Fraud, fraud, fraud. Some days one would think the “f” word is the only word known to some in the insurance industry, and some of their friends. Certainly they’ve used the word a lot in demanding transparency in asbestos trust claiming related to torts. As to transparency in asbestos trust claiming, I whole heartedly agree that there is a need for full transparency. Indeed, I  was arguing for asbestos trust transparency back in 2008 and 2009, well before the insurance industry or the Chamber of Commerce paid any serious attention to the message I was advocating as to the lack of transparency in the way the trusts were operating.

In the course of events, the insurance industry has time and again applauded two judges who held evidentiary proceedings focused on facts related to tort system claiming. One set of hearings arose in silica claiming, and Judge Jack’s hearings and findings are by now well told stories. Also well known – but not yet fully public –  are Bankruptcy Judge Hodge’s Garlock hearings and findings related to the well known disconnects between asbestos trust claims and tort claims. Judge Jack’s hearing produced volumes of useful, public information on silica claiming. And, some day soon, the end of bankruptcy court secrecy in Garlock should result in a useful, public record of some of the facts, as opposed to spin, regarding asbestos claiming to trusts and in the tort system.

Now, however, the “fraud” shoe appears to be going on the other foot as to tort system claiming. This time the focus is on fraud perpetrated by members of the property insurance industry and its cadre of repeat player supporting experts. Specifically, a federal Magistrate Judge in New York late last week published an opinion arising out of  an evidentiary hearing regarding insurance industry fraud in connection with claims arising from Sandy, the superstorm that produced massive flooding on parts of the east coast. According to media reports, about a thousand lawsuits are now pending against insurers for failing to pay Sandy claims fairly.

Magistrate Judge Brown’s hearing – sought by plaintiff’s lawyers – uncovered explicit and undeniable evidence of perjury and fraud in the defense camp during its defense of superstorm Sandy case. The opinion details perjury and fraud by both professional engineers, and at least fraud by insurance company lawyers. I learned of the hearing and opinion through this November 8, 2014 blog post by Chip Merlin, a plaintiff’s coverage lawyer for property damage cases.

Much like Judge Jack’s opinion on fraud in silica claiming, MJ Brown’s November 7, 2014 opinion is well worth a read by persons who do not have first hand knowledge of the miserable actions that are far too often a part of insurance coverage issues, and related tort litigation. Kudos to Magistrate Judge Gary R. Brown  for holding an evidentiary hearing, and writing a fast, clear opinion detailing the perjury and fraud by the defense camp.

The brief version of the facts is as follows.  Engineer # 1 inspected a house after Sandy. He declared it structurally damaged, and a total loss.  Engineer # 1 submitted his “draft” report in Word, full of pictures, and words. At that point, the report was “peer reviewed” by engineer # 2, but engineer 2 had never been to the house. Engineer # 2 used “track changes” to rewrite and completely reverse the opinion of engineer # 1. The rewrite was then accepted – in total –  by engineer #1 and given to the insured as a report prepared by engineer # 1. The defense lawyers and insurer never disclosed to the insured the role of engineer #2. The defense lawyers, the insurer and the engineering firm also never disclosed the original report.

Happily, engineer # 1 was later sent back to the house, and had both reports with him. At that point, the plaintiff – not the lawyers – uncovered the duplicity by talking to the engineer, seeing the conflicting reports, and taking pictures of parts of both versions of the report.  Also,  engineer #1 made it all even worse by lying during the evidentiary hearing before Magistrate Judge Brown.

As for the insurance company lawyers, it’s also ugly. Indeed, they were sanctioned, albeit in a restrained fashion. Among other things, the opinion details defense counsel ignoring a series of explicit discovery orders for all Sandy cases, as well as post-hoc assertion of specious claims of privilege. One might also hold the opinion that the defense lawyers suborned perjury at the hearing, for reasons detailed in the judge’s opinion as to the constant efforts of the defense lawyers to keep engineer # 2  off the witness stand. But Judge Brown did not explicitly accuse the defense lawyers of suborning perjury.  The evidence, however,  is damning, and the “f” word certainly applies.

The next stage of the drama will be even more interesting as there are inquiries into the number of cases in which similar fraud occurred. As the opinion details, the evidentiary hearing revealed compelling evidence of similar “peer review” fraud in at least a meaningful percentage of the defense of the Sandy cases. ” Happily, the Magistrate Judge will be getting to the bottom of the matter as he put in motion an order that should – one hopes – reveal much more about the extent of the fraud. Specifically, after sanctioning the defense lawyers and insurer in this particular case, Judge Brown ordered the following:

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 theretoprepared, 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. (italics in original). 

It will be interesting to see the extent of the fraud uncovered. My bet is a future field day for people who are experts in computer forensics.

One final note.  Based on looking at the biography of  Magistrate Judge Brown, it appears he is anything but naive or starry-eyed.  To the contrary, it appears he’s quite smart, and has been around the block well more than once as a law clerk, federal prosecutor and corporate lawyer. MJ Brown’s bio reads as follows:

“Magistrate Judge Gary R. Brown

Gary R. Brown is a United States Magistrate Judge for the Eastern District of New York.

Judge Brown received an A.B. degree in English Language and Literature from Columbia College and earned his J.D. from The Yale Law School.

After graduating law school, he worked as a law clerk to United States District Judge Jacob Mishler in the Eastern District of New York from 1988 to 1989. He next served as an Assistant United States Attorney in the Eastern District of New York for more than 15 years, most recently as the Chief of the Long Island Criminal Division. Judge Brown is a three time recipient of the Director’s Award from the Executive Office for United States Attorneys and, in 2000, received the Federal Prosecutor’s Award from the National Law Enforcement Association.

Judge Brown has taught as an adjunct professor at New York Law School and has lectured at Fordham University School of Law, Hofstra Law and Touro Law School. He has written a biography and numerous articles for popular, trade and legal publications, including articles about internal investigations, civil forfeiture law and the United States Sentencing Guidelines.

At the time of his appointment to the bench, Judge Brown held the position of Chief Counsel for Litigation and Chief Compliance Officer at CA Technologies, Inc.”