Insurers dogged by claims of slanted Sandy reports

Associated Press

NEW YORK

When superstorm Sandy hit the East Coast, flood- insurance companies working for the Federal Emergency Management Agency dispatched an army of structural engineers to do some detective work.

Their assignment: Find out how much damage to policyholders’ homes was caused by surging seawater and how much predated the storm.

Now, two years later, lawyers representing about 1,500 homeowners are trying to prove that some engineering firms hired to inspect the damage issued bogus reports to give skeptical insurers ammunition to deny claims.

Broken foundations, the lawyers say, were falsely blamed on poor construction or long-term settling of the soil. Cracked and warped walls were written off as being due to old age.

So far, there’s been little proof available publicly. Some engineers who worked the coast after the storm say a lot of homeowners were simply unaware of long-standing, but hidden problems exposed by the storm.

But the issue got the attention of a federal judge in New York after a Long Island family uncovered evidence that an engineer who examined their property had been instructed by a supervisor to reverse his initial finding that the flood caused irreparable structural damage.

U.S. Magistrate Judge Gary Brown ordered insurers to produce reams of additional records that could help reveal whether engineering contractors edited damage reports in ways that improperly minimized payouts to hundreds or even thousands of storm victims. “These unprincipled practices may be widespread,” Brown wrote in his Nov. 7 order.

New York’s attorney general has opened a probe. FEMA has asked its inspector general to investigate.

Homeowners made similar claims about doctored engineering reports after Hurricane Katrina, when some insurers were accused of trying to shift blame from the 2005 storm’s winds to its monster flood, which wasn’t covered by homeowner policies.

This time, though, there is no wind-versus-water fight, and it isn’t clear why any insurance company would have a motive to cheat. Most were merely processing claims for FEMA; none of their own money was at stake. The government pays insurers marginally more to approve a claim than to deny one.

“There is simply no incentive ... to try to guide the engineer to an opinion, or to try to find no coverage,” said Henry Neal Conolly, president of Wright Flood, the nation’s largest flood insurance company. He wrote in an email to The Associated Press that he was “not sure at all what the alleged conspiracy is or could be not to pay claims.”