A couple claiming damage from Hurricane Sandy filed court papers accusing a Hartford Financial Services Group Inc. unit, an engineering firm and a law firm for the insurer of engaging in racketeering by scheming to use fraudulent reports to deny claims.
Homeowners Stephen and Sarise Dweck alleged in a complaint filed yesterday in Brooklyn federal court that Hartford Insurance Co. of the Midwest denied most of their claim based on a version of a report which had been altered to remove a description of widespread flood damage.
HiRise Engineering PC altered the report, and Nielsen Carter & Treas LLC, a law firm that represents flood insurance providers, either directed or participated in the scheme, while Hartford “knew or should have known” about the fraud and “used the falsified report as an excuse” to deny benefits, the Dwecks alleged in the new complaint in their November lawsuit. Others who participated in the claims process are also named as defendants.
The Hartford unit is the second insurer that provides coverage on behalf of the government’s National Flood Insurance Program to be accused of relying on fraudulently altered engineering reports to reject or underpay claims after the storm.
Earlier, owners of a storm-battered home in Long Beach, New York, filed a racketeering suit against Wright National Flood Insurance Co. alleging that it, too, denied claims based on doctored reports.
U.S. Magistrate Judge Gary R. Brown, who discussed the discrepancy between reports for the home in a Nov. 7 ruling, said he feared the practice was “widespread” and ordered that all reports be disclosed to policyholders.
Sandy, the largest Atlantic hurricane on record, caused about $60 billion in damage in New Jersey, New York and Connecticut when it struck in October 2012. It killed more than 100 people in the U.S. and triggered the worst flooding in the more than 100-year history of the New York City subway system.
The Dwecks are among about 1,000 policyholders whose disputes with insurers over Sandy claims are pending in federal court in Brooklyn and Central Islip, New York.
In a letter this week to the judge, lawyer J. Steve Mostyn described the experience of the Dwecks after their home in the Manhattan Beach area of Brooklyn near Coney Island was devastated by the storm. He filed letters by another attorney for the Dwecks, Mitchell Shpelfogel, and exhibits to support the argument that a damage report was changed to eliminate flooding as the cause.
After the Dwecks notified Hartford about the changed report, a third was submitted by another company that also reported lack of flood damage from the storm, according to the complaint.
Thomas Hambrick, a spokesman for Connecticut-based Hartford, said the company denies the allegations in the suit and expects to seek its dismissal. He said Hartford asked for a new report by an independent engineer when it was notified of the problem.
Sandy “was a devastating storm for many individuals and small businesses, and our focus as a company is on helping customers recover following a loss,” he said in a statement.
A HiRise representative in Uniondale, New York, didn’t respond to a message left at the company’s office. William T. Treas, of Metairie, Louisiana-based Nielsen Carter, who is also named as a defendant, didn’t immediately return a call seeking comment on the case.
The Hartford unit and Wright participate in a program run by the Federal Emergency Management Agency through which private insurers are allowed to provide flood coverage underwritten by the government. The government, which is ultimately responsible for paying for damage, also shoulders expenses for litigating against policyholders, according to the complaint.
Because of the way incentives are structured under the program, insurers can profit by incurring additional expenses through claims-handling, the Dwecks alleged. The law firm and engineering firm benefited from additional business, the couple said.
The firms “took advantage of the incentives of the reimbursement program to prolong litigation in order to charge and collect unnecessary claims handling expenses and attorney’s fees,” the Dwecks said in the complaint.
The Hartford unit also participated in the scheme in order to curb generous payouts that might trigger an audit by FEMA, according to the complaint. If audited and found to have overpaid, the insurer may have face financial penalties, according to the complaint.
Lawmakers including U.S. Senators Kirsten Gillibrand and Charles Schumer of New York and U.S. Senators Robert Menendez and Cory Booker of New Jersey have been pushing FEMA to address potential manipulation in flood insurance claims handling. Gillibrand and Schumer have also asked the U.S. Government Accountability Office to audit FEMA’s litigation expenses.
A spokesman for FEMA, Rafael Lemaitre, said in an e-mail that the agency “will be taking steps to address the Senate delegation’s concerns” and “will do whatever it can within its authorities to have peer reviews made available to policyholders,” referring to versions of engineering reports.
Earlier, the agency asked the New York federal magistrate judge to reconsider his demand that reports be disclosed, saying it was burdensome and “unjustly applies to the conduct of one engineering firm to suggest systemic misconduct by all engineering firms.”
The case is Dweck v. Hartford Insurance Co. of the Midwest, 1:14-cv-06920, U.S. District Court, Eastern District of New York (Brooklyn).
Update: Hartford Unit Accused of Using Fudged Hurricane Sandy Report
New Jersey Sen. Menendez Presses for Sandy Flood Insurance Probe
N.J. Sen. Menendez Urges FEMA to Reform NFIP’s Claims Process
Senate Committee Holds Hearing on Flood Claims Process After Sandy
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