Hearings Begin Over Claims of Altered Sandy Insurance Reports

May 21, 2015

Hearings Begin Over Claims of Altered Sandy Insurance Reports

Posted: May 21, 2015

Original Story: www.newyorklawjournal.com/id=1202727050049/Hearings-Begins-Over-Claims-of-Altered-Sandy-Insurance-Reports?slreturn=20150421141718

By: Andrew Keshner, New York Law Journal

Hearings into allegations of improperly altered engineering reports in Hurricane Sandy insurance cases began Wednesday in Brooklyn federal court, despite defense concerns about the proceedings turning into “mini-trials” on the merits of denials or perceived underpayments.

In addition to Wednesday’s proceedings involving Standard Fire Insurance Company, which said there was no evidence suggesting its employees knew of any purported misconduct, hearings for two other companies are scheduled before the end of June.

Overseeing the homeowner insurance litigation arising from the 2012 storm, Eastern District Magistrate Judges Cheryl Pollak, Gary Brown and Ramon Reyes Jr. have heard plaintiff-side complaints that reports were revised, resulting in coverage denials and smaller payouts.

In November, Brown sanctioned one insurer for a “secretly” rewritten engineering report in Raimey v. Wright National Flood Insurance, 14-cv-461. He ordered the defense in all Sandy cases to give plaintiffs all draft, redline and mark-up reports.

The three magistrate judges had scheduled a February hearing to delve into claims that alterations were widespread but adjourned it without a date when the Federal Emergency Management Agency stepped in to directly start negotiating settlements with plaintiffs counsel. The agency oversees the National Flood Insurance Program, which permits insurance companies to offer flood insurance through the “Write Your Own” program.

As of earlier this month, there were 490 open Sandy cases and 874 cases that either settled or were administratively closed.

After a hearing in April to address issues snagging settlements, the trio decided to put the hearings back on for carriers that would not settle their cases.

Wednesday marked the first day of a two-day hearing for Standard Fire Insurance, with Pollak sitting on the matter.

In court papers submitted before the hearing, J. Steve Mostyn of the Mostyn Law Firm in Houston, said the facts within nine Standard Fire cases would serve as examples of “systemic patterns of misconduct.”

Specifically, Mostyn said plaintiffs would show, among other things, evidence fabrication and the use of “form reports” with already-determined language by the engineering firm U.S. Forensic, as well as Standard Fire’s “repeated and continued violations” of discovery obligations.

“What should have been a cacophony of varied observations, assessments, and conclusions from various engineers visiting a variety of distinct properties was, in fact, a singular refrain of canned denials. … Standard Fire, having received numerous U.S. Forensic reports, cannot credibly claim it was blind to this apparently uniformity of result,” Mostyn said.

Standard Fire responded that the hearing was “unnecessary, improper” and contrary to due process requirements because it allowed “a mini-trial on the merits” without formal discovery and before magistrate judges who did not have the power to conduct such a trial.

Furthermore, Mostyn’s asserted facts and law were “flatly incorrect,” wrote the insurer’s attorney, Stephen Goldman, a partner at Robinson & Cole.

“The evidentiary hearing that plaintiffs are pursuing is an improper effort by plaintiffs’ liaison counsel to raise issues that are for trial, and to attempt to generate settlement pressure and media attention and an attempt to obtain exorbitant attorneys’ fees,” Goldman said.

The only valid issue for the hearing was on Mostyn’s sanction request, based on the claimed violation of discovery obligations in case management orders, he said.

Sanctions were not merited, however, because the carrier and its counsel at Stradley Ronon Stevens & Young made “a thorough, good-faith effort” to follow court orders. Delays in producing engineering files for two cases were an “oversight” that could have been fixed sooner if plaintiffs brought the matter to their attention sooner, Goldman wrote.

When the hearing started Wednesday, Pollak noted the question of what she was, and was not, empowered to do. “I think I know what the scope of my authority is,” she said, but added that she wanted to hear more on what the parties thought the subject of the hearing would be.

Gregory Cox of the Mostyn Firm said the proceedings pertained to “ongoing discovery abuse.”

“Every time we think we understand the universe, we keep getting new documents,” and Cox said he was not talking about things like a “stray email.”

Wystan Ackerman, an associate at Robinson & Cole, said the defense did not dispute that if the proceedings had to do with enforcement of case management orders, Pollak had jurisdiction.

Pollak said she saw the proceedings as a “continuation” of Brown’s orders in Raimey, pertaining to alleged discovery failures.

The first witness was David Powell, a vice president of claims.

He said the company used a third-party vendor to handle flood claims, which, in turn, used U.S. Forensic.

The vendor reported “very little” to the carrier, Powell said.

Asked if the carrier made any internal investigations into U.S. Forensic, Powell said, “outside what our attorneys have done, not that I’m aware of.”

At one point, Cox asked Powell to compare two engineering reports generated by U.S. Forensic for a case.

The company’s attorney, Larry Demmons of The Demmons Law Firm in Metairie, Louisiana, objected, saying matters were going into the merits, not discovery.

Pollak overruled him, saying what was produced, and if it was different from related documents, was “part and parcel” of discovery.

Cox then asked Powell if he read an internal U.S. Forensic email as an instruction to change conclusions.

“I would agree,” he said.

When Goldman questioned Powell, Powell said the company had no financial incentive for an underpayment or denial. Of some 20,000 claims, only 27 came through the consumer complaint department about U.S. Forensic and had to do with responsiveness, not ultimate conclusions.

Powell said there was industry concern about FEMA’s capacity to deal with Sandy’s aftermath.

He said Standard Fire was proactive in getting advances to customers–something the company had not done before.

“Sandy became a real risk to our brand,” Powell said, adding that Standard Fire “pride[d] ourselves on catastrophe management.”

After hearing Goldman question Powell, Cox said he had heard Powell say the “most important” thing was protecting the brand. Cox asked if the company’s actions had “nothing to do with” helping flood victims.

“That’s exactly how we protect our brand,” Powell replied.

Demmons declined to comment.

The judges scheduled a hearing on “any potential issues” in Liberty Mutual Insurance Company cases for June 17 and 18. They calendered a June 29 and 30 hearing for American Bankers Insurance Company of Florida.