A UNITED STATES DISTRICT JUDGE HAS AFFIRMED A MAGISTRATE JUDGE'S IMPOSITION OF SANCTIONS FOR CONDUCT IN THE COURSE OF ADJUSTING AND LITIGATING SANDY CLAIMS

A UNITED STATES DISTRICT JUDGE HAS AFFIRMED A MAGISTRATE JUDGE'S IMPOSITION OF SANCTIONS FOR CONDUCT IN THE COURSE OF ADJUSTING AND LITIGATING SANDY CLAIMS

A United States District Judge has affirmed a Magistrate Judge's imposition of sanctions for conduct in the course of adjusting and litigating Sandy claims.  The Magistrate Judge's decision has been provided in earlier blogs and is excerpted below.

    The District Judge laid out the entire situation concisely at the beginning of a longer opinion.  The Judge's opening is well worth reading in full:

Pending before the Court is defendant's appeal of an order issued by Magistrate Judge Gary R. Brown on November 7, 2014, In re Hurricane Sandy Cases, ___ F.R.D. ___, 2014 WL 5801540 (E.D.N.Y. Nov. 7, 2014)(the “November 7 Order”), addressing the disclosure of draft engineering reports on insured properties allegedly affected by Hurricane Sandy, and imposing evidentiary sanctions on defendant Wright and monetary sanctions on its counsel for failing to obey discovery orders and causing undue delay to these proceedings. The sanctions arose from (1) a failure by defendant and its counsel to disclose an initial written report (dated December 9, 2012) by George Hernemar, an engineer from U.S. Forensic (“USF”), who had inspected the home at issue and concluded that it had been damaged beyond repair by Hurricane Sandy, and (2) the conduct by defendant's counsel at a subsequent evidentiary hearing before Magistrate Judge Brown to determine how the undisclosed initial report was modified into a second subsequent report, dated January 7, 2013 (disclosed to plaintiffs), which eliminated certain observations by the engineer and reached the exact opposite conclusions—namely, that the defects in the home had not been caused by the storm, but rather were due to long-term deterioration. In particular, following the evidentiary hearing, Magistrate Judge Brown found, inter alia, the following: (1) defendant and its counsel violated their obligations to comply with this Court's discovery orders by failing to produce the initial engineering report; (2) the process, in this particular case, that led to the alterations of Hernemar's observations in the initial report and the reversal of the report's conclusions was “flawed,” “unprincipled,” “reprehensible,” and “highly improper”; (3) the failure to disclose the initial report resulted, in this case, in “unreasonably prolonging this litigation, imposing unnecessary costs upon plaintiffs and further contributing to the unwarranted delays in resolving this claim”; and (4) “given the 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.” (November 7 Order, at 13, 15–25.)

For the reasons set forth in detail below, the Court affirms Magistrate Judge Brown's November 7 Order in its entirety. More specifically, there is no basis for this Court to conclude that Magistrate Judge Brown's findings or his sanctions were clearly erroneous or contrary to law, as would be required for a reversal. Having carefully reviewed the record, it is absolutely clear to this Court that the process that led to the modification of the initial engineering report (including the removal of observations that were inconsistent with the new conclusions) was flawed, and the concealment of that initial report and the process that led to the new report (including conduct at the evidentiary hearing) has prejudiced plaintiffs in terms of delay and costs in this litigation, such that the sanctions were warranted.

In re Hurricane Sandy Cases (Raimey v. Wright Nat'l Flood Ins. Co.), ___ F. Supp. 3d ___, 2014 WL 7399179, *1 (E.D.N.Y. December 31, 2014)(Bianco, United States District Judge).  [Emphasis added.]

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November 12, 2014

FEDERAL COURT IN NEW YORK INVESTIGATES SANDY ADJUSTING.

    Mr. George Hernemar is a licensed engineer.  His employer, an engineering firm, sent Mr. Hernemar to inspect approximately 50 homes for damage Sandy may have caused to them in 2012.

    The engineering firm that Mr. Hernemar worked for was retained by the policyholders' insurance company to investigate their claim of damage.  The policyholders owned a rental house adjacent to their own home.  Upon inspection of the rental house, Mr. Herneman affirmatively wrote that he observed among other things that Sandy structurally damaged the building.

    "However, plaintiffs never received this report from their insurance carrier."  Instead, the policyholders received a report written afterward, which contained the conclusion that, among other things, "the subject building was not structurally damaged".  In re Hurricane Sandy Cases (Raimey v. Wright National Flood Insurance Co.), 2014 WL 5801540 *3 (E.D.N.Y. November 7, 2014)(Brown, U.S.M.J.).  [Emphasis by the Court.] 

    Although Mr. Hernemar took responsibility for both reports and contended that the first one was only a draft and not a real report, the Court noted Mr. Hernemar's testimony that the "'rewrote my report'" and that the second report did not exist until after Mr. Hernemar had a telephone conversation with a representative of his employer.

    The first Hernemar report surfaced in the case only by "happenstance," the Court said.  It was apparently not produced in discovery.  The second Hernemar report was produced in discovery and, as noted, the policyholders received the second Hernemar report, but not the first one.

      "Based upon this [second] report, defendant refused to pay for any structural damage to the home."  In re Hurricane Sandy Cases (Raimey v. Wright National Flood Insurance Co.), 2014 WL 5801540 *3 (E.D.N.Y. November 7, 2014)(Brown, U.S.M.J.).

    Under all the evidence before it in this case, the Court concluded that adjustment of Sandy claims is apparently ripe for investigation:

   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.

 In re Hurricane Sandy Cases (Raimey v. Wright National Flood Insurance Co.), 2014 WL 5801540 *1 (E.D.N.Y. November 7, 2014)(Brown, U.S.M.J.).

    In addition to adjusting practices in all of the consolidated Sandy-claim-cases, the Court considered the case before it, concluding that in the case at bar (1) the defendant insurance company "is prohibited from supporting its defenses or opposing plaintiffs' claims with any expert testimony other than that of George Hernemar," and (2) the plaintiffs' counsel may file a motion "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".

    With respect to this case and all of the other pending consolidated Sandy cases, the Court further ruled: 

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.

In re Hurricane Sandy Cases (Raimey v. Wright National Flood Insurance Co.), 2014 WL 5801540 *15 (E.D.N.Y. November 7, 2014)(Brown, U.S.M.J.).