[This article was first published on IRMI.com and is reproduced with permission. Copyright 2014, International Risk Management Institute, Inc.]

We recently marked the two year anniversary of Superstorm Sandy. With that anniversary came an influx of litigation in response to insurance companies denying or overly limiting coverage. That litigation recently revealed highly questionable practices within the industry.

Most striking is the opinion in Raimey v. Wright National Flood Insurance Company, Case No. 1:14-MC-00041-CKP-GRB-RER (E.D.N.Y. Nov. 7, 2014). There United States Magistrate Judge Gary R. Brown exposed “reprehensible [and possibly widespread] gamesmanship” by a professional engineering firm, U.S. Forensic, retained by Wright National Flood Insurance to investigate damage to the Raimey home following Superstorm Sandy.

A U.S. Forensic engineer visited and photographed the Raimey home following Sandy and prepared a report detailing his conclusion that the home had been damaged beyond repair. The report specifically noted that the structural damage was the result of “hydrodynamic forces associated with the flood event of October 29, 2012” and that repair was “not economically viable.” That report, however, was subsequently re-written under the guise of “peer review” by another U.S. Forensic engineer who relied solely on photographs. The new report reached the opposite conclusion — that the home was not structurally damaged by hydrodynamic forces from the flood and the damages were the result of “long-term” deterioration. The insurance carrier denied coverage based on the latter report, and never produced the earlier report. The Court found that the insurer’s failure to reveal the existence of the earlier report, let alone the report itself or any drafts and communications concerning the preparation of the reports, was particularly “reprehensible” because the insurer had 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.” As a result of this conduct, the Court ordered all defendants in “any” Hurricane Sandy case to provide plaintiffs with copies of “all reports … 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.” This Order was resisted by the insurance companies in motions for reconsideration, which motions were denied in a strongly worded Order on December 8, 2014. The Court will hold another evidentiary hearing to address the fact that the misconduct does not appear to be limited to the Raimey claim.

A similar practice was alleged in two other cases, Dweck v. Hartford Insurance Company of The Midwest, No.: 1:14-cv-06920-ERK-JMA (E.D.N.Y.) (filed on Dec. 3, 2014), and Shlyonsky v. HiRise Engineering, P.C., No.: 1:14-cv-07136-RJD-MDG (E.D.N.Y.) (filed on Dec. 5, 2014). In both cases the policyholders allege that a New York licensed engineer inspected their homes after Sandy and found substantial flood damage.

The Raimey case, in particular, has enraged a community still struggling to re-build after Sandy. It has generated intense interest from New Jersey Senators Robert Menendez and Cory Booker who, on November 14, 2014, jointly wrote to FEMA as the party “ultimately responsible for [the Write Your Own (WYO) insurance companies’] behavior.” The Senators highlighted FEMA’s “unbalanced penalty structure” that punishes WYOs for overpaying on claims which results in “aggressive[]” practices to reduce the payments to policyholders. The Senators characterized the Raimey opinion as the “smoking gun of a pervasive and intentional effort to lowball disaster victims …” and based on “FEMA’s lack of oversight or tacit encouragement of these procedures, WYO insurance providers continue to engage in these highly questionable practices.” The Senators seek to have FEMA conduct a full investigation into the “pervasiveness” of the concealed report alterations and report to Congress on its findings with a plan for increased “transparency” and consumer protections. They further seek to have WYOs “comply with the New York Court order [Raimey] for New Jersey cases and fully disclose to policyholders each variation of adjuster and engineering reports on the assessment of the policyholder’s damage with relation to the policyholder’s coverage, including an explanation of why an additional report was ordered” as well as sanctions and penalties imposed against wrongdoers.

FEMA responded by committing to reform the claims process and called on the WYO insurers to comply with Judge Brown’s Order. FEMA will now reopen and reconsider some 270 appeals of claim denials and take administrative action to ensure that WYO carriers are penalized equally for under-payment and over-payment on flood claims. FEMA further agreed to appoint an advocate to help policyholders through the Sandy claims and appeals process.

Policyholder counsel in Sandy cases need to recognize what may be going on and conduct thorough expert discovery to make certain that there has been no misconduct similar to that in Raimey and, allegedly, in Dweck and Shlyonsky. Expert reports are the cornerstone of all property insurance claims, not just flood claims. As a result, the contents and supporting documentation should be carefully examined.