A panel of magistrate judges on Monday, December 8, 2014 denied attempts by hundreds of insurers and the Federal Emergency Management Agency (FEMA) to pare back an order requiring defendants in all cases in multi-district litigation over Hurricane Sandy to turn over claims-related documents, ruling the order essentially restated existing obligations.
FEMA and the insurers had argued that the order was unwarranted because it was based on the actions of only one engineering firm and unfairly applied to the cases in the MDL.
HERE IS A COPY OF THAT ORDER. IT IS A MUST READ. REALLY SHOCKING STUFF.
_______________________________________________________________
Case
1:14-mc-00041-CLP-GRB-RER Document 852 Filed 12/08/14 Page 1 of 11 PageID #:
9992 2
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF
NEW YORK
-------------------------------------------------------------X
MEMORANDUM
& ORDER RE: RAIMEY RECONSIDERATION
IN RE HURRICANE SANDY CASES AND CLARIFICATION MOTIONS
14
MC 41
-------------------------------------------------------------X
On
November 7, 2014, Magistrate Judge Brown issued a Memorandum and Order in Raimey
v. Wright National Flood Insurance Co., No. 14-CV-461, one of the more than
1,000 Hurricane Sandy cases presently being managed by the undersigned
Committee of Magistrate Judges. No. 14-MC-41, Docket Entry (“DE”) [637]; In
re Hurricane Sandy Cases, No. 14-MC-41, -- F.R.D.--, 2014 WL 5801540
(E.D.N.Y. Nov. 7, 2014) (“November 7 Order”). Familiarity with the facts set forth
in the November 7 Order is assumed. In the November 7 Order, Judge Brown
reaffirmed that defendants in all Hurricane Sandy cases must produce the
reports and materials under CMOs 1 and 3. For avoidance of doubt as to the
scope of those orders, Paragraph 3 of the November 7 Order directed the
defendants to provide the following:
any
drafts, redlines, markups, reports, notes, measurements, photographs and
written communications related thereto—
prepared, collected or taken by any engineer, adjustor or other agent or
contractor affiliated with any defendant, relating to the properties and damage
at issue in each and every case, whether such documents are in the
possession of defendant or any third party.
November
7 Order at 26-7. Defendants were given to December 12, 2014—35 days—to provide
those materials.
On
November 20, 2014, the Committee issued CMO 12, reiterating the portion of the
November 7 Order that affects cases other than Raimey. The Committee
further noted “the Raimey Order finds that these materials ‘clearly fall
within the ambit of CMO 1 and 3.’ The Committee agrees with this construction
of its existing discovery Orders.” CMO 12, DE [672] at n.1. Following the
November 7 Order and CMO 12, FEMA and other defendants filed more than 100
motions for reconsideration and clarification of those directives and, in many
instances, filed parallel objections to Judge Brown’s determination, which are
incorporated by reference into the motions for reconsideration.[1]
This Memorandum and Order rules on all of the arguments
raised in the scores of submissions filed by defendants that relate to
Paragraph 3 of the November 7 Order; the arguments addressed specifically to Raimey,
see No. 14-CV-461, DE [95], [96], [97], will be dealt with in a separate
order. As discussed herein, the motions for reconsideration are largely denied,
although certain matters are clarified herein. Additionally, based upon
evidence submitted by plaintiffs in Raimey purportedly demonstrating
additional evidence of improper practices in connection with engineering
reports, we grant plaintiffs’ application for an evidentiary hearing on these
issues.
I. Raimey Issues Affecting All Cases
Despite the barrage of filings by defendants in these cases,
the motions for reconsideration, clarification, and objections raise four
primary arguments: (a) defendants other than the defendant in Raimey did
not have an opportunity to be heard; (b) the court unfairly extrapolated from
evidence by a single engineer to impose new obligations upon all defendants;
(c) the order imposed on
defendants should also be applied to plaintiffs; and (d) the burden on
defendants is too great. See, e.g., FEMA Brief, DE [679]-1.
As an initial matter, several of these arguments rest on
mistaken assumptions or a misreading of this Committee’s prior orders. One such
mistake is the notion that, in directing the production of draft reports, “the
November 7 Order greatly increases the automatic disclosure obligations of FEMA
and other defendants.” FEMA Brief, DE [679]-1 at 4. However, this assertion,
uniformly adopted by WYO defendants in virtually all of these filings, is
flatly untrue.[2]
CMO 1, issued in February 2014, provides the following:
Documents routinely prepared in the ordinary course of
business, including but not limited to adjusters' reports and other expert
analyses, including draft reports, are not privileged and should be
produced.
CMO 1, DE [243] at 10 (emphasis added). As Judge Brown noted
in the November 7 Order:
since February 2014, defendant has been under unequivocal and
repeated Court direction to produce all expert reports, photographs and
‘written communications that contain any description or analysis of the scope
of loss or any defenses under the policy.’ Yet, Hernemar’s December 9 report,
the redline document that transformed that report into the January 7 report, as
well as a bevy of email communications surrounding the creation, transmission
and modification of these documents – all of which clearly fall within the
ambit of CMO 1 and 3 – have never been produced.
November 7 Order at 16; id. at 18 (discussing
“production of draft reports – and, to be clear, CMO 3 unequivocally so
directs”). It is notable that in the course of preparing and filing hundreds of
applications—all at taxpayer expense—attorneys for the WYO defendants seemingly
failed to read the first Case Management Order in this case, which explicitly
required the production of, among other things, draft reports. See CMO 1
at 10. This straightforward provision undermines several of the arguments raised
and, largely renders
the motions meritless. With that as background, we turn to the arguments
individually.
A. Opportunity to Be
Heard
Defendants claim that the November 7 Order “overlooks all
other defendants’ due process rights,” as the Order “greatly increases the
[discovery] obligations . . . without giving all defendants, not just the
defendant in the Raimey case, the opportunity to be heard on this issue.”
FEMA Brief at 4-5; see also DE [681] (contending that non-WYO carriers
“were not afforded an opportunity to be heard”). This argument fails for
several reasons.
First, as noted above, the discovery obligations reiterated
in the November 7 Order and CMO 12 existed prior to and independent of the
evidentiary hearing in Raimey. Thus, all parties had input into, and an
opportunity to be heard with respect to the issue of draft reports in
connection with the issuance of CMO 1 in February. Further, the period to
object to this provision—and no party lodged any such objection—expired long
ago.
Among the issues explored in Raimey is the failure of
defendant Wright to gather and produce the requisite materials. Moreover, given
the shadowy, undocumented nature of the “peer review” process revealed in the
evidentiary hearing, it became clear that defendants required direction to
ensure that such oversights—which in the Raimey case seemingly caused
significant injustice—had not occurred in other cases as well. Thus, the
restatement of these requirements in the November 7 Order and CMO 12 was fully
appropriate, and not in derogation of the rights of any party.
Second, even assuming, arguendo, that the discovery
obligations discussed in the November 7 Order and CMO 12 did not pre-date the Raimey
dispute, the notion that FEMA and the other WYO carriers were not
“represented” is simply fallacious. As the WYO carriers frequently remind this
Court, Wright, like the other WYO carriers, “appears herein in its ‘fiduciary’
capacity as the ‘fiscal agent of the United States.’” Wright Brief, DE [718] at
2 (citing 44 C.F.R. §62.23(f); 42 U.S.C. §4071(a)(1); Palmieri v.
Allstate Ins. Co., 445 F.3d 179 (2d Cir. 2006); Gowland v. Aetna Cas.
& Surety Co., 143 F.3d 951, 953 (5th Cir. 1998)). In that role, counsel
is required to coordinate a joint defense with FEMA on behalf of that agency. See
Federal Emergency Management Agency, National Flood Insurance Program
Guide for Write Your Own Counsel, No. 14-CV-461, DE [100]-7 at 10 (“WYO
Company counsel has an affirmative obligation to keep FIA and FEMA OGC informed
about material aspects of a NFIP-related lawsuit”). And, according to Wright’s
counsel, this went beyond the theoretical in this instance. Specifically,
attorneys for Wright represent to this Court that the defenses raised in Raimey
were made only after consultation with counsel for FEMA, the agency charged
with administrative responsibility for the NFIP, and with the explicit
concurrence of FEMA’s counsel. Federal regulations directly on point require
WYO carrier defense counsel to coordinate with FEMA’s counsel concerning NFIP
litigation. That is exactly what happened here. The Order erroneously gave no
deference to the agency position . . .
Wright Brief, No. 14-CV-461, DE [95] at 4-5; see also DE
[96] (Wright’s motion for reconsideration incorporating arguments from DE [95]
Wright’s notice of objections). This directly undercuts the claim that “FEMA
did not have an opportunity to be heard and weigh in on the issues addressed at
the evidentiary hearing in the Raimey case.”[3] FEMA
Brief, DE [679] at 2.
Finally, to the extent any party was denied an opportunity to
be heard—which does not appear to be the case—consideration of those parties’
submissions on the instant motions for reconsideration provides a mechanism to
correct any absence of an opportunity to be heard. See, e.g., Bassé
Frères Alimentation Orientale (2013) Inc. v. Frunut Global Commodities L.L.C., No.
14 CIV. 0818 ALC JCF, 2014 WL 6467001, at *2 (S.D.N.Y. Nov. 18, 2014) (granting
reconsideration and adhering to prior decision where plaintiff “contend[ed]
that it did not “have a full and fair opportunity to make a comprehensive
submission on the discovery issues which were addressed in the Order”); Lopez
v. City of New York, No. 11-CV-2607 CBA RER, 2012 WL 2250713, at *1
(E.D.N.Y. June 15, 2012) (granting reconsideration and keeping the previous
order in effect where “defendants initially did not have the opportunity to
submit written opposition to the Plaintiffs' motion”); cf. Pandozy v. Tobey,
335 F. App’x 89, 92 (2d Cir. 2009) (plaintiff “had a full opportunity to
respond to the possibility of sanctions in his objections to the magistrate
judge's report”). The Committee has reviewed all of the submissions—which
include both legal argument and certain factual material—and finds that, but
for the minor exceptions noted herein, the findings and conclusions of the
November 7 Order were correct and appropriate, and that no facts or controlling
law was “overlooked.” See Local Civ. R. 6.3 (memorandum accompanying
motion for reconsideration must contain “matters or controlling decisions which
counsel believes the Court has overlooked”).
B. Bases for the
Application of the Raimey Decision to
Other Hurricane Sandy Cases
In a slight variation of the first argument, defendants
assert that Judge Brown erred by applying the determination in the November 7
Order to defendants in cases other than Raimey. Specifically, FEMA
claims “Paragraph 3 of the November 7th Order overlooks the diversity of fact
and circumstances among individual Hurricane Sandy flood litigation cases.”
FEMA Brief at 5. Indeed, FEMA contends that the “Court’s order extrapolates
evidence uncovered in the Raimey case to all cases (wind and flood) and
imputes the conduct of U.S. Forensic and the testimony of one engineer, George Hernemar,
to all engineering firms and to all independent adjustors.” Id.
This argument similarly fails chiefly because, as discussed
in detail above, the obligation to provide draft reports from engineers and
adjustors arose from CMO 1, and hence preceded the dispute in Raimey. Additionally, FEMA’s statement of the facts in
Raimey—which has been uniformly adopted by defendants—mischaracterizes
the evidence. The decision in Raimey was
not based on the testimony of a single engineer or occurrence. Rather, the November 7 Order found that the
so-called “peer review” process “was limited neither to this one engineer, nor
specifically to U.S. Forensic.” November 7 Order at 13 (citing sworn testimony
by two engineers about hundreds of engineering reports that had been subject to
“peer review” and that such practices were standard “across the field of
engineering”).
C. Mutuality
In their submission, the non-WYO carriers set forth the
following:
If the Sandy committee views the disclosure requirements
detailed in paragraph three of the Raimey Order as simply an
amplification of what was required by CMO No. 1, then we respectfully request
that the disclosure obligations set forth in paragraph 3 be made applicable to
both plaintiffs and well as the defendants. Engineers are commonly retained by
plaintiffs and defendants alike in insurance coverage litigation. Engineers for
plaintiffs and defendants commonly write draft reports and make revisions.
Likewise, both plaintiffs and defendants may have adjusters or other agents and
relevant materials, photographs, and draft written communications, also
referenced in paragraph 3 of the Order. The Federal Rules of Civil Procedure
and the Eastern District of New York's Local Rules set forth rules for
discovery that apply equally to all parties. The even-handedness of the Federal
Rules would be undermined by imposing disclosure obligations solely upon
defendants, as paragraph 3 of the Order does. There is no basis to apply the
amplification solely upon defendants and not plaintiffs.
DE [681] at 2. This cogent, well-reasoned argument is
entirely correct.[4]
While the language of the November 7 Order is aimed at defendants—as it was
formulated in response to demonstrable discovery failures on the part of a
defendant—the requirements set forth in CMO 1 and reiterated in the November 7
Order apply equally to plaintiffs. While the December 12 deadline does not
apply to plaintiffs specifically, if plaintiffs have failed to provide drafts
or otherwise comply with requirements contained in the CMOs, those failures
should be addressed forthwith.
D. Burden
Lastly, defendants argue that the burden of complying with
the November 7 Order, and by extension, the requirements of CMO 1, warrants
rescission of these requirements or extension of the time requirements.
Specifically, FEMA contends that “[g]iven that FEMA, and the participating WYO
carriers, do not have direct access to draft, redlined, and marked-up versions
of engineering reports generated during the adjustment process, taking efforts
to obtain these materials would come at a great . . . cost to the public fisc.”
DE [679]-1 at 8. It is difficult to compare the “burden” on FEMA and the
insurance carrier defendants in producing a set of documents to the burdens
faced by plaintiffs—storm victims who may have been unjustly denied recovery
for damage to or destruction of their homes. Moreover, defendants’ purported
need for more time rings hollow in light of the fact that these materials
should have been produced many months ago.
Notwithstanding the foregoing, at the November 25 conference,
the Committee made provision to assist defendants who may have problems
obtaining these documents from third party firms. At the conference, the
Committee directed that, to the extent that any defendant could not obtain the
subject material by December 12, such defendants are authorized to issue a
subpoena to the third-party firms to secure the materials. Those subpoenas
should have a return date of fourteen days from the date of issuance, such that
the materials should be produced before the end of this month. Upon receipt,
the materials should be provided in their entirety to the plaintiffs.
II. Plaintiffs’ Request for an Evidentiary Hearing
In response to the motions to reconsider particular to the Raimey
case, plaintiffs’ counsel in Raimey submitted a number of documents
purportedly demonstrating practices similar to those established in the Raimey
case. See No. 14-CV-41 DE [830]; 14-CV-641 DE [100]. Based upon the
material submitted, counsel has sought an evidentiary hearing on these matters.
Plaintiffs’ Liaison Counsel has also submitted similar materials in opposition
to the motions to reconsider. See DE [841]. Because the implications of
such a hearing extend beyond the Raimey case, we address this request in
this Order.
Counsel alerted the Committee to four apparent instances of
improper practices with respect to damage reports relied upon by insurance
carriers, several of which affect pending cases. For example, in Shlyonsky
v. Travelers Insurance Co., 13-CV-05393(RJD)(JMA), and Dweck v. Hartford
Insurance Co. of the Midwest, 14 CV 6920 (ERK) (JMA), plaintiffs submitted
documents which appear to show that another engineering firm, HiRise Engineering,
rewrote the reports of the licensed inspecting engineer; in both cases the
original reports which documented extensive storm damage were altered to
reflect an absence of such damage or suggest pre-existing damage. DE [830],
[840], [841]. The submissions seem to suggest that the inspecting engineer’s
signature was apparently cut and pasted onto the modified reports. Id.[5]
Similarly, plaintiffs have submitted engineering reports
prepared in connection with two additional homes, one owned by Joseph and
Patricia Giovinco, and the other owned by Sang Hahn. See Giovinco et al v.
Fidelity National Property & Casualty Insurance Co., 14-CV-3937
(ADS)(SIL). In both cases, Michael Garove—the same engineer who conducted the
“peer review” in Raimey, allegedly authored the U.S. Forensic
engineering reports upon which the carriers relied in denying coverage. 14-CV-461,
DE [100]. Plaintiffs have provided evidence that Garove never inspected either
of the subject homes. Rather, plaintiffs contend, and have provided supporting
documentation that engineers not licensed in New York conducted the
inspections. Id. Both insureds appealed the determination that there was
no flood damage, but FEMA rejected their appeals. Id.
These allegations, if true, raise a number of important
issues that must be resolved. By way of example, some of the other plaintiffs
may be entitled to Rule 37 relief like that afforded in Raimey. However,
before conducting another partial hearing, it seems prudent to await production
and review of the draft reports to be produced shortly, and conduct a hearing
relating to all affected cases. As such, the Committee will hold an evidentiary
hearing on these matters on January 28, 2015 at 10:00 a.m. in the Ceremonial
Courtroom of the United States Courthouse, 225 Cadman Plaza East, Brooklyn,
N.Y., to evaluate all claims of altered or otherwise improper practices
relating to damages reports. The prospect of this hearing, however, should not
delay any of the scheduled mediations or other deadlines, and the parties
should proceed accordingly.
CONCLUSION
Based on the foregoing, with the exceptions noted herein, the
motions for reconsideration and clarification of the November 7 Order and CMO
12 are DENIED. As such, defendants are directed to comply with the provision to
supply the materials described in the November 7 Order— to the extent such
material has not already been supplied—by December 12. If these materials
cannot be obtained by request, defendants are authorized to issue subpoenas for
that purpose, consistent with the provisions set forth herein.
Moreover, as discussed above, the Committee will hold a
hearing in the Ceremonial Courtroom of the Brooklyn Courthouse on Wednesday,
January 28, 2015 at 10:00 am to explore the issues set forth in Section II of
this opinion. At least ten days before, Liaison Counsel shall submit briefs detailing proposed
matters to be considered at the hearing, including a list of witnesses and
copies of all exhibits to be offered.
SO
ORDERED.
Dated: Brooklyn, New York
December 8, 2014
/S/ CHERYL L. POLLAK Cheryl L. Pollak
United States Magistrate Judge
/S/ GARY R. BROWN Gary R.
Brown
United States Magistrate Judge
/S/ RAMON E. REYES, JR. Ramon E. Reyes, Jr.
United States Magistrate Judge
[1]
The filed motions for
reconsideration include the following: No. 14-MC-41, DE [679], [685], [690],
[692], [695], [698] (styled as “Letter”), [699], [700], [702], [703], [704],
[706], [707], [709] (styled as “Letter”), [710], [711], [712], [713] (styled as
“Letter”), [716], [717], [720], [721], [723], [729], [731], [733], [740],
[743], [747], [748], [751], [752], [753], [755], [756], [758], [760], [761],
[763], [764], [765], [768], [769], [770], [778], [780], [782], [784], [785],
[786], [787], [788], [789], [790], [792], [793], [796], [797], [798], [799],
[800], [811]; No. 13-CV-5997, DE [85]; No. 14-CV-123, DE [81]; No. 14-CV-166,
DE [77]; No. 14-CV-168, DE [76]; No. 14-CV-169, DE [75]; No. 14-CV-170, DE
[76]; No. 14-CV-171, DE [77]. The parties have also filed the following notices
of objections: No. 14-MC-41, DE [680], [682], [683], [686], [687], [688],
[689], [691], [693], [694], [696], [697], [701], [705], [708], [714], [715],
[719], [722], [724-728], [730], [732], [734], [735], [736], [737], [738],
[739], [741], [742], [744], [745], [746], [749], [754], [757], [759], [762],
[766], [767], [771], [772], [773], [774], [775], [776], [777], [779], [781],
[783], [791], [795], [812]; No. 13-CV-5411, DE [84]; No. 13-CV-7282, DE [93];
No. 14-CV-1001, DE [66]; No. 14-CV-4857, DE [27]; No. 14-CV-6345, DE [14]; No.
14-CV-6338, DE [12]. Additional filings include the following: No. 14-MC-41, DE
[681] (notice of objections for all “wind” carriers), [684] (appeal of
magistrate’s decision), [718] (notice of objections specific to Raimey v.
Wright National Flood Insurance Company, No. 14-CV-461), [750] (motion for
reconsideration incorporating notice of objections in DE [718]).
[2] To the extent that the November 7 Order references any
“additional” obligations, see, e.g., November 7 Order at 25 (stating
“additional discovery”), the Order is hereby clarified to indicate only that
previously existing discovery obligations were being reiterated.
[3] In these applications, counsel objects to the
application of the November 7 Order to “parties who had no knowledge or notice
of the events and proceedings in Raimey.” DE [718] at 7. Of course, some of the
most significant issues discussed in the November 7 Order arose from the
conduct of Wright’s counsel at the evidentiary hearing. It bears noting that
the very same attorneys who appeared before the Court at the evidentiary
hearing filed many of the motions for reconsideration. See, e.g., No.
14-MC-41, Docket Entry (“DE”) [685], [689], [690], [692], [695], [696], [700],
[701], [702], [703], [706], [708], [711], [712], [715], [716], [720], [721],
[722], [723], [726], [727], [728], [729], [731], [734], [741], [750], [756],
[757], [759], [811], [812].
[4] It is also worth noting that, unlike the barrage of
motions and applications submitted by FEMA and the WYO carriers, the submission
on behalf of the non-WYO carriers efficiently set forth their position in a
thoughtful, two-page letter.
[5] In fact, the materials submitted include a sworn
affidavit from the inspecting engineer attesting to the fact that “Hi Rise lifted
my signature and seal from the True Report and affixed said seal and signature
to the False Report” and that the final report relied upon by the insurer “is a
forgery.” DE [840]-5.
______________________________________________________________
NEW YORK JUDGE ORDERS THE DISCLOSURE OF
ALL DRAFTS, REDLINES, ETC REPORTS IN RE SUPER STORM SANDY LITIGATION
UNITED STATES
DISTRICT COURT
EASTERN DISTRICT OF
NEW YORK
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MEMORANDUM &
ORDER
IN RE HURRICANE
SANDY CASES
14 MC 41
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DEBORAH RAIMEY and
LARRY RAISFELD, 14 CV 461
(JFB)(SIL)(GRB)
Plaintiffs,
-against-
WRIGHT NATIONAL
FLOOD INSURANCE
CO.
Defendant.
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APPEARANCES: For
the Plaintiff:
Mostyn Law
3810 West Alabama
Street
Houston, Texas
77027
By: Steve Mostyn,
Esq.
Rene M. Sigman,
Esq.
|
For the
Defendant:
Nielsen, Carter
& Treas, LLC
3838 N. Causeway
Blvd., Suite 2850
Metairie, LA
70002
By: Gerald J.
Nielsen, Esq.
Kristina J.
Fonte, Esq.
|
Denis G. Kelly
& Associates, P.C.
74 West Park
Avenue
Long Beach, New
York 11561
By: Denis G.
Kelly, Esq.
|
McMahon Martine
& Gallagher LLP
90 Broad Street
New York, New
York 10004
By: Anthony
Martine, Esq.
Patrick W.
Brophy, Esq.
Timothy D.
Gallagher, Esq.
|
Gauthier, Houghtaling & Williams, LLP
3500 N Hullen St
Metairie, LA 70002
By: Frederick W. Bradley, Esq.
James M. Williams, Esq.
|
For Non-Party U.S. Forensic:
The Demmons Law Firm
3300 West Esplanade Avenue
Suite 601
Metairie, Louisiana 70002
By: Larry Demmons, Esq.
|
GARY R. BROWN, United States Magistrate
Judge:
Two years ago, the crushing force of
Hurricane Sandy devastated large areas of this judicial district. While much
has been done to facilitate recovery, assistance has not been consistent or
timely, leaving some homeowners behind – even those who properly paid for flood
insurance. That some homeowners have faced insufferable delays has not been lost
on the public[1] or
our political system.[2]
This Court has invested significant resources in an effort to facilitate
efficient resolution of the more than 1,000 cases arising from Hurricane Sandy.[3]
See Case Management Order (“CMO”) 1 at 1-2
(discussing efforts of Committee); Order dated October 15, 2014, 14-CV-41, DE
[563] (describing EDNY Hurricane Sandy mediator training program).
Against this backdrop arises the instant
dispute, which has exposed reprehensible gamesmanship by a professional
engineering company that unjustly frustrated efforts by two homeowners to get
fair consideration of their claims. Worse yet, evidence suggests that these
unprincipled practices may be widespread.
Specifically, the evidence adduced in this
matter demonstrates that U.S. Forensic, an engineering firm retained by
defendant Wright National Flood Insurance Company (“Wright”) to examine a
storm-battered house in Long Beach, New York, unfairly thwarted reasoned
consideration of plaintiffs’ claim through the issuance of a baseless report.
The engineer sent by U.S. Forensic opined in a written report that the home at
issue had been damaged beyond repair by Hurricane Sandy. A second engineer, who
did little more than review the photographs taken by the inspecting engineer,
secretly rewrote the report, reversing its conclusion to indicate that the
house had not been damaged by the storm, and attributing – without sufficient
evidence – defects
in the home to long-term deterioration.
This process, euphemistically dubbed a “peer review” by U.S. Forensic, was
concealed by design from the homeowners, remained uncovered during the
Court-assisted discovery process and came to light through near happenstance.
In a misguided attempt to defend these flawed practices, defendant has elicited
evidence that this “peer review” process may have affected hundreds of
Hurricane Sandy flood insurance claims – and possibly more.
In this decision, the undersigned addresses
the evidence presented, makes relevant findings and directs certain relief to
ameliorate the highly-improper practices brought to light in this case.
Procedural History
Following the failure of mediation to
resolve this matter, plaintiffs’ counsel filed a “Motion to Set Discovery Schedule
and Set for Trial,” informing the Court, for the first time, that it had
evidence of a U.S. Forensic engineering report that provided a conclusion
contrary to the report upon which Wright based its denial of much of
plaintiffs’ flood insurance claim. DE [57]. In response, Wright, among other
things, denied all knowledge of the seemingly altered report, blamed plaintiffs
for failing to provide evidence of the earlier report prior to mediation,
sought to select a different expert as “this engineer and U.S. Forensics [sic]
are now allegedly tainted,” and demanded that plaintiffs provide all
information concerning the discrepancies in the engineering reports to the new
engineer.[4]
DE [59] at 13. Upon review of the
parties’ submissions, on October 1, 2014, the undersigned issued the following
Order:
In light of the nature of the allegations set forth in
plaintiffs' submission and defendant's response thereto, a hearing shall be
conducted before the undersigned . . . At that hearing, plaintiffs shall be prepared
to present testimony and documentary
evidence concerning the allegations relating to U.S.
Forensic Report No. 12.22.1304 and the various incarnations of that report
referenced in the parties' submissions. Counsel for the parties will ensure
that Mr. George Hernemar will be present in person to testify about the
preparation and submission of the report and related matters. Counsel for
defendants will also produce any other necessary witnesses to explain, as
appropriate, any differences between the purported original report and the
report ultimately produced in discovery.
Electronic Order dated October 1, 2014. On
October 16, 2014, an evidentiary hearing was held, at which the parties
produced three witnesses. At the conclusion of the hearing, plaintiffs’ counsel
indicated that, in addition to the relief previously sought, the Court should
consider addressing discovery violations that resulted from the failure to
provide the draft engineering reports in this case. Tr. 168. Following the
hearing, both sides were permitted to submit post-hearing briefs and supporting
materials.
The Evidence Adduced at the Hearing
Plaintiffs were the owners of a property
located at 24 Michigan Street, Long Beach, NY, which is located about one block
from the beach. The owners, who own and reside in an adjacent home, bought the
house at 24 Michigan Street with plans to ultimately expand their own home, but
rented the house to help pay the mortgage. Tr. 22. After Hurricane Sandy
struck, one of the homeowners observed significant damage to the house that did
not exist prior to the storm, including extensive damage to the floors, which
had shifted in the storm. Tr. 14-15. Following the storm, the back door would
no longer open, such that the homeowner had to break it down to gain access to
the house. Tr. 16.
On or about November 17, 2012, David
Maxime, an independent adjustor, examined the home. Based largely on the report
of the adjustor, defendant paid the plaintiffs slightly more than $60,000 (in
several installments) for cosmetic, non-structural damage. Tr. 21. Maxime also
prepared a document entitled “Engineer Request for Fidelity,”[5]
in which he makes the following observations:
During a recent flood inspection, I noticed the
flooring in the dwelling was uneven from the front to the rear. The floor
seemed to have a "rolling action" as you walked over it. A visual
inspection of the flooring at several of the walls, appeared to have dropped
about a [sic] inch or two in some cases. There was a 5 inch difference between
the ceiling height at the corner of the bedroom and the center line of the
bedroom. The exterior of the building had about 3ft of sand adjacent to the
building. An inspection of the building crawl space showed several framing
members out of line. A visual inspection of the front of the roof showed
unevenness along the roof line. At the current time, the building appears to
be unsafe to live in.
Pl.’s Ex. 2 (emphasis added). Presumably in
response to this request, U.S. Forensic sent George Hernemar, a licensed
engineer to conduct an inspection of the premises on December 4, 2012. Pl’s.
Ex. 3 & 5.
Trained in Sweden, Hernemar obtained
employment as a contractor with U.S. Forensic, a nationwide engineering firm,
after answering an ad on Craigslist for a New York licensed engineer. Tr.
44-45, 88. He testified that he conducted approximately fifty home inspections
for U.S. Forensic to assess damage inflicted by Hurricane Sandy. Tr. 44-45.
U.S. Forensic had been engaged by Fidelity to report on the damage to the 24
Michigan Street property.
Following his inspection, Hernemar wrote
and transmitted a report[6]
dated December 9, 2012 (“December 9 report”) containing his findings to U.S.
Forensic. The report, which contains numerous pages of text and photographs,
offers the following “Results and Conclusions”:
1) The physical
evidence observed at the property indicated that the subject building was
structural [sic] damaged by hydrodynamic forces associated with the flood
event of October 29, 2012. The hydrodynamic forces appear to have caused the
foundation walls around the south-west corner of the building to collapse.
2) The extent of
the overall damages of the building, its needed scope of repair combined with
the age of the building and its simple structure, leads us to conclude that a repair
of the building is not economically viable.
Pl’s Ex. 5 (emphasis added). However,
plaintiffs never received this report from their insurance carrier. Rather,
they received a report dated January 7, 2013 (“January 7 report”) which
contains completely divergent “Results and Conclusions”:
1) The physical
evidence observed at the property indicated that the subject building was
not structurally damaged by hydrodynamic forces, hydrostatic forces, scour
or erosion of the supporting soils, or buoyancy forces of the floodwaters
associated with the subject flood event.
2) The physical
evidence observed at the subject property indicated that the uneven roof
slopes, leaning exterior walls and the uneven floor surfaces within the
interior of the building, were the result of long term differential
movement of the building and foundation that was caused by long-term
differential movement of the supporting soils at the site and long-term
deflection of the building framing.
Pl’s Ex. 3 (emphasis added). Based upon
this report, defendant refused to pay for any structural damage to the home.
At the hearing, Hernemar and a second witness
explained that the radical changes in his report resulted from a “peer review
process,” though the description of that process varied greatly. Hernemar
testified that he “wrote both of these reports” and insisted that no one made
any alterations or changes to the reports. Tr. 57; cf. Tr. 58 (“All
those reports you have presented to me, I’m the author of them.”) Rather, he
testified, he had “an open discussion” on the telephone with U.S. Forensic
engineer, who pointed out that “the draft was based on assumptions.” Tr. 59,
71. As a result, Hernemar “issue[d] a report changing [his] opinions.” Tr. 78.
And though his testimony was, at times, confused, he testified unequivocally
that “I rewrote my report.” Tr. 90; cf. Tr. 106 (Hernemar “made changes
to the draft report”); 119 (“I did the changes”).
After Hernemar testified, counsel for
defendant attempted to end the hearing, foreclosing further inquiry on this
subject:
MR. MARTINE: Judge, I think the purpose of
this hearing was to determine whether we should have some discovery; in
essence, whether or not something untoward was going on between US Forensic and
perhaps Mr. Hernemar.
THE COURT: Are you under the impression
that the result of the hearing so far gives us a clear answer to that?
MR. MARTINE: Yes, Judge . . .
THE COURT: You brought a witness who is
going to talk about the peer review process. Right?
MR. MARTINE: I don't think I need to call
him, Judge.
Tr. 119-120. Both counsel for plaintiff and
the Court disagreed. Id. After a lunch recess, counsel for defendant
tried again:
MR. MARTINE: Judge, my feeling is that,
based on the testimony this morning and based on the reason for this hearing,
the hearing is resolved. The witness clearly testified that those were his
opinions adopted by him following a peer review process; that he wasn't
required, he wasn't compelled, he wasn't really told to do anything. He adopted
the opinions.
Tr. 121. Importantly, counsel for defendant
acknowledged that he was aware of the information to which Michael Garove, the
“peer review” engineer, would testify:
And I can tell you what Mr. Garove will
testify, and this is a representation to the court, is that, yes, he was the
peer reviewer for the original report, the rough report of December, that his
peer review, basically his peer review, he made suggestions and that the two
engineers consult about the suggestions and that Mr. Hernemar could adopt or
deny every single suggestion made and then the report is finalized.
And that is the extent of the testimony
concerning the peer review, Judge.
Tr. 123-4. Notwithstanding counsel’s
representation, counsel for plaintiff requested that Garove be permitted to
testify, which application was granted. Tr. 124-26.
Michael Garove testified that he is an
engineer licensed in Louisiana and New York, having obtained the latter license
in 2011, who has worked for U.S. Forensic for approximately four and a half
years. Tr. 128. He did not, at any time, inspect the 24 Michigan Street home or
any portion of the property, and was unsure whether he had inspected any of the
surrounding homes. Tr. 129. He was, however, assigned to review the December 9
report authored by Mr. Hernemar. Tr. 137. He received an email assigning him
review of that report, “most likely from Gary Bell,” Managing Partner of U.S.
Forensic. Tr. 137-8. Garove provided the following description of U.S.
Forensic’s “peer review” process:
The peer review process, when we receive
the initial document it is a draft form . . . Meaning, it is not a final
version.
And within Microsoft Word, which is a
software program that we all should be familiar with, there is a tab in there,
a process by which you can initiate a tracking of any type of markups, changes,
comments, whatever you would like to do in that report . . .
So . . . the peer review process involves
reviewing the contents of the report, both technically, grammatically, you
know, the entire content of the report, as well as reviewing any other
drawings, photographs, or any other information that the inspecting engineer
would produce or provide to us. From that information . . . we basically
evaluate as a peer, as an engineer, the validity of what is being stated . . .
and then make a final determination about whether or not the conclusions that
are included within the report are accurate or in line with, you know,
engineering knowledge.
[O]nce that's done, this copy of this
report, which has everything that you do as a peer reviewer, is then tracked
and documented, so it is not hidden, is submitted back to the office and/or the
engineer, inspecting engineer, for their review to determine whether or not
they feel as though any changes, comments, markups or anything are correct or
in line with their opinion.
And then at that point there is an
opportunity, even again within that same software program, to either
individually accept or deny any changes that you make or alterations . . . .
Tr. 138-40.
Thus, rather than the “open discussion”
described by Hernemar, Garove described a process by which the report authored
by the inspecting engineer was rewritten by an engineer who had not
inspected the property and whose identity remained concealed from the
homeowner, the insurer and, ultimately, the Court. Garove acknowledged that he
revised the December 9 report, sent what became the final report to Hernemar
and, remarkably, stated that the two had no further discussion or contact in
the matter. Tr. 145-47. Instead, it appears that Hernemar “adopt[ed Garove’s]
conclusions completely.” Tr. 147, 152.
Garove endeavored to minimize the changes
he made in this report, testifying that “in this case a lot of stuff just got
moved around, it got restructured, because the grammar was not correct or it
wasn't in the proper place in the document.” Tr. 139-40. In truth, Garove reversed
the conclusion of the inspecting engineer, and removed many pertinent
observations which were inconsistent with Garove’s conclusions. And, despite
repeatedly asserting that he had never read the January 7 report, in
response to a question by the Court, Garove conceded that he, in fact, wrote
the January 7 report. Tr. 156.[7]
In his declaration, Garove has the temerity
to assert the following:
Visual observations from an inspecting
engineer during a site visit are not necessarily as informative as a review of
photographs of the property after the site visit because review of quality
photographs by an experienced peer-reviewer can yield more accurate analysis
and results than direct visual observation of conditions by an inspecting
engineer with less experience and understanding of the subject.
DE [71]-1 at ¶ 26. The thought is, then,
that Garove, sitting in a remote location and never seeing the subject
property, can do a better job than a licensed engineer sent to the scene. This
assertion begs the question of why U.S. Forensic would not simply send a
photographer to homes to be inspected, and produce purportedly superior reports
at lower cost by having a remote engineer review the resulting photographs. It
also raises the issue of why Garove did not sign the subject report, since he
is the one who actually performed the analysis.
Garove’s assertions are undermined by the
substance of the report, which provides the reader, in uncertain terms, with
assurances that this report is based upon a physical inspection of the property
by, and relying upon the expertise of, Hernemar, the inspecting engineer. The
January 7 report lists Hernemar as the “Engineer of Record,” while making no
mention of Garove, any other contributor, or any peer review process. Pl.’s Ex.
3. The report’s conclusions are expressly premised upon “[t]he physical
evidence observed at the property,” and states that “our work to complete this
assignment was performed by George Hernemar, P.E.” Id. at 1-2. A
substantial portion of the report is devoted to “Site Observations,” and makes
repeated references to such observations. See, e.g., id. at 3
(“No . . . evidence of recent shifting . . .was observed beneath the
building”); 4 (“We observed no evidence or indication . . .”); 5 (“but no
evidence or any recent shifting . . . was observed.”). Taken together, these
statements concerning the methodology employed and the information relied upon
render the report misleading.
Moreover, the changes wrought by Garove on
Hernemar’s work journeyed beyond misleading into the realm of
misrepresentation. In the December 9 report, Hernemar noted that a deposit of
sand prevented him from examining the foundation to determine whether it had
collapsed, and would have to be removed before a “definite determination” could
be reached. Pl.’s Ex. 5 at 4; Tr. 61 (“the foundation was covered with sand, so
there was no way to tell definitively what happened to [the] foundation”). As
counsel for Wright elicited in cross-examination of Hernemar, limited access to
the crawlspace similarly circumscribed the inspection. Tr. 107 (The foundation
“was covered in sand. The whole foundation. Plus, there was no access to the
crawlspace.”). Hernemar’s conclusion that the foundation of the house had
collapsed was, in part, an extrapolation from his examination of a neighboring
house – the foundation of which was visible – and which, he believed, had been
subject to similar hydrostatic forces during the storm. Tr. 82-83.
Garove tacitly acknowledges this limitation
in his Declaration: “As I initially believed, it was later confirmed that
the foundation walls beneath the building had not collapsed.” DE [71]-1 at ¶
63. Yet, notwithstanding the fact that the foundation walls could not be seen
or photographed, Garove modified the report not only to remove this limitation,
but to repeatedly and conclusively state that “no evidence” was observed of
damage to the foundation components.[8]
In other words, the limitations of Hernemar’s observations and his subsequent
extrapolation may have justified amending the report to make it inconclusive.
Instead, under the guise of “peer review,” Garove transformed the report to
indicate a conclusive absence of storm damage. A similar issue arises
with respect to Garove’s “observations” relating to the crawlspace. Hernemar
testified that he had extremely limited access to the crawlspace and the three
supplied photographs of the crawlspace area depict a very narrow view.
Nevertheless, Garove introduced specific observations about the crawlspace into
the report that appear entirely unsupported by Hernemar’s report and the
accompanying photographs. See DE [77]-1 at 7.
In addition to changes, Garove included the
following “comment” addressed to Hernemar in the redline draft:
George:
Please note the
changes/comments within the report. Please noted [sic] that we don't theorize
about damages. We observe, inspect and report damages to the building. In this
case, we did not observed [sic.] any damage from hydrostatic,
hydrodynamic, buoyancy forces or scour or erosion of support soils that caused
damage to the subject building or foundation.
Please finalize
this report and send to Donna for issue.
Michael P. Garove,
P.E.
Partner[9]
DE [77]-1 at 1 (emphasis added).
Unsurprisingly, Hernemar accepted all of Garove’s changes and had the document
issued as instructed. Notwithstanding the vehement assertions of Wright’s
counsel, Hernemar’s acquiesce to this baseless reversal of the report’s
conclusion and alteration of the observations does little to validate this
unprincipled process.[10]
Troublingly, the “peer review” process
extended beyond this one example. In this very case, as noted elsewhere,
Hernemar described a peer review of his supplemental report that resulted,
again, in a change to his ultimate conclusion concerning foundation damage upon
reinspection. Tr. 109; 111-112. Furthermore, Hernemar stated that – in his
rough estimation – he completed fifty Hurricane Sandy inspections for U.S.
Forensic, and that in four or five instances, extensive changes were wrought as
a result of so-called peer review. Tr. 89. This process was limited neither to
this one engineer, nor specifically to U.S. Forensic. See Tr. 58
(describing process as “normal”); 110 (process was “standard”); 129 (“peer
review process is actually a very standardized process across the field of
engineering”); DE [71]-1 at ¶¶ 13-16 (describing hundreds of peer reviews
of reports by different engineers).
On December 31, 2012 – after Hernemar’s
initial inspection but prior to the release of the January 7 report – an
inspector from the City of Long Beach examined the structure. As a result of
that inspection, the City provided plaintiffs with a “substantial damage
letter” dated January 3, 2013, which indicates that the house “received damages
of [63.4%] of the value of the pre-damaged structure as a result of the
flooding that occurred on October 29, 2012.” Pl.’s Ex. 1; Tr. 6-7. Based on
that finding, the City advised plaintiffs that the house “must either be
removed . . . or have the lowest floor . . . elevated to at or above the
100-year flood elevation.” Pl’s Ex. 1. In supporting documents, the inspector
calculated a replacement cost of $269,850 and an “actual cash value”[11]
of $204,546.30 for the house.
Upon receipt of the January 7 report –
which ran counter to all of the other information received by the plaintiffs –
the homeowners began contacting Wright, seeking a second inspection by a
different engineer. Tr. 16. After plaintiff made several dozen telephone calls
to the Company, Wright relented, apparently asking U.S. Forensic to again
inspect the property. Tr. 16. On January 25, 2013, U.S. Forensic sent Hernemar
to conduct a reinspection. Tr. 17-18. It was during this visit that plaintiffs
viewed and photographed the cover and conclusion pages of Hernemar’s December 9
report, thereby bringing to light the issues discussed in this opinion. Tr. 17.[12]
Removal of the sand and better access to the crawlspace permitted Hernemar to more
thoroughly inspect the foundation. Tr. 109. As a result of that examination,
Hernemar uncovered a small amount of foundation damage to the house,[13]
for which Wright compensated the homeowners a total sum of approximately
$11,000. Id.; Tr. 21. Thus, the total paid by Wright on the file
amounted to less than $80,000.
Given this relatively small insurance
recovery and the damage to the home which rendered it uninhabitable, plaintiffs
could no longer rent the house. Without the rental income, plaintiffs could not
afford to continue paying the mortgage and property taxes, so they sold the 24
Michigan Street house for the value of the property. The house has since been
razed. Tr. 22.
Discussion
A. Defendant’s Discovery Obligations
In an effort to streamline resolution of
these claims, and reduce the costs and burdens on the parties, after thorough
consultation with counsel for all parties, the Committee of magistrate judges
appointed to manage Hurricane Sandy cases effected an expedited discovery
process. In the course of nearly a dozen Case Management Orders (“CMOs”) and
through hundreds of conferences, the Committee has implemented this process,
modifying and adding provisions based upon experience gained over the past
months.
In CMO#1, issued on
February 21, 2014, the Committee directed defendants to produce:
any documentation
relating to an assessment of the claimed loss, including all loss reports and
damage assessments, adjuster's reports, engineering reports, contractor's reports,
photographs taken of the damage or claimed losses, and any other evaluations of
the claim [and] all expert reports and/or written communications that contain
any description or analysis of the scope of loss or any defenses under the
policy.
CMO 1 at 9. On April 7, 2014, in CMO 3, the
Committee reiterated this direction:
Liaison Counsel
forwarded a question from defense counsel to the Committee as to whether expert
reports are subject to production pursuant to the automatic discovery process.
It is hereby ordered that, to the extent that any such report was prepared
prior to the issuance of this Order, such report must be produced immediately
to opposing counsel. CMO#1 expressly provides that defendants are to provide
“all expert reports and/or written communications that contain any description
or analysis of the scope of loss or any defenses under the policy.” CMO#1 at
21. To be clear, any expert reports that have been prepared are required to be
produced under this provision, regardless of whether a party anticipates, at
this time, presenting the testimony of such expert. At the same time, CMO#1
should not be read as imposing an affirmative duty to create such a report, but
if it exists, it should be produced.
CMO 3 at 9-10. The Committee addressed any
potential claims of privilege, noting:
Rule 26(b)(4)(D)
provides that “[o]rdinarily, a party may not . . . discover facts known or
opinions held by an expert who has been retained or specially employed by
another party in anticipation of litigation or to prepare for trial and who is
not expected to be called as a witness at trial.” However, this privilege “may
only be invoked when an expert has been retained or specially employed because
of the prospect of litigation, and not in the normal course of business.” QBE
Ins. Corp. v. Interstate Fire & Safety Equip. Co., Inc., 2011 WL 692982
(D. Conn. 2011)(rejecting application of rule to notes by claims adjustor of
conversations with experts); Fine v. Bellefonte Underwriters Ins. Co., 91
F.R.D. 420, 423 (S.D.N.Y. 1981)(reports producible unless “generation of the
reports were in furtherance of a sufficiently identifiable resolve to litigate,
rather than a more or less routine investigation of a possibly resistable claim
on a first party insurer”); Tayler v. Travelers Ins. Co., 183 F.R.D. 67,
70 (N.D.N.Y. 1998) (“where there is a disagreement between the property owner
and the insurance carrier as to the amount of the fire loss, the property
owner/insured/plaintiff is entitled to discovery of the carrier/defendant's
file and depose adjusters”) (collecting cases).
CMO 3 at n.5. Thus, since February 2014,
defendant has been under unequivocal and repeated Court direction to produce
all expert reports, photographs and “written communications that contain any
description or analysis of the scope of loss or any defenses under the policy.”
Yet, Hernemar’s December 9 report, the redline document that transformed that
report into the January 7 report, as well as a bevy of email communications[14]
surrounding the creation, transmission and modification of these documents –
all of which clearly fall within the ambit of CMO 1 and 3 – have never been
produced.
Counsel for Wright raise two defenses for
the defendant’s failure to comply with these Court orders. The first is a belated
contention that the so-called “draft” reports are protectable work product
under Federal Rule of Civil Procedure (“Rule”) 26(b)(4)(B). See DE [71]
at 13-14. Because counsel failed to raise this issue earlier, either through an
application for a protective order or the provision of a privilege log, it is
clearly an afterthought. Of course, the Committee essentially addressed this
argument in CMO 3 by holding the privilege relating to non-testifying experts
inapplicable to reports and written communications relating to these cases. See
CMO 3 at n.5; cf. Weber v. Paduano, No. 02 Civ. 3392 (GEL), 2003 WL
161340, at *7 (S.D.N.Y. Jan. 22, 2003) (“investigations into the causes and
effects of an accident, undertaken soon after the event itself, are generally
considered part of an insurance company's ordinary course of business”).
The privilege argument flatly fails on the
merits, as the protections relied upon by defendant under Rule 26(b) apply only
to drafts “that are prepared in anticipation of litigation or for trial.” Fed.
R. Civ. P. 26 (b)(3)(A). The authorities cited by defendant uniformly echo this
limitation. See, e.g., In re Application of Republic of Ecuador,
280 F.R.D. 506, 511 (N.D. Cal. 2012), aff'd sub nom., Republic
of Ecuador v. Mackay, 742 F.3d 860 (9th Cir. 2014) (“expert reports were
prepared for trial and in anticipation of litigation”). Counsel’s efforts to
label these documents as draft expert reports – particularly on the facts here
– cannot protect them from disclosure. As one district judge has held:
To be sure, courts must be careful in cases
involving insurance and surety disputes not to hold that documents are
protected from discovery simply because of a party's ritualistic incantation
that all documents created by insurers are made in preparation for litigation.
Because all insurance investigations are likely performed with an eye towards
the prospect of future litigation, it is particularly important that the party
opposing production demonstrate by specific and competent evidence that the
documents were created in anticipation of litigation.
Safeco Ins. Co. of Am. v. M.E.S., Inc., No. 09-CV-3312 ARR
VMS, 2013 WL 1680684, at *5 (E.D.N.Y. Apr. 17, 2013). Based upon the
evidentiary hearing, I find that not only did Wright fail to demonstrate any
legitimate need to protect the documents at issue, but that plaintiffs have
overwhelmingly demonstrated a need for disclosure. In light of the unorthodox
methodology employed to generate reports that resulted in a denial of
plaintiffs’ insurance claim, permitting defendant to withhold these documents
would constitute a serious injustice.
Where a Court orders production of draft
reports – and, to be clear, CMO 3 unequivocally so directs – the Rule provides
that it must “protect against disclosure of the mental impressions,
conclusions, opinions, or legal theories of a party's attorney or other
representative concerning the litigation.” Fed. R. Civ. P. 26(b)(3)(B). Counsel
for Wright describe the preparation of these drafts as follows:
All revisions to draft reports were made a
year before a lawsuit was filed, exclusively by and among the US Forensic field
engineer George Hernemar, P.E. and the US Forensic peer review engineer Michael
Garove, P.E. Only after the lawsuit was filed a year later was Nielsen, Carter
& Treas, LLC retained.
DE [71] at 1. In light of this description
of the preparation of these documents, it difficult to understand how counsel
can assert work product in good faith. Because counsel did not even appear in
the matter until a year after their creation, the documents at issue simply
cannot contain any mental impression of counsel, and were clearly not prepared
for the purposes of litigation. Thus, the Court need not conduct further review
of draft reports or associated emails or other written communications before
their production.
The second defense raised by counsel arises
from the undisputed fact that U.S. Forensic only provided the two so-called
final reports to Wright, which, in turn, disclosed those reports to plaintiffs.[15]
However, counsel has a duty to conduct a “reasonable inquiry” to ensure that
discovery responses are “complete and correct”. See Fed. R. Civ. P.
26(g)(1). Rule 34 provides that parties “produce . . . items in the responding
party’s possession, custody, or control.” Importantly, “‘[c]ontrol’ is broadly
construed, and thus a party may be obligated to produce documents requested
under Rule 34 where the producing party does not actually possess the documents
but has the legal right or practical ability to obtain them from another source
on demand.” Arkwright Mut. Ins. Co. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, Pa., 90 Civ. 7811 (AGS), 1994 WL 510043 at *3 (S.D.N.Y. Sept.
16, 1994); see also Bank of New York v. Meridien BIAO Bank Tanzania Ltd., 171
F.R.D. 135, 146 (S.D.N.Y. 1997)(same).
As a result, “[p]roduction may be ordered
when a party has the legal right to obtain papers, even though he has no copy.”
Zervos v. S. S. Sam Houston, 79 F.R.D. 593, 595-96 (S.D.N.Y. 1978). Many
cases have held that to properly comply with document demands, a party may be
required to produce documents held by a third party where the relationship
amounts to control. See, e.g., Cooper Indus., Inc. v. British
Aerospace, Inc., 102 F.R.D. 918, 919-20 (S.D.N.Y. 1984) (defendant, a
wholly owned subsidiary of its parent British affiliate, controls documents
owned by the parent company where “it is inconceivable that defendant would not
have access to these documents and the ability to obtain them for its usual
business”); Herbst v. Able, 63 F.R.D. 135, 138 (S.D.N.Y. 1972)
(corporation’s former and current employees were “persons within its control”);
M.L.C., Inc. v. N. Am. Philips Corp., 109 F.R.D. 134, 138 (S.D.N.Y.
1986) (“control” over agreements held by corporate subsidiary).
There has been no claim here, nor does one
seem likely, that defendant lacked the legal right and/or practical ability to
obtain these documents from U.S. Forensic. Indeed, the evidence produced at the
hearing suggests precisely the opposite – the nature of the business
relationship between Wright and U.S. Forensic included the repeated provision
of documents and personnel by the engineering firm at the request of the
insurer. Common sense dictates a similar conclusion.
In fact, the argument by defendant’s
counsel seems to be limited to the fact that “[i]n the Defendant’s claims file,
which was fully and timely produced, was an original report, and then a
supplemental report.” DE [59] at 2. Thus, counsel’s contention is that by
producing its own file, Wright satisfied its discovery obligations and counsel
discharged its duty to perform a “reasonable inquiry” merely by asking Wright
for that file. Under the circumstances, this level of investigation did not
satisfy counsel’s obligations. As this Court repeatedly directed the parties to
produce all reports and written communications, an investigation that failed to
include an inquiry with the engineering firm is clearly insufficient under the
circumstances. This is particularly true where, as here, as defendant’s counsel
well knew, plaintiffs were not permitted to seek discovery directly from U.S.
Forensic, as such disclosure was not authorized under the CMOs, and there was a
reasonable chance that U.S. Forensic would prove to be defendant’s expert at
trial.
In fact, one particular aspect of discovery
in this matter undermines defense counsel’s claim that provision of the two
reports in Wright’s claims file effectively discharged its obligations under
this Court’s discovery orders. Among the items ordered produced in CMO 1 were
“all . . . photographs taken of the damage or claimed losses.” CMO 1 at 9.
Hernemar testified that while he attached approximately twenty photographs of
the property which were included as part of his December 9 (and ultimately
January 7) reports, he took more than fifty photographs which were supplied to
U.S. Forensic. The January 7 report, which became part of Wright’s claims file
and was produced, notes that:
Representative photographs are in the
attachments. The photographs taken but not included in the report are available
upon request.
Pl.’s Ex. 3 at 5. Thus, in order to comply
with this Court’s directive that all photographs be provided, defendant would
necessarily have had to contact U.S. Forensic to obtain the additional but
unsupplied photographs expressly identified in the report. Thus, counsel’s
limitation of its discovery inquiry to Wright’s claims file was a clear
violation of its discovery obligations.
Counsel for Wright repeatedly and
vociferously argue that plaintiffs’ counsel failed in its obligations
under the CMOs by failing to provide Wright – prior to the mediation – with a
copy of the fragment of the December 9 report that their clients had obtained
by photographing the title and conclusion pages with a cell phone in January
2013. To an extent, defendant is correct, and plaintiffs’ failure somewhat mitigates
the harm caused by defendant. Plaintiffs’ counsel is hereby admonished that
future violations of this kind could result in sanctions.
At the same time, after receiving evidence
that the engineers report apparently had been altered, counsel for Wright
initially did little to investigate the matter. See Deft.’s Mem. in
Opp., DE [59] at 2 (observing that the fragment “seems to be a draft
report” and suggesting “it might be that this was a document that had
not yet gone through the normal internal peer review process”). Next, as noted
above, counsel for Wright endeavored to prematurely circumscribe the hearing,
which would have left the Court and plaintiffs with a distinct misimpression of
the practices employed by U.S. Forensic. Tr. 119-124. And lastly, even after
the hearing, Wright attempted to defend the indefensible practices exposed
here. See, e.g., Deft.’s Post-Hearing Mem., DE [71] at 5 (comparing U.S.
Forensics practices to documented NASA peer review processes); 7 (“[t]here
was nothing nefarious on US Forensic’s part in the revision of the report”); 8
(comparing Garove’s alteration of the report to a jury trial).
Based on the above, I find that counsel for
Wright violated its obligations to comply with this Court’s discovery orders,[16]
thereby unreasonably prolonging this litigation, imposing unnecessary costs
upon plaintiffs and further contributing to the unwarranted delays in resolving
this claim.
B. Appropriate Remedies in this Case
Section 636(b)(1)(A) of Title 28, United
States Code empowers magistrate judges to hear and determine any pretrial
matter pending before the Court (with the exception of eight specifically
enumerated types of motion which are not relevant here). Because sanctions
pursuant to Rule 37 fall within the scope of pretrial matters, magistrate
judges are well within their authority to impose such sanctions. Thomas E.
Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990)(holding that
“[m]onetary sanctions pursuant to Rule 37 for noncompliance with discovery
orders usually are committed to the discretion of the magistrate, reviewable by
the district court under the clearly erroneous or contrary to law standard”).
“It is well settled that district courts enjoy wide discretion in sanctioning
litigants appearing before them.” Novak v. Wolpoff & Abramson, LLP,
536 F.3d 175, 177 (2d Cir. 2008); see also S. New England Tel. Co. v. Global
NAPS Inc., 624 F.3d 123, 143 (2d Cir. 2010) (reviewing district court’s
imposition of sanctions for failure to comply with court ordered discovery for
abuse of discretion). The Second Circuit has noted:
Even in the absence
of a discovery order, a court may impose sanctions on a party for misconduct in
discovery under its inherent power to manage its own affairs. DLC Management
Corp. v. Town of Hyde Park, 163 F.3d 124, 135–36 (2d Cir.1998). See
generally Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S. Ct. 2123, 115 L.
Ed. 2d 27 (1991) (“It has long been understood that ‘[c]ertain implied powers
must necessarily result to our Courts of justice from the nature of their
institution,’ powers ‘which cannot be dispensed within a Court, because they
are necessary to the exercise of all others.’”) (quoting United States v.
Hudson, 7 Cranch 32, 34, 3 L.Ed. 259 (1812)).
Residential Funding Corp. v. DeGeorge Fin.
Corp., 306
F.3d 99, 107 (2d Cir. 2002).
Rule 37(b) sets forth a non-exclusive list
of sanctions that the court, in its discretion, may levy on a party who “fails
to obey an order or permit discovery . . . .” Fed. R. Civ. P. 37(b)(2). As
relevant to the instant action, the listed sanctions include “prohibiting the
disobedient party from supporting or opposing designated claims or defenses, or
from introducing designated matters in evidence;” “striking the pleadings in
whole or in part;” as well as “treating as contempt of court the failure to
obey any order.” Fed. R. Civ. P. 37(b)(2)(A)(ii)-(iii), (b)(2)(A)(v),
(b)(2)(A)(vii). Again, the Second Circuit’s holding in Residential Funding proves
instructive:
Rule 37(b)(2) of
the Federal Rules of Civil Procedure provides, in relevant part, that if a
party fails to obey a discovery order, the court “may make such orders in
regard to the failure as are just,” including, but not limited to, “[a]n order
that ... designated facts shall be taken as established for the purposes of the
action in accordance with the claim of the party obtaining the order.”
306 F.3d at 106. The evidentiary
limitations provided in Rule 37(b)(2)(A)(i)-(ii) offer a means to craft an
appropriate remedy in this case.
The major effect of the reprehensible
practices uncovered here – as well as counsel’s failure to disclose these
practices at an earlier juncture – was to unnecessarily complicate and delay
this action. The context remains important: according to the City of Long
Beach, the losses here totaled approximately $205,000, while the testimony at
trial suggested that the insurer has already paid out about $80,000. Pl’s Ex.
1. Thus, based on these rough figures, the most that could be at issue here
amounted to approximately $125,000 and, based on the coverage limits of
$250,000, no more than about $170,000 could be at stake. To a government-backed
insurer, these are trifling figures, and in the world of federal cases, such
figures are unimpressive, particularly when compared to the exorbitant costs of
litigation. On the other hand, to individual homeowners, these are staggeringly
large sums. The violations in this case resulted in many months of delay for
plaintiffs, and, unnecessarily, a full day evidentiary hearing and numerous
briefs to fully explore these issues.
That ends now. Under Rule 37(b), in the Raimey
case, I hereby prohibit defendant Wright from supporting its defenses or
opposing plaintiffs’ claims with any expert testimony other than that of
Hernemar, and they may not produce, rely upon or create any expert reports
other than those already produced. Defendant’s application to obtain yet
another expert to examine plaintiffs’ claim (and its directive to plaintiff to
help prepare that expert) is hereby denied. While a more significant sanction –
such as striking the answer or even contempt – might be warranted on these
facts, I find that this sanction constitutes a just order, which is intended to
expedite this matter and avoid further unneeded complications in this case.
Having imposed that sanction, one
additional matter needs to be determined. As the Second Circuit has observed:
Rule 37(b) also provides that, in lieu of
or in addition to any other appropriate order,
the court shall require the party failing
to obey the order or the attorney advising that party or both to pay the
reasonable expenses, including attorney's fees, caused by the failure, unless
the court finds that the failure was substantially justified or that other
circumstances make an award of expenses unjust. Fed.R.Civ.P. 37(b)
Residential Funding Corp., 306 F.3d at
106-7. Further, the Second Circuit has held “[w]hen an attorney’s misconduct or
failing does not involve an attempt to place the other side at an unfair disadvantage,
any sanction should ordinarily be directed against the attorney rather than the
party, absent strong justification.” World Wide Polymers, Inc.,
694 F.3d at 160. Because counsel for plaintiff withheld information relating to
the apparent discrepancy in reports until the mediation, no monetary sanction
is appropriate for the period leading up to the mediation. However, given
discovery failures by defendant’s counsel, the unreasonable response by
defendant to the allegations, and counsel’s shocking attempt to curtail inquiry
during the hearing, it is reasonable to charge the costs associated with the
hearing to defendant’s counsel. Plaintiffs’ counsel, therefore, may make
application for reimbursement from defendant’s counsel for all reasonable costs
associated with the motion, the hearing and all related briefing, including
attorneys’ fees, travel costs and transcription costs, within thirty days of
the date of this Order.[17]
C. Plaintiffs’ Discovery Motion and the
Measures Needed to Ensure Fairness in Other Hurricane Sandy Cases
As a result of the startling findings
contained herein, plaintiffs in this case, as well as all other Hurricane Sandy
cases, must be provided with additional discovery to determine whether there
are other expert reports, drafts, photographs and email communications that
have not been disclosed to date. In their post-hearing brief, plaintiffs set
forth a broad discovery plan, seeking eight depositions and twelve broad
categories of documents. For the reasons set forth above, the costs of
implementing such a plan may well outweigh the amounts at issue in these cases.
The Committee assigned to manage these cases has endeavored “to speed
resolution of these matters while also reducing costs for the parties and the
burdens on the Court,” CMO 1 at 2, and ultimately “to facilitate the efficient
resolution of the cases.” CMO 3 at 1. The Committee’s approach has been
consistent with the Court’s mandate under Rule 1 to construe the rules “to
secure the just, speedy, and inexpensive determination of every action and
proceeding.” Thus, to implement a plan by which the litigation costs would
likely consume potential recovery would not serve the interests of any party.
Moreover, this massive undertaking would result in delays and complications,
which will further frustrate prompt resolution of these claims.
At the same time, the issues that have
surfaced require some accommodation. Therefore, as an initial response, I am
directing that – within thirty days of the date of this Order – all defendants
in any Hurricane Sandy case provide plaintiffs with copies of all reports
described in CMO#1 – plus any drafts, redlines, markups, reports, notes,
measurements, photographs and written communications related thereto –
prepared, collected or taken by any engineer, adjustor or other agent or
contractor affiliated with any defendant, relating to the properties and damage
at issue in each and every case, whether such documents are in the
possession of defendant or any third party. Such production should provide
counsel with sufficient information to proceed to mediation and/or settlement
and, where necessary, trials in these cases. Furthermore, upon receipt of such
information, counsel for plaintiffs may make application for further discovery
as appropriate and consistent with the principles set forth in this decision.
Obviously, it would behoove defendants in all cases to be as forthcoming as
possible at this juncture.
CONCLUSION
Based on the foregoing, it is hereby
ORDERED that:
1. In the Raimey case, pursuant to
Rule 37, defendant Wright is prohibited from supporting its defenses or
opposing plaintiffs’ claims with any expert testimony other than that of George
Hernemar, and they may not produce, rely upon or create any expert reports
other than those already produced.
2. Within thirty days of the date of this
Order, plaintiffs’ counsel in Raimey may make application to the Court
for reimbursement from defendant’s counsel for all reasonable costs associated
with this motion, the hearing and all related briefing, including attorneys’
fees, travel costs and transcription costs, consistent with the rulings set
forth herein; and
3. Within thirty days of this Order,
defendants in all Hurricane Sandy cases shall provide plaintiffs with
copies of all reports described in CMO 1 not previously produced – plus any
drafts, redlines, markups, reports, notes, measurements, photographs and
written communications related thereto – prepared, collected or taken by
any engineer, adjustor or other agent or contractor affiliated with any
defendant, relating to the properties and damage at issue in each and every
case, whether such documents are in the possession of defendant or any third
party.
SO ORDERED.
Dated: Central Islip, New York
November 7, 2014
/s/ GARY R. BROWN
Gary R. Brown
United States Magistrate Judge
________________________________________________________
In Altered Engineering Reports Must Be Disclosed - Sandy Flood Judge Requires Transparency, I noted Raimey v. Wright National Flood Ins., No. 14-CV-461 (E.D.NY Nov. 7, 2014), where Magistrate Judge Gary R. Brown specifically cited findings that insurance company engineering reports are routinely altered under a process dubbed “peer review.” A summary of those findings show that:
[T]he evidence adduced in this matter demonstrates that…an engineering firm retained by defendant Wright National Flood Insurance Company…to examine a storm-battered house in Long Beach, New York, unfairly thwarted reasoned consideration of plaintiffs’ claim through the issuance of a baseless report. The engineer sent by U.S. Forensic opined in a written report that the home at issue had been damaged beyond repair by Hurricane Sandy. A second engineer, who did little more than review the photographs taken by the inspecting engineer, secretly rewrote the report, reversing its conclusion to indicate that the house had not been damaged by the storm, and attributing – without sufficient evidence – defects in the home to long-term deterioration. This process, euphemistically dubbed a “peer review” by U.S. Forensic, was concealed by design from the homeowners, remained uncovered during the Court-assisted discovery process and came to light through near happenstance. In a misguided attempt to defend these flawed practices, defendant has elicited evidence that this “peer review” process may have affected hundreds of Hurricane Sandy flood insurance claims – and possibly more.
…
Troublingly, the “peer review” process extended beyond this one example. In this very case, as noted elsewhere, Hernemar described a peer review of his supplemental report that resulted, again, in a change to his ultimate conclusion concerning foundation damage upon reinspection. Tr. 109; 111-112. Furthermore, Hernemar stated that – in his rough estimation – he completed fifty Hurricane Sandy inspections for U.S. Forensic, and that in four or five instances, extensive changes were wrought as a result of so-called peer review. Tr. 89. This process was limited neither to this one engineer, nor specifically to U.S. Forensic. See Tr. 58 (describing process as “normal”); 110 (process was “standard”); 129 (“peer review process is actually a very standardized process across the field of engineering”); DE [71]-1 at ¶¶ 13-16 (describing hundreds of peer reviews of reports by different engineers).
Unlike any storm in the past decade, Superstorm Sandy flood insurance claims are disputed and litigated. This exposed practice is one reason.
Let’s not kid ourselves, these practices are not limited just to flood insurance claims. With the insurance industry vendors competing for business, providing insurers with reports that reduce claims severity is a significant reason why “peer review” and other similar “standard” processes exist. Wording of these reports that dovetail with exclusionary policy language seems to be an expertise of these so called “peer reviewers.”
The Eastern District of New York has fashioned a very practical manner to expose this by requiring all drafts and revisions to be turned over. Hopefully, this discovery requirement will be commonplace everywhere. It will help stop wrongful denials and underpayments of claims.
What should also happen is that the administrators of the National Flood Program should audit these practices. Any attorney’s fees and costs caused by such practices should be reimbursed to the Federal Treasury since the National Flood Program has been paying for these costs. Indeed, one should question why the Write Your Own (WYO) carriers were not overseeing these engineers properly to ensure that the customers were not being cheated out of benefits. The WYO carriers get paid to oversee the claims investigation, and it should not have taken a lawsuit to figure out that this wrongful practice is “standard.”
New Jersey Senator Robert Menendez and his staff did a wonderful job exposing many problems of the National Flood Program in recent Congressional hearings. I am certain they will follow up with this “peer review” process and call for a remedy.
In Senator Going to Bat for Flood Victims, we noted that New York Senator Kirsten Gillibrand wrote to FEMA Administrator Craig Fugate to help policyholders to get paid. Looks like Fugate has some evidence that customers of the National Flood Program and even his agency are getting ripped off because everybody deserves honest opinions of loss.
Imagine you have a structurally sound home on October 28, 2012. The next day, Hurricane Sandy hits and floods your home. When you return, you find your floors are buckled and severe foundation damage. Now imagine your flood insurance adjuster tells you either that the damage was preexisting or that flood insurance does not cover damage from soil shifting regardless of whether or not the soil shifting was caused by flood. Believe it or not, this is a situation in which many of our clients have found themselves.
Fortunately, they have an ally in New York Senator Kirsten Gillibrand. Senator Gillibrand recently wrote a letter to the administrator of FEMA regarding such claims.
The text of her letter is below.
Dear Administrator Fugate,
I am writing to express my complete dismay at recent reports that potentially thousands of homeowners in New York and New Jersey are being denied claims by FEMA for damage to the foundations of their homes as a result of flooding caused by Superstorm Sandy. I understand that these denials are based on a provision in FEMA’s standard flood insurance policy, which is found in the U.S. Code of Federal Regulations (44 CFR, Part 61, Appendix A), that states that FEMA does not insure for loss of property caused directly by earth movement even if the earth movement is caused by flood.
It is unacceptable for the Federal government to use such loopholes to deny responsible homeowners the benefits that they have paid for through their insurance premiums. To deny these claims pulls the rug out from underneath homeowners who are relying on their flood insurance policies to repair and rebuild their homes, now nearly eight months after Sandy hit our shores.
While I understand that flood insurance policies cannot cover every single loss that was incurred as a result of Superstorm Sandy, damages that were a result of storm surge and encroaching flood waters should not be excluded from flood insurance policies. To address this issue, I request that you immediately review the regulatory requirements for FEMA’s standard flood insurance policy and reconsider the denials that have been issued to homeowners based on the “earth movement” exclusion. I also request that you keep my office informed of the status of this request, and the actions that FEMA plans to take to address these concerns.
Thank you for your attention to this urgent request.
I hope FEMA responds favorably to this request. I will continue to monitor this issue and post updates as more information becomes available.
Tags: Exclusion,
FEMA, Hurricane
Sandy, Insurance,
flood
insurance
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Comments
(2) Read through and enter the discussion with the form at the
end
Mark Pitrone - July 15, 2013 8:50 PM
I will be pleasantly surprised if FEMA decides to pay off flood claims to
honest homeowners, but will not be surprised at all if FEMA decides to tell
them "too bad, so sad". I applaud the Senator from NY, but I am also
afraid that her letter will be read by blind eyes.
Len Marshall - September 4, 2013 2:24 PM
The same thing can be said about homeowners policies in general.Take the money and run. Sell the client on the complete coverage package that they think they are getting sold, and I mean sold. They don't find out that their coverage is bad until they submit a claim. Why do you think the insurance companies spend more money on advertising and on Washington and all the statehouses, then any other group? The policies that they sell and the federal programs that we all fund, are in many cases worse than useless. It's theft by deception and fraud under the color of law. Thousands of pages of regulations and useless consumer protection laws and the customer still doesn't get the coverage and protection that they thought they paid for.
As a public adjuster, I work for the customer/client and attempt to get a just settlement for them from their Insurance Carriers and FEMA. It's one battle at a time against the flood (no pun intended) of claims out there. Best estimate is that less than 5% of all claims are processed with the help of a public adjuster, meaning that 95% of all consumer claims are left to the whims of those same Carriers, who do not have the consumers best interests in mind. Better to spend Billions collectively on advertising than to settle a claim fairly.
As much as I hate more laws and regulations, we need new Insurance industry laws on a Federal basis. Either you are insured as the policy states and as we are sold into believing, or you are not. One page of blanket coverage followed by 100 pages of exclusions and if/then scenarios should be outlawed. We have plain law regulations that actually do regulate this type of problem, but nobody can decipher the law and dare put it into effect.
Public adjusters and lawyers can only do so much by fighting for the consumers/clients that have suffered losses.
Thank the Senator for her help and see if we can get the other 534 Senators and Representatives to help as well.
[1] “It’s been nearly
two years since the region got walloped by superstorm Sandy. Yet, incredibly,
even now, Sandy still packs a nasty punch every day for many of those who have
homes near the shore. Because of a series of grinding, glacial bureaucracies, they
still cannot afford the simple act of just going home.” Matt Davies, Sandy
Lingers Two Years Later, NEWSDAY, Oct. 17, 2014,
http://www.newsday.com/opinion/cartoon-sandy-lingers-two-years-later-1.9519217.
[2] “[W]e should not be
just litigating as a delaying tactic to not pay claims.” Testimony of FEMA
Administrator Craig Fugate at Senate Banking Committee hearing on Flood
Insurance Claims Process, Jul. 30, 2014, No. 14-MC-00041, Docket Entry (“DE”)
[497]-3.
[3]
See Case Management
Order (“CMO”) 1 at 1-2 (discussing efforts of Committee); Order dated October
15, 2014, 14-CV-41, DE [563] (describing EDNY Hurricane Sandy mediator training
program).
[4] In its response,
counsel for Wright correctly characterize the allegations raised by plaintiffs
as “indeed serious,” properly noting that such charges “go to the very core of
any court’s ability to perform its function.” DE [59] at 1. But rather than
approaching these charges with the measured or conciliatory response one might
anticipate, counsel, in the text of its memorandum filed with the Court, actually
threaten the plaintiffs with a substantive denial of their claim should they
fail to cooperate with Wright’s demand to provide information about this matter
to its yet-to-be-designated engineer. Id. at 13.
[5]
No
explanation was provided as to Fidelity’s role in this matter. However,
according to public records, Wright, the defendant, acquired Fidelity’s flood
insurance business, and as a result “Fidelity National Indemnity Insurance
Company . . . operate[s] as a wholly-owned subsidiary of WRM America.” WRM
America to Acquire Fidelity National Financial’s Flood Insurance Business,
WRIGHT SPECIALTY INSURANCE, Jul. 13, 2011,
http://www.wrightspecialty.com/newsletters-press-releases/44-wrm-america-to-acquire-fidelity-national-financial-s-flood-insurance-business.html.
[6]
Counsel for
defendant argues that the December 9 report, which was not stamped and sealed
by Hernemar, was not a “report.” See, e.g., Tr. 45, 85. However, this
argument is undermined by, among other things, Mr. Hernemar’s sworn testimony.
Tr. 101(“Every report I see as final. Everything I submit to US Forensic is a
final report”). He did, at the same time, vacillate on this point. Tr. 72 (“the
first report is not final in that sense. It is a draft you send. And if US
Forensic has no issue with that report, then I get the confirmation that my
report was good. And if I get the call from US Forensic, their engineer, and
want to discuss the report with me, then I know if they have some other points
they want me to consider maybe. We have a discussion. And that happened in this
case”).
[7]
During the
hearing, counsel for defendant, repeatedly attempted to block inquiry by
plaintiff into the bases for Garove’s opinions. Tr. 144-45 (“I'm going to
object only because it appears that the examination is now getting into what
this gentleman's opinion might be, which is subject to a different type of
hearing”); Tr. 149 (“If counsel wants to obtain the opinion of this witness as
to why he reached those conclusions, this is not what this hearing is all
about”). Then, notably, defendant’s counsel proceeded to elicit some of
Garove’s engineering opinions on cross-examination, and, in its post-hearing
submission, defendant submitted an 11-page, single-spaced declaration from
Garove, in which he further attempts to support his expert conclusions that
were injected, without attribution, into Hernemar’s report. See Tr.
158-161; DE [71]-1.
[8] Garove’s assertions
that “no evidence” was observed also would be true – and equally unavailing –
had the inspector been blindfolded during the inspection.
[9]
Curiously, at
the hearing, Garove did not testify that he was a partner at the firm, merely
that he was “employed” by U.S. Forensic. Tr. 128.
[10]
Counsel has
made a number of arguments about Hernemar’s credibility. As even a reading of
the cold record will reveal, Hernemar’s testimony may be charitably
characterized as confused.
[11]
The letter
advised that this figure could be used in lieu of a market value under
applicable FEMA rules. See Pl.’s Ex. 1; FEMA Publication 213 (“. . .the
structure's Actual Cash Value” may be “used as a substitute for market value
based on the preference of the community”).
[12]
Hernemar and
plaintiff Kaible presented divergent accounts of how this came to pass. Kaible
testified that Hernemar – after denying that he had authored the January 7
report – permitted Kaible to review the December 9 draft. Tr. 17. Hernemar
denied this, suggesting that Kaible must have improperly gained access to the
draft report. Tr. 114. Notwithstanding defendant’s arguments to the contrary, I
find the issue largely immaterial. However, based upon the testimony and my
evaluation of the witnesses, I fully credit the plaintiff’s account.
[13]
In yet another
twist, Hernemar reports that he did not at first believe that he had uncovered
foundation damage, but a “peer review” of his supplemental report by U.S.
Forensic convinced him otherwise. Tr. 109; 111-112. However, since Garove
testified that he did not review the supplemental report, the details of this
remain hazy. Tr. 111-112.
[14] The record is
replete with references to email communications between and among the
participants that clearly relate to these matters, including Hernemar, Garove,
Gary Bell and others.
[15]
Another
“defense” repeatedly asserted by counsel for Wright is that the insurer would
have no incentive to lowball or improperly refuse to pay claims because Write
Your Own policy (“WYO”) carriers are compensated as a percentage of payout, and
thus have an incentive to pay. Some – including one plaintiffs’ attorney in
this case – believe otherwise. See Merlin, Chip, National Flood
Claims Do Not Get Paid Properly Because the Only Incentive is to Underpay,
PROPERTY INSURANCE COVERAGE LAW BLOG, http://www.propertyinsurancecoveragelaw.com/2014/07/articles/consumer-protection/national-flood-claims-do-not-get-paid-properly-because-the-only-incentive-is-to-underpay/.
In any event, at least on this this record, defendant’s motives regarding the
payment of claims are entirely irrelevant to the actions of the engineering
company discussed herein.
[16]
Plaintiffs’
counsel expended extraordinary effort making a number of personal allegations
against Mr. Nielsen, one of defendant’s attorneys herein, and counsel for
defendant responded in kind. Having examined these matters with some care, I
find them wholly irrelevant and largely, if not entirely, without basis.
[17] For the reasons set
forth herein, the Court will not authorize the imposition of fees and costs
relating to the ad hominem attacks against Mr. Nielsen. Should
plaintiffs’ counsel pursue an application for fees, such amounts should be
identified and excluded.