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.
/________________________________________________/
HOMEOWNERS ACCUSE Hartford OF
Racketeering FOR ALTERING ENGINEERING REPORTS TO UNDERPAY FLOOD DAMAGE CLAIMS
DURING SS SANDY
We
have reported in this blog several times about the allegations of altering
engineering reports by insurers and/or insurers’ engineering contractors to
underpay or deny flood damage claims. We
do concur with these allegations, as the WYO insurers always tend to underpay
the claims, unless the homeowner or policyholder can substantiate every single
item and provide every single receipt.
When the homeowners cannot provide receipts, then all the expenses are
denied. The inspection company US
Forensic has been caught red-handed in altering reports to suit their clients,
i.e., the insurers. Federal judges have
recently issued stern warnings regarding such practices and ordered the
disclosure of all draft of reports. Here
is the recent blog:
NEW
YORK JUDGE ORDERS THE DISCLOSURE OF ALL DRAFTS, REDLINES, ETC REPORTS IN RE
SUPER STORM SANDY LITIGATION
Now,
a class action lawsuit has been filed against one insurer, its engineering
contractor and the lawfirm that have been handling the defense of the flood
damage lawsuit.
A
couple claiming damage from Hurricane Sandy sued a Hartford Financial
Services Group Inc. (HIG) unit, an engineering firm and a law firm, accusing the
group of engaging in racketeering by scheming to use fraudulent accident
reports to deny claims.
Homeowners
Stephen and Sarise Dweck, who had claimed the Hartford Insurance Co. of the
Midwest had breached its flood insurance contract with them, said in a fresh
complaint yesterday in Brooklyn federal court that
the unit's conduct also constituted racketeering because denial of coverage was
based on a version of an engineering report that had been altered to remove a
description of widespread flood damage.
HiRise Engineering PC altered the report,
and Nielsen Carter & Treas LLC, a law firm that represents
flood insurance providers, either directed or participated in the scheme, while
Hartford “knew or should have known” about the fraud and “used the falsified
report as an excuse” to deny benefits, the Dwecks alleged in the new complaint
in their November lawsuit. Others who participated in the claims process are
also named as defendants.
The
Hartford unit is the second insurer that provides coverage on behalf of the
government’s National Flood Insurance Program to be accused of relying on
fraudulently altered engineering reports to reject or underpay claims after the
storm.
Long
Beach
Earlier,
owners of a storm-battered home in Long Beach, New York, filed a
racketeering suit against Wright National Flood Insurance Co. alleging that it,
too, denied claims based on doctored reports.
U.S.
Magistrate Judge Gary R. Brown, who discussed the discrepancy between reports
for the home in a Nov. 7 ruling, said he feared the practice was “widespread”
and ordered that all reports be disclosed to policyholders.
Sandy,
the largest Atlantic hurricane
on record, caused about $60 billion in damage in New Jersey, New York and Connecticut when it struck in
October 2012. It killed more than 100 people in the U.S. and triggered the
worst flooding in the more than 100-year history of the New York City subway
system.
The
Dwecks are among about 1,000 policyholders whose disputes with insurers over
Sandy claims are pending in federal court in Brooklyn and Central Islip, New York.
Coney
Island
In
a letter this week to the judge, lawyer J. Steve Mostyn described the
experience of the Dwecks after their home in the Manhattan Beach area of
Brooklyn near Coney Island was devastated by the storm. He filed letters by
another attorney for the Dwecks, Mitchell
Shpelfogel,
and exhibits to support the argument that a damage report was changed to
eliminate flooding as the cause.
After
the Dwecks notified Hartford about the changed report, a third was submitted by
another company that also reported lack of flood damage from the storm,
according to the complaint.
Thomas
Hambrick, a spokesman for Connecticut-based Hartford, said the company denies
the allegations in the suit and expects to seek its dismissal. He said Hartford
asked for a new report by an independent engineer when it was notified of the
problem.
Sandy
“was a devastating storm for many individuals and small businesses, and our
focus as a company is on helping customers recover following a loss,” he said
in a statement.
Other
Defendant
A
HiRise representative in Uniondale, New York, didn’t respond to a message left
at the company’s office. William T. Treas, of Metairie, Louisiana-based Nielsen
Carter,
who is also named as a defendant, didn’t immediately return a call seeking
comment on the case.
The
Hartford unit and Wright participate in a program run by the Federal Emergency
Management Agency
through which private insurers are allowed to provide flood coverage underwritten
by the government. The government, which is ultimately responsible for paying
for damage, also shoulders expenses for litigating against policyholders,
according to the complaint.
Because
of the way incentives are structured under the program, insurers can profit by
incurring additional expenses through claims-handling, the Dwecks alleged. The
law firm and engineering firm benefited from additional business, the couple
said.
‘Took
Advantage’
The
firms “took advantage of the incentives of the reimbursement program to prolong
litigation in order to charge and collect unnecessary claims handling expenses
and attorney’s fees,” the Dwecks said in the complaint.
The
Hartford unit also participated in the scheme in order to curb generous payouts
that might trigger an audit by FEMA, according to the complaint. If audited and
found to have overpaid, the insurer may have face financial penalties,
according to the complaint.
Lawmakers
including U.S. Senators Kirsten Gillibrand and Charles Schumer of New York and U.S.
Senators Robert Menendez and Cory Booker of New Jersey have
been pushing FEMA to address potential manipulation in flood insurance claims
handling. Gillibrand and Schumer have also asked the U.S. Government
Accountability Office to audit FEMA’s litigation expenses.
A
spokesman for FEMA, Rafael Lemaitre, said in an e-mail that the agency “will be
taking steps to address the Senate delegation’s concerns” and “will do whatever
it can within its authorities to have peer reviews made available to
policyholders,” referring to versions of engineering reports.
Earlier,
the agency asked the New York federal magistrate judge to reconsider his demand
that reports be disclosed, saying it was burdensome and “unjustly applies to
the conduct of one engineering firm to suggest systemic misconduct by all
engineering firms.”
The
case is Dweck v. Hartford Insurance Co. of the Midwest, 1:14-cv-06920, U.S.
District Court, Eastern District of New York (Brooklyn)
/_______________________________________________/
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.]
//__________________________________________________//
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.).
/_________________________________________/
Superstorm Sandy, biased engineering reports
and Bad Faith Claims Handling: THE PRACTICES OF us forensic, haag
engineering, donan engineering and others who derive substantial revenues from
insurers on the SPOTLIGHT
Posted: 09 Jan 2015 07:39 AM PST
Representing people who have lost homes and businesses
following Sandy has been gut-wrenching. And, I have to say, many of the
carriers haven’t made it any easier. I could catalog some of the problems we’ve
seen, but that would make this a very long post. Instead, I’d like to focus on
one aspect: The use of engineering “experts” who derive substantial income from
representing insurance companies.
In his book, “Delay, Deny, Defend,” Rutgers professor
Jay Feinman writes: “An insurance company’s greatest expense is what it
pays out in claims. If it pays out less in claims, it keeps more in profits.
Therefore, the claims department became a profit center rather than the place
that kept the company’s promise.” Professor Feinman goes on to discuss
the unholy alliance between State Farm and an engineering company known as Haag
Engineering, and specifically the allegations that State Farm hired Haag to
help “investigate” claims, “knowing that the firm would produce reports
favorable to the insurer about the cause and extent of the damage, giving State
Farm an excuse to deny or reduce payments.”
In a recent Sandy case, Raimey v. Wright National, a
Federal Magistrate in New York confronted a similar issue, and imposed
evidentiary sanctions on the carrier. Raimey involved a flood insurance
claim, and the carrier hired an outfit called U.S. Forensic to examine a
storm-battered house, which was situated about one block from the beach.
U.S. Forensic produced a report confirming structural damage to the house
associated with flooding from Sandy, and stating that “repair of the building
is not economically viable.” But the carrier never sent this report to
the policyholder. Instead, U.S. Forensic mysteriously produced a second report
about a month later, this one reversing course 180 degrees and stating that
there was no structural damage associated with flooding, and that any
damage to the house was caused by “long-term differential movement of the
supporting soils at the site,” and therefore not covered.
Guess which report the carrier relied upon?
Coverage litigation followed, and Wright National’s
counsel withheld the first report from discovery. But through what the
Court described as “happenstance,” policyholders’ counsel obtained access to
the first report. At a hearing to address Wright National’s failure
to produce the earlier contradictory report, and the circumstances surrounding
the preparation of the earlier contradictory report, the Court unflatteringly
described the issues as follows: “The evidence adduced in this matter
demonstrates that U.S. Forensic, 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,
and remained uncovered during the Court-assisted discovery process...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.” (Emphasis
added.)
Yikes.
The Court then entered an order prohibiting Wright from
obtaining a new expert for trial, and restricting Wright’s expert testimony to
that of Henemar, the U.S. Forensic engineer who prepared the original report
(the one subsequently doctored through “peer review”). Given these
restrictions, I imagine that any trial will not go well for the carrier. (In
other words, it’s probably time to make a phone call for authority to settle.)
The Court also allowed sanctions directly against the
carrier’s counsel, writing: “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 [with
respect to the two contradictory reports], 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.”
On appeal, the District Judge affirmed the Magistrate’s
rulings.
All in all, not a very good day for Wright National –
and the part about sanctions being issued directly against counsel is
unpleasant to think about for all lawyers.
