Most of the flood insurance claims filed in the wake of 2012’s Hurricane Sandy have long since been settled. But many owners claim that they didn’t get enough money, with some even suing their insurance carriers for more. More than 1,000 cases have dragged on for months in New Jersey and New York federal courts with little to no results.
But there’s a new wrinkle: Homeowners’ attorneys now say that insurance companies and their engineers followed a routine practice of rewriting the reports filed by freelance engineers hired to inspect the flooded houses, using the altered reports to deny claims. Based on that pattern, high-powered Texas trial lawyer Steve Mostyn has filed class action suits against several engineering firms and insurance companies under the federal Racketeer Influenced and Corrupt Organizations (RICO) statute.
The fiddling first came to light when homeowners Deborah Raimey and Larry Raisfeld sued flood insurance carrier Wright National over their flooded-out house in Long Beach, N.Y. Wright denied the couple’s claim, referring to an engineering report by Louisiana-based engineering firm U.S. Forensic. But Raisfeld found out that the engineer who actually visited the house had originally concluded the building was a total loss because of the flood. Another engineer employed in the U.S. Forensic office, without viewing the house, rewrote the report and reversed the conclusion.
Attorneys for the insurance company did not produce the original report during discovery, and also tried to keep the second engineer from being called to testify. U.S. Magistrate Gary Brown punished the insurance attorneys for what he called “reprehensible gamesmanship” by requiring them to pay the plaintiff’s
attorney fees for the hearing. Brown also issued a blanket order for all parties in all flood suits in his court to produce every version of any report in every case, including rough drafts and revisions.
It’s an early win for Mostyn, but it pales beside the dollars he might reap in the bigger game. Mostyn, a controversial figure in his home state, made a fortune by winning hundreds of millions of dollars in lawsuits targeting the Texas Windstorm Insurance Association after 2008’s Hurricane Ike. New York and New Jersey laws don’t provide for punitive damages or attorney’s fees in a contested flood insurance case, according to Philadelphia trial lawyer Maxwell Kennerly. But Mostyn is suing in federal court. “RICO & Class Action give him the possibility of treble damages and attorney’s fees, making the cases worthwhile,” Kennerly says.
The defense also has deep pockets. Carriers with the National Flood Insurance Program (NFIP) can charge the Federal Government for their legal expenses. But politically, that could put them in a harsh light as flooded-out homeowners have to fight the government to unveil claims adjustment discrepancie. Already, U.S. Senators have prevailed on FEMA to order the release of all flood claim reports in contested cases, and the New York Attorney General’s office has opened a criminal investigation.
Insurance company executives call the report rewriting “peer review,” and they say it’s a common practice. Wright National’s president, Neal Conolly, argues that the original report from the Raimey case was only changed because the investigating engineer went back and got a better look. “I’m shocked that anybody would be surprised that somebody who wasn’t able to see the full condition [of the building] could change their mind,” Conolly says.
But two federal judges disagree. On appeal, U.S. District Court judge Joseph Bianco upheld magistrate Brown’s sanctions on Wright’s legal team. “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,” Bianco wrote.
And Mostyn has more examples, including two where court filings say that the person revising the report (a manager at engineering firm HiRise) was not a licensed engineer. New York engineer Harold Weinberg says that he never saw the revised reports issued over his signature and bearing a photocopy of his engineer’s seal. Weinberg, for one, is not calling that peer review, testifying in a deposition, “The False Report issued by HiRise, purportedly in my name, is a forgery.”