An update on the apparent wave of fraud in Super Storm Sandy litigation by property insurers and their experts and lawyers. In short, the situation is growing worse for insurers and their agents. In a new ruling, a panel of three Magistrate Judges wrote that it appears that at least 4 more examples of gross fraud by insurers were identified by plaintiff’s counsel, and a major hearing is now set for January 28, 2015. By that time, both defendants and plaintiffs are to to have produced all draft and final expert reports. An overview is provided by a December 9, 2014 post at Chip Merlin’s blog. In addition, there is some action towards FEMA opening an investigation into claims practices at insurers, and reopening review of past claims. These topics are covered in a December 11, 2014 post by policyholder lawyers at Reed Smith.

Set out below are key excerpts from the new ruling:

“Counsel alerted the Committee to four apparent instances of improper practices with respect to damage reports relied upon by insurance carriers, several of which affect pending cases. For example, in Shlyonsky v. Travelers Insurance Co., 13-CV-05393(RJD)(JMA), and Dweck v. Hartford Insurance Co. of the Midwest, 14 CV 6920 (ERK) (JMA), plaintiffs submitted documents which appear to show that another engineering firm, HiRise Engineering, rewrote the reports of the licensed inspecting engineer; in both cases the original reports which documented extensive storm damage were altered to reflect an absence of such damage or suggest pre-existing damage. DE [830], [840], [841]. The submissions seem to suggest that the inspecting engineer’s signature was apparently cut and pasted onto the modified reports. Id.

[In footnote 5, the panel said:  “In fact, the materials submitted include a sworn affidavit from the inspecting engineer attesting to the fact that “Hi Rise lifted my signature and seal from the True Report and affixed said seal and signature to the False Report” and that the final report relied upon by the insurer “is a forgery.”DE [840]-5.”]

Similarly, plaintiffs have submitted engineering reports prepared in connection with two additional homes, one owned by Joseph and Patricia Giovinco, and the other owned by Sang Hahn. See Giovinco et al v. Fidelity National Property & Casualty Insurance Co., 14-CV-3937(ADS)(SIL). In both cases, Michael Garove—the same engineer who conducted the “peer review”in Raimey, allegedly authored the U.S. Forensic engineering reports upon which the carriers relied in denying coverage. 14-CV-461, DE [100]. Plaintiffs have provided evidence that Garove never inspected either of the subject homes. Rather, plaintiffs contend, and have provided supporting documentation that engineers not licensed in New York conducted the inspections. Id. Both insureds appealed the determination that there was no flood damage, but FEMA rejected their appeals. Id.

These allegations, if true, raise a number of important issues that must be resolved. By way of example, some of the other plaintiffs may be entitled to Rule 37 relief like that afforded in Raimey. However, before conducting another partial hearing, it seems prudent to await production and review of the draft reports to be produced shortly, and conduct a hearing relating to all affected cases. As such, the Committee will hold an evidentiary hearing on these matters on January 28, 2015 at 10:00 a.m. in the Ceremonial Courtroom of the United States Courthouse, 225 Cadman Plaza East, Brooklyn, N.Y., to evaluate all claims of altered or otherwise improper practices relating to damages reports. The prospect of this hearing, however, should not delay any of the scheduled mediations or other deadlines, and the parties should proceed accordingly.”