FEBRUARY 19, 2015
(Bloomberg) -- The Federal Emergency Management Agency is
working to settle lawsuits by hundreds of Hurricane Sandy victims who challenged
denials or alleged underpayments of flood insurance claims.
Brad Kieserman, deputy associate administrator for insurance
at FEMA, disclosed the settlement talks during a break in a court hearing
Wednesday over whether an insurer, Wright National Flood Insurance Co.,
concealed from a homeowner the existence of conflicting reports over damages.
Private insurers working in partnership with FEMA’s National
Flood Insurance Program have come under scrutiny over allegations they denied
or rejected damage claims based on falsified reports. About 1,500 cases over
flood claims from the devastating 2012 hurricane are pending in New York and
New Jersey courts. FEMA may also review settlements with homeowners with
disputed payments who didn’t sue, Kieserman said.
“We are going to consider all of them,” he said.
Separately, state law enforcement agents on Wednesday
executed a search warrant at the Uniondale, New York, office of HiRise
Engineering PC, according to Liz DeBold, a spokeswoman for New York Attorney
General Eric Schneiderman. The firm did work for Hartford Financial Services
Group Inc., which also participated in the FEMA program.
“HiRise has a fifteen-year history of ethical business
practices and supports FEMA’s initiative to resolve all the outstanding
Hurricane Sandy claims,” Joe Celentano, the company’s president and chief
executive officer, said in a statement. “We are cooperating to the fullest
extent possible with all parties in an effort to address and resolve the issues
that have been raised.”
Long Beach
Wednesday’s hearing in federal court in Brooklyn, New York,
centered on allegations by Deborah Ramey, who said a rental property she owned
in Long Beach was severely damaged by the flood yet falsely described as having
had long-term damage by an engineer working on behalf of the Wright Flood.
The engineering firm, U.S. Forensic LLC, produced
conflicting reports about damage to Ramey’s home, according to evidence at an
earlier proceeding. After an initial engineering report found her home was
heavily damaged by the storm, a later report concluded much of the loss was due
to the age of the roughly 80-year-old property.
In November, U.S. Magistrate Judge Gary Brown said he feared
there may be conflicting reports in many other flood insurance cases, and
hundreds of homeowners are now searching for evidence that similar tactics were
used to deny their Sandy-related claims.
In court, Brown is weighing whether to penalize Wright Flood
and a law firm that represented it and other insurers. Representatives from the
Metairie, Louisiana-based firm, Nielsen Carter & Treas LLC, didn’t attend
the hearing, and a phone call wasn’t immediately returned.
Takes The Fifth
During the proceeding, Jeff Moore, who was Wright Flood’s
vice president of claims when Ramey was disputing her claim, refused to answer
questions posed by her lawyers, citing his Fifth Amendment right under the U.S.
Constitution not to incriminate himself.
Dolores Glass, a spokeswoman for St. Petersburg,
Florida-based Wright Flood, declined to comment on Wednesday’s hearing. A call
to U.S. Forensic after regular business hours wasn’t immediately returned.
Other insurers participating in the FEMA program, including
affiliates of Travelers Cos. and Hartford Financial, have also been accused by
homeowners in separate lawsuits of rejecting or underpaying claims based on
falsified reports.
Hartford has denied allegations raised in a homeowner suit
and said it arranged for a new engineering review following accusations that a
report was improperly altered, Thomas Hambrick, a spokesman for the insurer,
said in a statement. The Hartford suspended use of the engineering firm at
issue, he added.
Matt Bordonaro, a spokesman for New York-based Travelers,
declined to comment on settlement talks with FEMA.
Curtail Hearing
Last year, Nielsen Carter was penalized for failing to turn
over a draft report and trying to curtail a hearing on the reports. Ramey’s
lawyers have said they may seek additional sanctions if the firm is found to
have engaged in a cover-up.
Partner Gerald Nielsen argued at a December hearing that the
earlier penalties were unfair, that the insurer did nothing wrong and that the
engineers had engaged in an appropriate “peer review” process to come to the
final conclusion for the report.
“We did not willfully violate this order,” he told U.S.
District Judge Joseph Bianco in an appeal of sanctions issued by Brown. “Wright
Flood did nothing wrong.”
Bianco upheld the sanctions.
Nielsen Carter has stepped down as counsel for insurers and
been replaced in cases pending in federal courts in Brooklyn and in Central
Islip, New York. The firm continues to represent insurers in Hurricane
Sandy-related cases in New Jersey, according to lawyers for the homeowners.
The case is Raimey (Ramey) v. Wright National Flood
Insurance Company, 2:14-cv-00461, in U.S. District Court, Eastern District of
New York (Central Islip).
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LONG ISLAND
ENGINEERING FIRM RAIDED IN CRIMINAL PROBE OF SUPERSTORM SANDY CLAIMS DENIALS
FEBRUARY 18, 2015
LONG ISLAND, NEW YORK
A team of state investigators raided the offices of a
Uniondale engineering firm Wednesday, marking the first public step in a
month-long criminal probe into whether property damage reports were forged to deny
flood insurance claims to Superstorm Sandy victims.
Authorities from the state attorney general's office arrived
at the offices of GEB HiRise on Charles Lindbergh Boulevard at roughly 9 a.m.
and emerged around 2:30 p.m. carrying file boxes and computers
HiRise president and chief executive Joe Celentano said the
company was cooperating with the probe.
A spokeswoman for Attorney General Eric T. Schneiderman
confirmed investigators executed a search warrant at the company's offices in
connection with allegations of forged engineering reports, but declined to
elaborate further.
HiRise and a second engineering firm, U.S. Forensic of
Metairie, Louisiana, have been under investigation since as early as November
by New York authorities for allegedly rewriting reports after the 2012 storm to
blame damage on erosion or structural defects, rather than flooding.
The alleged forgeries, lawyers for homeowners say, were part
of a broad effort to help companies processing claims for the government-run
National Flood Insurance Program avoid paying millions in settlements to storm
victims.
Both engineering firms have denied wrongdoing. The insurance
companies accused in civil cases of participating in the alleged scheme have
also insisted they did nothing wrong.
"HiRise has a fifteen-year history of ethical business
practices," Celentano said.
As the search unfolded in Uniondale, an executive for one of
the insurance companies under scrutiny, Wright National Flood Insurance, of St.
Petersburg, Florida, refused to answer questions about the alleged forgeries
when called to testify at a civil hearing in federal court in Brooklyn.
The executive, Jeff Moore, repeatedly invoked his right to
remain silent when asked if his company hired unlicensed engineers after Sandy,
whether it ordered engineers to forge reports for thousands of insurance claims
and other inquires. He even declined to confirm his title at the company.
"Under the advice of counsel, I am going to assert my
constitutional privilege under the Fifth Amendment and respectfully decline to
answer the question," Moore, Wright's vice president of claims, said in
response to each question.
The hearing, called to determine whether the company should
be sanctioned for misleading a judge about whether it knew about a forged
report for a house in Long Beach, also included testimony from the founder of
U.S. Forensic: Gary Bell.
Under questioning from J. Steve Mostyn, a lawyer for the
Long Beach homeowners, Bell acknowledged his engineering firm was not licensed
to work in New York when the report for the home was written in late 2012.
According to state records, U.S. Forensic Associates LLC was not certified to
practice in New York until September 2014.
Bell's lawyer, Larry Demmons, declined to comment after the
hearing.
The accusations of forgery initially arose amid the nearly
1,000 pending lawsuits filed by homeowners after Sandy over disputed flood
insurance claims. Those allegations have prompted outcry from the judges and
politicians and eventually led to the probe by the attorney general's criminal
fraud unit.
The Federal Emergency Management Agency, which runs the
flood insurance program, is undertaking its own investigation.
Flood settlements are paid by the federal government -- not
the companies that process claims. Critics say the program gives those private
contractors financial incentive to cut corners on claims by penalizing them for
any overpayments to homeowners, but not for underpayments.
In December, FEMA announced a series of reforms to ensure
claims aren't underpaid, including instituting penalties for underpayments.
Earlier this week, Mostyn and FEMA's recently appointed
deputy associate administrator, Brad J. Kieserman, began negotiating a broad
framework to settle all of the roughly 900 pending lawsuits over disputed flood
insurance lawsuits in New York. After two days of talks, Mostyn said they were
approaching a deal.
During a brief interview Wednesday, Kieserman said he
couldn't comment on specifics of the negotiations, but added: "I am optimistic."
Kieserman also declined to say whether any deal might
include a provision to compensate homeowners who have not filed lawsuits but
suspect they may have been victims of the alleged forgery scheme. He did not,
however, rule it out.
"Everything is on the table in settlement
negotiations," he said.
The engineering firms are under pressure from the lawyers of
the insurers to underestimate the damages, unless the homeowner provides proofs
and receipts and so on. They are forced to spend a small amount of time
at each damaged site, doing a cursory review and without much testing of any
kind. Then they shift the burden on the homeowner to provide proofs to
the contrary and to also perform their own engineering inspection. Of
course this raises a bad faith claim and the insurers could be found liable for
10 times or more the actual damages. So, this is an enormously important
development, as it has been raised to a criminal level. I doubt that it
was criminal behavior, just plain old under-assessment of the damages as has
been done for many-many years.
This has been going for so long, that it is imbedded in the
structure of the system. Deny, deny, deny, deny is the mantra used by the
insurers and their lawyers and force the homeowner to capitulate - and
unfortunately they do, because very few have the time and patient and knowledge
to go through with the claim process of the size of Superstorm Sandy damages.