Five weeks after Superstorm Sandy, Deborah Ramey walked around her little house with an engineer, passing piles of sand that looked like snowbanks, 3-feet-high watermarks and leaning walls.
Then he gave her the bittersweet news. Sandy's forceful floodwaters had undermined the house and collapsed part of its foundation. It was totaled.
Months later, that finding was mysteriously reversed in a report filed with the court by the same engineering firm. It said that Sandy did not damage the home's foundation, clearing the government's flood insurance program of heightened liability and reducing the payment to Ramey, whose house was torn down.
That altered assessment by the engineering firm, hired by private insurers contracted by the government to distribute public flood claims, was "doctored" to withhold a portion of Ramey's insurance payment, according to documents filed in court by lawyers representing more than 100 homeowners.
"This is a clear and serious case of insurance fraud that has denied coverage to a good faith property owner," says one document that was submitted late last month by James Williams, a partner with Gauthier, Houghtaling & Williams, a Louisiana firm representing Ramey and other homeowners.
It goes on to allege that the defendant, the Wright National Flood Insurance Co., one of many private insurers handling government flood claims, "fraudulently altered an expert's report to deny a valid claim and then allowed counsel to profit from stonewalling the victim."
The Ramey case is among more than 800 lawsuits filed by homeowners who feel that the National Flood Insurance Program underpaid their claims stemming from Sandy's storm surge. The case could be the first of those suits to reach a jury trial, following often acrimonious mediation efforts between lawyers for the insurance companies and for the homeowners. Ramey is scheduled to appear before the U.S. District Court in New York City today to testify about the altered engineering report.
Lawyers cross swords over big claims
The lawsuits peer into the inner workings of the flood program and its reliance on private insurers to administer the public program's 5.5 million policies. The companies' responsibilities include assessing a homeowner's losses after a storm and paying the claim, an expense for which they are reimbursed by the federal government.
The program also pays for the companies' legal fees, which could reach record high amounts as the insurers' lawyers pursue aggressive defense techniques, according to attorneys for the homeowners.
Craig Fugate, administrator of the Federal Emergency Management Agency, which operates the flood program, expressed concerns to a Senate panel this summer about the potential for heavy-handed legal efforts to diminish payments to policyholders. He said he referred the matter to FEMA's Office of Inspector General. The IG's press office did not respond to a request for comment. FEMA also didn't respond to questions about the breakdown in the settlement process and Ramey's request for a trial.
Wider accusations are also surfacing in the bitter court disputes, which largely pit two Louisiana law firms against each other.
One prominent lawyer representing many of the insurance companies, Gerald Nielsen of Nielsen, Carter & Treas, told the court this summer that the combined fees of his firm and others could amount to $100 million. That would be more than the program has paid in the past 20 years combined, including after Hurricane Katrina, he said, adding that it would be "like nothing else FEMA has ever experienced."
That type of bravado has led lawyers with Gauthier, Houghtaling & Williams, which shares the New Orleans suburb of Metairie with Nielsen's office, to unleash wide-ranging allegations that accuse Nielsen of manipulating the flood program to benefit his clients in the insurance industry while enriching his firm, according to a drafted document that the firm plans to file with the court this week.
A lawyer with Nielsen's firm did not respond to a request for comment. But in a court document filed recently, Nielsen suggested that his adversaries were fishing without bait. He dismissed the idea that he's involved in a "clandestine and sinister" plot to befriend executives in engineering firms so they would be agreeable to doctoring their reports.
"What a stretch!" he wrote.
"Where is the Plaintiff's evidence that the 'Defendant fraudulently altered an expert report?'" Nielsen continued in the brief, co-authored with another attorney in his firm. "Is that a valid argument, or is this ... inflammatory rhetoric designed to intimidate and chill a federal fiscal agent's willingness to do its job for FEMA?"
Engineering an engineer's report?
Engineer George Hernemar arrived at Ramey's house on Dec. 4, 2012, to find 1 ½ feet of sand surrounding the small wooden home in Long Beach, N.Y. Watermarks measuring 36 inches high stained the exterior siding. A storm surge of 9 feet or more had inundated the property and flooded the interior with 6 inches of water. The floors were buckled, and some walls leaned in, while others leaned out by an inch or two.
Ramey's husband, Robert Kaible, pulled out his cellphone and snapped a picture of Hernemar's report, which the engineer had written on his laptop. That photo, which was submitted to the court, shows that Hernemar concluded that the "building was structural [sic] damaged by hydrodynamic forces associated with the flood event" from Sandy, having "caused the ... corner of the building to collapse."
No further evidence of that original report has been found, according to lawyers on both sides. The subsequent report submitted to the court by U.S. Forensic, which employs Hernemar, came to the opposite conclusion.
"The physical evidence observed at the property indicated that the subject building was not structurally damaged by hydrodynamic forces," it says, adding that the foundation showed evidence of long-term shifting.
That cleared the flood program of paying Raimey more than it already had, amounting to $79,383. Her lawyers say the program should pay her full claim of $250,000, since the house was destroyed and ordered by the county to be demolished. It has already been razed.
U.S. Forensic did not respond to a request for comment. Hernemar is also expected to testify before the court today.
Nielsen suggested that the original report might have been a draft, only to be changed after U.S. Forensic undertook a review process in its office, also located in Metairie, La. He said a new engineer should be hired to inspect photographs of the house to determine if Sandy caused the damage.
Lawyers on the other side say that adds another cost to Ramey's legal bills, which will be deducted from her claim payment. Instead, they'll take their chances with a jury trial.
"We cannot continue to sit back and experience endless bad faith delay tactics," wrote Williams, Ramey's lawyer.