mediations are currently scheduled to proceed in Louisiana in the next 30 days, they will be allowed to proceed, with the caveat that plaintiffs are to be available in person or by telephone during the entire mediation session.[4]
3) Plaintiffs shall participate actively in mediations.  In absence of an issue involving privilege, instructions to plaintiffs not to answer questions are deemed inappropriate.  The mediation process is confidential; anything said during the mediation may not be used against the plaintiffs later in the litigation and if counsel believes that the questioning is improper or harassing, they can appeal to the mediator to intercede.
4) Where the issue involves a difference of agreement between adjusters’ estimates or engineering experts’ conclusions, the parties are strongly encouraged to have their adjusters and/or engineers present for the mediation.
5) No party shall unilaterally terminate a mediation session; mediation shall continue until the mediator determines that the session has concluded. It will be up to the mediator to decide if the session should be adjourned and reconvened at a later date.
6) At least 30 days prior to the scheduled mediation, plaintiffs shall convey, in writing, a demand to defendants= counsel, along with a detailed description of plaintiffs’ position regarding areas of disagreement, including any critiques of defendants’ expert’s or adjuster’s conclusions, supported by all documentation.  With limited exception to be left to the mediators, documents not provided 30 days before the mediation may not be used at mediation and may, after application to the Committee, be excluded from use at trial.
7) Within two weeks thereafter, defendants are to notify plaintiffs= counsel of any items or any perceived gaps in documentation, as well as defendant’s statement as to areas of disagreement.
8) The mediators will hold a pre-mediation conference two weeks in advance of the mediation and review with the parties the checklist of items necessary to conduct a successful mediation, provided in the memorandum, dated November 20, 2014, which was sent to the mediators.  It will be left to the discretion of the assigned mediator to adjourn the conference if necessary to obtain more information.  However, the parties are warned that where parties indicate a readiness for mediation to the Court, and then later contend that they could not settle because they were missing certain items, sanctions will be imposed.
9) If the parties reach an impasse on a factual issue such as the cause of foundation damage, that requires resolution of expert testimony in a framed issue hearing, the parties should jointly notify the Committee member handling the case, preferably prior to the scheduled mediation, so that the hearing can be held expeditiously and hopefully allow the mediation to proceed more smoothly.
The Court and the Committee expect the parties to proceed to these mediations in good faith and having fully prepared to present their arguments and evidence at the mediation.
It is the responsibility of both sides to fully prepare for mediation before the scheduled mediation session.  That includes notifying your adversary counsel, the Committee member monitoring your case, or the mediator if you are missing something.[5]
All counsel are admonished that further dilatory tactics or a lack of good faith in the diligent prosecution and resolution of these cases will be subject to sanctions.  Counsel is instructed that these matters should be treated with a sense of urgency.  Members of the Committee will employ the full panoply of available sanctions, including monetary sanctions, cost and fee shifting, recommendations of dismissal and/or to strike answers and the revocation of pro hac vice status should additional instances of bad faith or dilatory tactics be discovered.
SO ORDERED.
Dated: Brooklyn, New York
December 2, 2014

/S/ CHERYL L. POLLAK
Cheryl L. Pollak
United States Magistrate Judge


[1] Alarmingly, one attorney prominently involved in coordinating the defense of the WYO carriers has predicted that the defense of these cases could cost more than $100 million, a figure that likely exceeds the cost of settling all of the cases at full value.

[2] Although Plaintiffs’ Liaison Counsel disputed the claim that the homeowners were unavailable for consultation at the mediations, following the November 25th conference, the Committee received two notices of failed mediations in which it was represented that plaintiffs were not present at the mediations. See Balinsky v. Allstate Ins. Co, 13 CV 6996 (DE [96]); Salle v. Allstate Ins. Co., 13 CV 6020 (DE [91]). 
[3] On November 21, 2014, Defendants’ Liaison Counsel submitted a letter to the Committee attaching a memorandum issued by James A. Sadler, Director of Claims at FEMA which discussed the settlement of WYO Flood Insurance claims.  The memorandum explained that “If repairs have been completed, it is the policyholder’s responsibility to prove that the amounts paid on the claim plus the value of the deductible(s) and any applicable physical depreciation were spent to repair or replace covered flood damage.  This can only be done by presenting receipts, paid bills, paid invoices, and cancelled checks.  The amount of loss cannot be determined on an estimate that is not fully supported by the proof discussed above.” At the conference, however, counsel for FEMA explained that FEMA might be more flexible in the proof that is required and that it is willing to work with the parties to resolve these cases where such proof is lacking. 
[4] By letter dated November 29, 2014, plaintiffs’ counsel, Mr. Williams from the firm of Gauthier, Houghtaling & Williams, argues that mediations should be allowed to proceed in Louisiana, because the attorneys will lose valuable time travelling to and from New York, and the added monetary expense incurred will have an adverse impact on the plaintiffs who will be forced to bear these litigation expenses.  Given the lack of overwhelming success in the Louisiana mediations to date, in part due to the absence of the homeowners and lack of documentation, the Court denies plaintiffs’ request.  However, if plaintiffs can demonstrate, through the mediations scheduled to proceed in Louisiana in the next 30 days, that the procedure is successful, the parties may seek reconsideration of this Order at that time. 
[5] The questions raised regarding the procedure to be followed in Raimey v. Wright National Flood, 14-cv-461 will be addressed in a separate Order. 
 


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Superstorm Sandy Litigation – VERY FEW POLICYHOLDERS UNDERSTAND OR KNOW WHAT THEIR INSURANCE POLICY COVERS

The insurers are going to courts and file these declaratory actions asking the judge to narrowly construe the insurance policy.  If they are successful in doing that, then the insurers ask the home or business owners to buy additional coverage for the excluded perils.

If the insurers do not succeed to convince the judge to narrowly construe the insurance policy, then they re-write the insurance policy or add provisions within the insurance policy so that the insured does not receive any recovery for his loss.  One prime example of this strategy is the addition of the ACC clause in insurance policies.
By now the homeowners living along the coast of New Jersey, New York, Connecticut that were impacted by Hurricane Sandy know that their damage claims have been denied for a number of reasons:
Denied because of the anti-concurrent causation clause;
Denied because it was flood damage and the homeowner did not have flood insurance;
Denied because the failed to file a proof of loss
Denied because failed to promptly notify the insurance company of the loss;

A windstorm/hurricane such as Superstorm Sandy by its very nature results in a wide range
of damage caused by different covered and potentially excluded perils at different times during the storm. These perils include wind, flood, storm surge, fire, power outage, sewage back-up, etc.  The difficulty for the Court, as experienced by prior courts2
, is deciding whether an insurance policy that
covers wind damage but excludes flood damage, or vice versa, will provide insurance coverage
when the property is damaged by a covered peril and damage also occurs from an excluded peril.
In the analysis of the circumstance presented above, a clause that is now standard in many
insurance policies known as the anti-concurrent causation (ACC) clause will emerge as one of the
most hotly debated clauses between the insured and the insurance carrier in Superstorm Sandy
cases. It is important to consider that the ACC clause is a fairly new provision that was not tested in
the context of a hurricane loss until Katrina, resulting in an Erie-guess by the Fifth Circuit that was
later criticized by the Mississippi Supreme Court. 3 The burden of proof required under a flood
policy versus a wind policy will be equally important. A wind policy is often written as an "all risk"
insurance policy, and a flood policy is written as a named peril policy.

COMMONLY OCCURRING LEGAL ISSUES IN WIND CLAIMS
A. Fortuity
The burden of proving causation differs in first-party property insurance cases depending on
whether the policy is a specified peril policy or an "all risk" policy. Under a specified peril policy,
the insured has the burden of proving that the loss was caused by a specifically enumerated peril. 4
Alternatively, under an "all risk" policy, by contrast, "the insurer has the burden of proving that the cause of the loss is an excepted cause."5




California Civil Jury Instructions (CACI)

2306. Covered and Excluded Risks—Predominant Cause of Loss

You have heard evidence that the claimed loss was caused by a combination of covered and excluded risks under the insurance policy. When a loss is caused by a combination of covered and excluded risks under the policy, the loss is covered only if the most important or predominant cause is a covered risk.
[[Name of defendant] claims that [name of plaintiff]’s loss is not covered because the loss was caused by a risk excluded under the policy. To succeed, [name of defendant] must prove that the most important or predominant cause of the loss was [describe excluded peril or event], which is a risk excluded under the policy.]
[or]
[[Name of plaintiff] claims that the loss was caused by a risk covered under the policy. To succeed, [name of plaintiff] must prove that the most important or predominant cause of the loss was [describe covered peril or event], which is a risk covered under the policy.]
New September 2003

Directions for Use

The instructions in this series assume the plaintiff is the insured and the defendant is the insurer. The party designations may be changed if appropriate to the facts of the case.
This instruction in intended for use in first party property insurance cases where there is evidence that a loss was caused by both covered and excluded perils. In most cases the court will determine as a question of law what perils are covered and excluded under the policy.
Depending on the type of insurance at issue, the court must select the bracketed paragraph that presents the correct burden of proof. For all-risk homeowner’s policies, for example, once the insured establishes basic coverage, the insurer bears the burden of proving the loss was caused by an excluded peril. In contrast, for “named perils” policies (for example, fire insurance) the insured bears the burden of proving the loss was caused by the specified peril. (See Strubble v. United Services Automobile Assn. (1973) 35 Cal.App.3d 498, 504 [110 Cal.Rptr. 828].)

Sources and Authority

  • Insurance Code section 530 provides: “An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.”
  • Insurance Code section 532 provides: “If a peril is specially excepted in a contract of insurance and there is a loss which would not have occurred but for such peril, such loss is thereby excepted even though the immediate cause of the loss was a peril which was not excepted.”
  • “[In] determining whether a loss is within an exception in a policy, where there is a concurrence of different causes, the efficient cause—the one that sets others in motion—is the cause to which the loss is to be attributed, though the other causes may follow it, and operate more immediately in producing the disaster.” (Sabella v. Wisler (1963) 59 Cal.2d 21, 31—32 [27 Cal.Rptr. 689, 377 P.2d 889], internal quotation marks and citation omitted.)
  • Sabella defined ‘efficient proximate cause’ alternatively as the ‘one that sets others in motion,’ and as ‘the predominating or moving efficient cause.’ We use the term ‘efficient proximate cause’ (meaning predominating cause) when referring to the Sabella analysis because we believe the phrase ‘moving cause’ can be misconstrued to deny coverage erroneously, particularly when it is understood literally to mean the ‘triggering’ cause.” (Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 403 [257 Cal.Rptr. 292, 770 P.2d 704], internal citations omitted.)
  • “[T]he ‘cause’ of loss in the context of a property insurance contract is totally different from that in a liability policy. This distinction is critical to the resolution of losses involving multiple causes. Frequently property losses occur which involve more than one peril that might be considered legally significant… ‘The task becomes one of identifying the most important cause of the loss and attributing the loss to that cause.’ [¶] On the other hand, the right to coverage in the third party liability insurance context draws on traditional tort concepts of fault, proximate cause and duty.” (Garvey, supra, 48 Cal.3d at pp. 406—407, internal quotation marks, italics, and citations omitted.)
  • “[I]n an action upon an all-risks policy such as the one before us (unlike a specific peril policy), the insured does not have to prove that the peril proximately causing his loss was covered by the policy. This is because the policy covers all risks save for those risks specifically excluded by the policy. The insurer, though, since it is denying liability upon the policy, must prove the policy’s noncoverage of the insured’s loss.” (Strubble, supra, 35 Cal.App.3d at p. 504.)
  • “[T]he scope of coverage under an all-risk homeowner’s policy includes all risks except those specifically excluded by the policy. When a loss is caused by a combination of a covered and specifically excluded risks, the loss is covered if the covered risk was the efficient proximate cause of the loss… [T]he question of what caused the loss is generally a question of fact, and the loss is not covered if the covered risk was only a remote cause of the loss, or the excluded risk was the efficient proximate, or predominate, cause.” (State Farm Fire & Casualty Co. v. Von Der Lieth (1991) 54 Cal.3d 1123, 1131—1132 [2 Cal.Rptr.2d 183, 820 P.2d 285], internal citation omitted.)
  • “[A]n insurer is not absolutely prohibited from drafting and enforcing policy provisions that provide or leave intact coverage for some, but not all, manifestations of a particular peril. This is, in fact, an everyday practice that normally raises no questions regarding section 530 or the efficient proximate cause doctrine.” (Julian v. Hartford Underwriters Ins. Co. (2005) 35 Cal.4th 747, 759 [27 Cal.Rptr.3d 648, 110 P.3d 903].)

Secondary Sources

Croskey et al., California Practice Guide: Insurance Litigation (The Rutter Group) ¶¶ 6:134—6:143, 6:253
1 California Liability Insurance Practice: Claims & Litigation (Cont.Ed.Bar) Analyzing Coverage: Reading and Interpreting Insurance Policies, § 3.42
3 California Insurance Law & Practice, Ch. 9, Homeowners and Related Policies, § 36.42 (Matthew Bender)
26 California Forms of Pleading and Practice, Ch. 308, Insurance, § 308.113 (Matthew Bender)
12 California Points and Authorities, Ch. 120, Insurance, § 120.50 (Matthew Bender)



As we informed the public several months ago, Federal Emergency Management Agency (FEMA) granted another six-month extension for National Flood Insurance Program (NFIP) policyholders affected by Hurricane Sandy to file proof-of-loss claims. The new deadline is Oct. 29, 2014.  NFIP usually requires policyholders to submit a fully documented, signed and sworn proof-of-loss claim within 60 days from the date of their loss.  The magnitude of the Sandy disaster is the reason for this extension that will give policyholders additional time to file claims. This is the third six-month extension.
Submitting general information under oath or talking to the insurer over the phone or sending letters, etc. is not a substitute for a proof of loss under the NFIP.  Since the overwhelming majority of case law suggests that the courts will dismiss the damage claims unless proof of losses are submitted, we strongly urge New Jersey, New York, Connecticut and other insureds to submit their proofs of loss timely and not risk jeopardizing claim recovery rights.
What is the “proof of loss” and why is it important?
A proof of loss is the formal written claim you use to support the amount of money you are claiming under your policy. Your proof of loss forms must be signed, sworn, and submitted with supporting documentation.
Submission of your proof of loss is required by federal regulations under the National Flood Insurance Program. You will not be able to recover all of your claim or sue your insurer if you do not submit your proof of loss on time!
Depending on the coverage you are claiming, you might need to submit more than one proof of loss form before the deadline. We advise Sandy survivors to (1) submit each of the three forms listed below that applies to your case on time, (2) complete them fully and sign them, (3) state specific dollar amounts, (4) state what you believe to be the full value of your claim, (5) attach all supporting documentation, and (6) meet all requirements in Section VII (J) of the flood policy. A copy of each of the three forms is attached, and they are also available at the FEMA website .
·         The standard “Proof of Loss” details the full value of your claim. Even if your insurance adjuster already had you sign and submit a proof of loss, that proof of loss may be considered “courtesy only” and it probably undervalued your loss (especially if you submitted it early in the claim process before you knew how much money you needed for repairs). You need to submit another proof of loss which details what you believe is the full value of losses for your claim. See FEMA Form #86-0-9
·         The “Increased Cost of Compliance Proof of Loss” supports your claim to recover up to $30,000 for eligible “elevation, flood-proofing, relocation, or demolition” See FEMA Form #86-0-10
·         The “Statement as to Full Cost of Repair or Replacement” states your full actual or estimated costs to rebuild, repair, or replace the property. Generally you can recover the full repair or replacement cost for damages to the building itself if the building was a single-family home, it was your principal residence, and it was either insured for 80% or more of its full replacement value, or you purchased the maximum amount of insurance. See FEMA Form #86-0-12

SS Sandy Placeholder Row
The above cautionary note brings us to the latest Superstorm Sandy row regarding the so-called placeholder claims.
On 12 August 2014 a New York federal court in the Eastern District of New York managing the consolidated Superstorm Sandy insurance litigation deferred ruling on a crucial insurance issue on the validity of so-called placeholder proofs of loss provided by policyholders who couldn't meet deadlines pending the outcome of mediation by FEMA.
The issue arose after policyholder law firm Gauthier Houghtaling & Williams LLP and claims administrator Canopy Claims developed a formula that allowed policyholders to provide proofs of loss from SS Sandy to FEMA for the time being while later submitting supplemental proofs of loss with more specific information.  FEMA took issue with the placeholders, saying that it had not waived the requirement that plaintiffs provide information about their actual losses from SS Sandy.  Our opinion is that these placeholders will lose their claims unless they submit these proofs of losses.  The case law is pretty adamant about it.  There have been several 6-month extensions and there is no excuse in failing to follow the procedures.  What are these law and claim management firms think?  They could be sued for damages if the placeholder claims are dismissed by the court.  Will shall see.
The Eastern District of New York decided not to take a side on the placeholder proofs of loss dispute following FEMA's decision to allow private insurers that administer flood policies to participate in mediation on these cases and to ask for permission from the Federal Insurance and Mitigation Administration to waive provisions of the standard flood insurance policy, on a case-by-case basis.


FEMA’s position is that insureds must strictly adhere to the SFIP's proof of loss requirements before bringing suit against FEMA
However, FEMA has made its position very clear for the last fifty years of the NFIP and re-iterated this position to the judges in New York as follows:
FEMA's commitment to support mediation and efficient resolution of claims does not conflict with its position that insureds must strictly adhere to the SFIP's proof of loss requirements before bringing suit against FEMA in United States district court
If a case is dismissed, FEMA said it would encourage insurers to continue discussions out of court and allow policyholders to demonstrate covered damage.  Good luck with that.  When comes to money, unless you follow all procedures to the so-called “substantial compliance” standard”, then you will recover zero dollars for your loss.  Unfortunately, most insureds have no idea what substantial compliance means.  If an insurer denies their property damage claim, they will start huffing and puffing and filing complaining letters, blaming everything and everybody for their loss and their failure to follow the required procedures.  As investigating engineers we take quite a bit of this “abuse” because the insurers use our professional investigations (and other factors of course) to deny or accept a claim.  There have been quite a few “bad faith” claims filed already against insurers.  However, in June, the three federal judges in the Eastern District of New York directed courts to dismiss bad faith claims against insurers, as well as requests for punitive damages and attorneys' fees, after plaintiffs in more than 150 cases didn't file necessary paperwork.
Please do not blame the forensic engineer or the insurer.  Just find a knowledgeable claim management and law firm and hire a competent professional engineer to collect the evidence and prepare an unbiased report FOR YOU.  Please remember that the insurer’s engineers’ report represents the results of their investigation.  YOU HAVE THE RIGHT TO HIRE YOUR OWN ENGINEER AND PERFORM YOUR OWN INVESTIGATION.  YOU DO NOT HAVE TO RELY ON THE INSURER’S REPORT.  This is the way to do it and not to file lawsuits against people for your failure to read the insurance policy or follow the prescribed procedures.  The of proof in on the insured and not the other way around.


Metropolitan Engineering, Consulting & Forensics (MECF)

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More than a year after Hurricane Sandy's waters receded, an "onslaught" of litigation is now slamming into the federal court with jurisdiction over the storm's most heavily affected areas.

As of early February, more than 800 Sandy-related cases—most disputing insurance claim denials or alleged underpayments—have been filed in the Eastern District, which includes the outer boroughs of New York City and Long Island, areas that endured the brunt of the nation's second-costliest weather disaster after Hurricane Katrina.

Policyholders and insurers have tried to resolve claims one-on-one. But the influx of cases shows that a large number of those negotiations have proven fruitless.

The cases started pouring in around October and November. Rather than let what Eastern District Chief Judge Carol Bagley Amon described as an "onslaught" overwhelm the court, she tapped three magistrate judges to examine whether the cases could be grouped or organized for more efficient resolution.

The trio—Magistrate Judges Cheryl Pollak, Gary Brown and Ramon Reyes Jr. —has submitted a case management plan to address matters such as discovery schedules and settlement discussions. The Eastern District's Board of Judges, comprised of all the jurisdiction's judges, is now reviewing the proposal and will approve the final order.

In preparation, Amon opened a case last month called In re Hurricane Sandy Cases "for the purposes of Pretrial Case Administration in all actions seeking insurance coverage for damage caused by Hurricane Sandy."

"There are a lot of cases, but we're being sensible about it," she said in an interview about the court's approach. "We couldn't let this just happen to us. We had to take charge. As judges, that's what we're required to do."

She added that individual judges could opt out of the case management plan.

Some attorneys have said the cases are too fact-specific for a uniform judicial approach, but Amon said there could be a meaningful method of grouping cases, even in a limited way.

Benjamin Rajotte, director of the disaster relief clinic at Touro College Jacob D. Fuchsberg Law Center, said most of the Sandy litigation will go to federal court because the National Flood Insurance Act dictates that suits challenging flood coverage trigger federal jurisdiction.

Other disputes are being resolved through the New York State Department of Financial Services' Storm Sandy Mediation Program, an arrangement where the insurer picks up the $400 tab for a mediator. As of Feb. 10, the state program had received 2,708 requests for mediation. Of that figure, 1,460 have been settled, said a Department of Financial Services spokesperson.

Rajotte said "the main problems are, the insurers are undervaluing what everyone—the homeowner, the public adjuster—has agreed has been damaged. And number two, they're not considering the proper scope of repairs—what it would take to fix it."

The Touro clinic has already filed four Eastern District lawsuits and intends to file another 15 in the coming weeks. In all of them, homeowners got 50 percent less from their insurers than they needed to repair storm damage.

For example, the clinic represents Joe and Marilyn McDonald, a retired couple whose Amityville home was flooded by five feet of water inside. In the McDonalds' Jan. 23 suit, they allege Allstate Insurance Company breached its obligations to pay the full amount they are due under their policy.

So far, Allstate has offered them $38,400. But the McDonalds said the damages to their home totaled $234,000, and they have been unable to make all their repairs.

The couple's repeated calls to Allstate have been unsuccessful.

"They just totally dismissed me," said Marilyn McDonald, who is 65. "I felt like I was being scammed."

Rajotte said FEMA, which manages the National Flood Insurance Program, extended the deadline to file proof of loss to 18 months after the October 2012 storm, to April 29, 2014. But it did not extend the deadline for policyholders to submit a federal lawsuit against their insurers: that's still one year from the insurer's first written denial of a claim.

Each Sandy victim has his or her own, individual deadline to file a lawsuit, Rajotte explained, which in many cases could come well before April 29.

Javier Delgado of the Merlin Law Group said there could be more suits to come. With main offices in Tampa but also locations including New York and New Jersey, the firm is representing commercial and residential plaintiffs in "several hundred" Sandy cases that are mostly in federal court.

Though some insurance policies on wind storm damage have a one-year window on when its determination can be challenged, Delgado said the "norm" is a two-year statute of limitations.

Despite the possibility of more lawsuits, Delgado, a former adjuster and insurance defense attorney, said there is a "huge percentage of attrition" between policyholders who are denied and those who press on in court.

That drop-off, he said, was attributable to a possible plaintiff's flagging will and also the fact that "some people don't even have the time."

One of Delgado's client's, Dr. Harold Parnes, a certified diagnostic radiologist and neuroradiologist in Brooklyn, had three policies on his business through CNA and put in a claim after getting 40 inches of sewage in the office building's basement.

Parnes said he put in a claim for "millions of dollars" but has only received a "small percentage." He said Delgado is now preparing a lawsuit.

Noting he built the practice himself, Parnes, 53, said he got insurance for "peace of mind in case something happens, then something happens" and he has not been fully covered.

"That's really not appropriate," he said.
Uneven Effects
As the Eastern District grapples with the case spike, other courts are not as affected.

Southern District Executive Edward Friedland said there were four pending Sandy-related suits over disputed flood insurance claims and another one that closed in December.

Though there could have been other Sandy-related suits that concluded even earlier, Friedland said any previously-uncounted cases would not make for a case load "anywhere near the numbers" in the Eastern District.

The Southern District covers Manhattan, the Bronx and the Hudson Valley; though Lower Manhattan was slammed during Sandy, the storm's full wrath was due east.

In the state courts of New York City and Long Island, there has not been "a significant number of Sandy-related cases," said First Deputy Chief Administrative Judge Lawrence Marks.

"The storm and its aftermath has undoubtedly been a contributing factor in some of the cases routinely brought in the courts such as foreclosure, landlord-tenant, consumer debt and child support cases, but we have not yet seen a large number of Sandy cases," he said.

In the months after the storm, the state court system set up dedicated Sandy parts in hard-hit counties including Richmond, Brooklyn and Queens. But the parts have gotten just a handful of cases each, if any, and administrative judges aren't sure why.

"We really have been underwhelmed," said Lawrence Knipel, administrative judge for Kings County Supreme Court, Civil Term. "We have one case for all of Brooklyn and it involves property damage to a private home in Bergen Beach."

In Richmond County, Administrative Judge Judith McMahon has seen just three Sandy-related cases. In all three, plaintiffs are suing their home or flood insurers over underpayments. One has since been removed to federal court.

McMahon said she hopes the lack of cases means people are getting their issues resolved outside of court. "People have called and asked, 'Do you really have a Sandy part?' And the answer is yes, we are open, and we're willing to have as much business as possible," she said.

'One Way or Another'
Back in Brooklyn, about 250 attorneys trekked and trudged through cold, snowy weather on Feb. 5 to the Eastern District's ceremonial courtroom from as far away as Louisiana to discuss how to handle the cases.

Prior to the proceedings, the magistrate judges sought input from the attorneys on potential grouping or streamlining. Yet by and large, attorneys for both the plaintiffs and defense urged against grouping, saying the cases were too individual.

Jerry Nielsen of Nielsen Carter & Treas in Metairie, La., a defense side firm representing carriers issuing flood insurance through the National Flood Insurance Program, said after Hurricane Katrina, some possible groupings of cases were attempted without success.

The ensuing case-by-case approach was a "massive amount of work, but it got done."

Tracey Rannals Bryan of Gauthier Houghtaling & Williams, a Metairie La., firm representing about 2,000 plaintiffs in state and federal actions in New York and New Jersey, also said cases were too specific to be handled together.

Still, she said attorneys would settle 95 percent of the disputes without the need for judicial resolution.

As the proceedings went on, attorneys aired other thoughts like urging "a meaningful, expedient mediation process" and sparring over whether plaintiffs should be expected to itemize losses.

During the proceedings, Judge Jack Weinstein—who has dealt with a number of mass litigation cases during his time on the bench—listened in.

As the proceedings concluded, he said the jurisdiction's board of judges "decided at least tentatively not to go with one judge" taking on all the cases.

He urged speedy resolution of the cases, saying "we owe it to the community to get the cases disposed of, one way or another."