United States District Court, E.D. New York
IN RE HURRICANE SANDY CASES DEBORAH RAIMEY and LARRY RAISFELD, Plaintiffs,
WRIGHT NATIONAL FLOOD INSURANCE CO., Defendant.
Steve Mostyn, Esq., Rene M. Sigman, Esq., Mostyn Law, Houston, Texas, Denis G. Kelly, Esq., Denis G. Kelly & Associates, P.C., Long Beach, New York, Frederick W. Bradley, Esq., James M. Williams, Esq., Gauthier, Houghtaling & Williams, LLP, Metairie, LA, for the Plaintiff.
Gerald J. Nielsen, Esq., Kristina J. Fonte, Esq., Nielsen, Carter & Treas, LLC, Metairie, LA, Anthony Martine, Esq., Patrick W. Brophy, Esq., Timothy D. Gallagher, Esq., McMahon Martine & Gallagher LLP, New York, New York, for the Defendant.
Larry Demmons, Esq., The Demmons Law Firm, Metairie, Louisiana, for Non-Party U.S. Forensic.
MEMORANDUM & ORDER
GARY R. BROWN, Magistrate Judge.
Two years ago, the crushing force of Hurricane Sandy devastated large areas of this judicial district. While much has been done to facilitate recovery, assistance has not been consistent or timely, leaving some homeowners behind - even those who properly paid for flood insurance. That some homeowners have faced insufferable delays has not been lost on the public or our political system. This Court has invested significant resources in an effort to facilitate efficient resolution of the more than 1, 000 cases arising from Hurricane Sandy.
Against this backdrop arises the instant dispute, which has exposed reprehensible gamesmanship by a professional engineering company that unjustly frustrated efforts by two homeowners to get fair consideration of their claims. Worse yet, evidence suggests that these unprincipled practices may be widespread.
Specifically, the evidence adduced in this matter demonstrates that U.S. Forensic, an engineering firm retained by defendant Wright National Flood Insurance Company ("Wright") to examine a storm-battered house in Long Beach, New York, unfairly thwarted reasoned consideration of plaintiffs' claim through the issuance of a baseless report. The engineer sent by U.S. Forensic opined in a written report that the home at issue had been damaged beyond repair by Hurricane Sandy. A second engineer, who did little more than review the photographs taken by the inspecting engineer, secretly rewrote the report, reversing its conclusion to indicate that the house had not been damaged by the storm, and attributing - without sufficient evidence - defects in the home to long-term deterioration. This process, euphemistically dubbed a "peer review" by U.S. Forensic, was concealed by design from the homeowners, remained uncovered during the Court-assisted discovery process and came to light through near happenstance. In a misguided attempt to defend these flawed practices, defendant has elicited evidence that this "peer review" process may have affected hundreds of Hurricane Sandy flood insurance claims - and possibly more.
In this decision, the undersigned addresses the evidence presented, makes relevant findings and directs certain relief to ameliorate the highly-improper practices brought to light in this case.
Following the failure of mediation to resolve this matter, plaintiffs' counsel filed a "Motion to Set Discovery Schedule and Set for Trial, " informing the Court, for the first time, that it had evidence of a U.S. Forensic engineering report that provided a conclusion contrary to the report upon which Wright based its denial of much of plaintiffs' flood insurance claim. DE . In response, Wright, among other things, denied all knowledge of the seemingly altered report, blamed plaintiffs for failing to provide evidence of the earlier report prior to mediation, sought to select a different expert as "this engineer and U.S. Forensics [sic] are now allegedly tainted, " and demanded that plaintiffs provide all information concerning the discrepancies in the engineering reports to the new engineer. DE  at 13. Upon review of the parties' submissions, on October 1, 2014, the undersigned issued the following Order:
In light of the nature of the allegations set forth in plaintiffs' submission and defendant's response thereto, a hearing shall be conducted before the undersigned... At that hearing, plaintiffs shall be prepared to present testimony and documentary evidence concerning the allegations relating to U.S. Forensic Report No. 12.22.1304 and the various incarnations of that report referenced in the parties' submissions. Counsel for the parties will ensure that Mr. George Hernemar will be present in person to testify about the preparation and submission of the report and related matters. Counsel for defendants will also produce any other necessary witnesses to explain, as appropriate, any differences between the purported original report and the report ultimately produced in discovery.
Electronic Order dated October 1, 2014. On October 16, 2014, an evidentiary hearing was held, at which the parties produced three witnesses. At the conclusion of the hearing, plaintiffs' counsel indicated that, in addition to the relief previously sought, the Court should consider addressing discovery violations that resulted from the failure to provide the draft engineering reports in this case. Tr. 168. Following the hearing, both sides were permitted to submit post-hearing briefs and supporting materials.
The Evidence Adduced at the Hearing
Plaintiffs were the owners of a property located at 24 Michigan Street, Long Beach, NY, which is located about one block from the beach. The owners, who own and reside in an adjacent home, bought the house at 24 Michigan Street with plans to ultimately expand their own home, but rented the house to help pay the mortgage. Tr. 22. After Hurricane Sandy struck, one of the homeowners observed significant damage to the house that did not exist prior to the storm, including extensive damage to the floors, which had shifted in the storm. Tr. 14-15. Following the storm, the back door would no longer open, such that the homeowner had to break it down to gain access to the house. Tr. 16.
On or about November 17, 2012, David Maxime, an independent adjustor, examined the home. Based largely on the report of the adjustor, defendant paid the plaintiffs slightly more than $60, 000 (in several installments) for cosmetic, non-structural damage. Tr. 21. Maxime also prepared a document entitled "Engineer Request for Fidelity, " in which he makes the following observations:
During a recent flood inspection, I noticed the flooring in the dwelling was uneven from the front to the rear. The floor seemed to have a "rolling action" as you walked over it. A visual inspection of the flooring at several of the walls, appeared to have dropped about a [sic] inch or two in some cases. There was a 5 inch difference between the ceiling height at the corner of the bedroom and the center line of the bedroom. The exterior of the building had about 3ft of sand adjacent to the building. An inspection of the building crawl space showed several framing members out of line. A visual inspection of the front of the roof showed unevenness along the roof line. At the current time, the building appears to be unsafe to live in.
Pl.'s Ex. 2 (emphasis added). Presumably in response to this request, U.S. Forensic sent George Hernemar, a licensed engineer to conduct an inspection of the premises on December 4, 2012. Pl's. Ex. 3 & 5.
Trained in Sweden, Hernemar obtained employment as a contractor with U.S. Forensic, a nationwide engineering firm, after answering an ad on Craigslist for a New York licensed engineer. Tr. 44-45, 88. He testified that he conducted approximately fifty home inspections for U.S. Forensic to assess damage inflicted by Hurricane Sandy. Tr. 44-45. U.S. Forensic had been engaged by Fidelity to report on the damage to the 24 Michigan Street property.
Following his inspection, Hernemar wrote and transmitted a report dated December 9, 2012 ("December 9 report") containing his findings to U.S. Forensic. The report, which contains numerous pages of text and photographs, offers the following "Results and Conclusions":
1) The physical evidence observed at the property indicated that the subject building was structural [sic] damaged by hydrodynamic forces associated with the flood event of October 29, 2012. The hydrodynamic forces appear to have caused the foundation walls around the south-west corner of the building to collapse.
2) The extent of the overall damages of the building, its needed scope of repair combined with the age of the building and its simple structure, leads us to conclude that a repair of the building is not economically viable.
Pl's Ex. 5 (emphasis added). However, plaintiffs never received this report from their insurance carrier. Rather, they received a report dated January 7, 2013 ("January 7 report") which contains completely divergent "Results and Conclusions":
1) The physical evidence observed at the property indicated that the subject building was not structurally damaged by hydrodynamic forces, hydrostatic forces, scour or erosion of the supporting soils, or buoyancy forces of the floodwaters associated with the subject flood event.
2) The physical evidence observed at the subject property indicated that the uneven roof slopes, leaning exterior walls and the uneven floor surfaces within the interior of the building, were the result of long term differential movement of the building and foundation that was caused by long-term differential movement of the supporting soils at the site and long-term deflection of the building framing.
Pl's Ex. 3 (emphasis added). Based upon this report, defendant refused to pay for any structural damage to the home.
At the hearing, Hernemar and a second witness explained that the radical changes in his report resulted from a "peer review process, " though the description of that process varied greatly. Hernemar testified that he "wrote both of these reports" and insisted that no one made any alterations or changes to the reports. Tr. 57; cf. Tr. 58 ("All those reports you have presented to me, I'm the author of them.") Rather, he testified, he had "an open discussion" on the telephone with U.S. Forensic engineer, who pointed out that "the draft was based on assumptions." Tr. 59, 71. As a result, Hernemar "issue[d] a report changing [his] opinions." Tr. 78. And though his testimony was, at times, confused, he testified unequivocally that "I rewrote my report." Tr. 90; cf. Tr. 106 (Hernemar "made changes to the draft report"); 119 ("I did the changes").
After Hernemar testified, counsel for defendant attempted to end the hearing, foreclosing further inquiry on this subject:
MR. MARTINE: Judge, I think the purpose of this hearing was to determine whether we should have some discovery; in essence, whether or not something untoward was going on between U.S. Forensic and perhaps Mr. Hernemar.
THE COURT: Are you under the impression that the result of the hearing so far gives us a clear answer to that?
MR. MARTINE: Yes, Judge...
THE COURT: You brought a witness who is going to talk about the peer review process. Right?
MR. MARTINE: I don't think I need to call him, Judge.
Tr. 119-120. Both counsel for plaintiff and the Court disagreed. Id. After a lunch recess, ...