Deborah Ramey's flood-damaged property as pictured in November 2012.
Deborah Ramey’s flood-damaged property as pictured in November 2012. ()

After finding that an insurer’s engineer “secretly rewrote” an early report saying a house had not been damaged by Hurricane Sandy, a magistrate judge has sanctioned the insurer and ordered all defense counsel in any Sandy-related case to provide plaintiffs with all draft, redline and mark-up reports.

Eastern District Magistrate Judge Gary Brown (See Profile) said the case against Wright National Flood Insurance Co. “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,” the judge added.

Brown also found that defense counsel violated obligations to comply with discovery orders. Nielsen, Carter & Treas in Louisiana and McMahon Martine & Gallagher in Washington, D.C., are representing Wright National.

The lawsuit was brought by Deborah Ramey, who owned rental property in Long Beach about one block from the ocean. After the storm, Ramey observed significant damage to the house, including shifted floors.

The case is one of the more than 1,000 Sandy claims filed in the Eastern District by property owners against insurers.

U.S. Forensic, an engineering firm retained by Wright National, sent licensed engineer George Hernemar to conduct an inspection. His report on Dec. 9, 2012 found that the building was structurally damaged by “hydrodynamic forces associated with the flood” and repairs were “not economically viable.”

But the plaintiff never received the report, Brown said.

A second engineer, who did little more than review Hernemar’s photos, “secretly rewrote the report, reversing its conclusion to indicate that the house had not been damaged by the storm,” Brown said. The rewritten report attributed, without sufficient evidence, defects in the home to long-term deterioration, he said.

“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,” the judge said. “This ‘peer review’ process may have affected hundreds of Hurricane Sandy flood insurance claims—and possibly more.”

The plaintiff received the rewritten report, dated January 2013, and the insurer refused to pay for any structural damage.

U.S. Forensic then sent Hernemar to re-inspect the home. It was during this visit that Ramey viewed and photographed the cover and conclusion pages of Hernemar’s Dec. 9 report, bringing to light his original findings.

Wright National, which is part of the National Flood Insurance Program, denied knowledge of the altered report.

At an evidentiary hearing last month, Hernemar testified that he had an “open discussion” with a U.S. Forensic engineer who pointed out the draft report was based on assumptions. As a result of this “peer review” process, Hernemar said he rewrote his report.

Hernemar said he had completed about 50 Hurricane Sandy inspections for U.S. Forensic, and in about five instances, there were extensive changes following a peer review. “This process was limited neither to this one engineer, nor specifically to U.S. Forensic,” Brown said.

Brown noted that defense counsel from McMahon Martine tried to end the hearing after Hernemar testified.

Despite this protest, U.S. Forensic peer review engineer Michael Garove testified and conceded that he, in fact, wrote the January 2013 report, which made no mention of himself or any peer review process.

Garove’s changes “journeyed beyond misleading into the realm of misrepresentation,” Brown said.

He said Hernemar’s Dec. 9 report and Garove’s redline document that transformed it “all fall within the ambit” of discovery orders in the Sandy cases, but Hernemar’s initial report has never been produced.

Defense counsel said the so-called draft report is protectable work product under Rule 26 of the Federal Rules of Civil Procedure, but Brown said the rule only applies to drafts prepared in anticipation of litigation or for trial. “Permitting defendant to withhold these documents would constitute a serious injustice,” he said.

Wright National also argued that plaintiff’s counsel failed before mediation to provide a copy of the photographed title and conclusion pages of the Dec. 9 report. “Plaintiffs’ failure somewhat mitigates the harm caused by defendant,” said Brown, who admonished that future violations of this kind could result in sanctions.

But after defense counsel received evidence that the engineer’s report had been altered, they did little to investigate, sought to prematurely circumscribe the hearing and then sought to “defend the indefensible practices,” the judge said.

Although U.S. Forensic only provided the so-called final reports to Wright National, Brown said defense counsel had a duty to conduct a reasonable inquiry for discovery responses.

“The major effect of the reprehensible practices uncovered here—as well as counsel’s failure to disclose these practices at an earlier juncture—was to unnecessarily complicate and delay this action,” Brown said.

Brown said, based on the coverage limits of $250,000, no more than $170,000 could be at stake, considering $80,000 has already been paid out to the plaintiff.

“To a government-backed insurer, these are trifling figures, and in the world of federal cases, such figures are unimpressive, particularly when compared to the exorbitant costs of litigation,” Brown said. “[But] to individual homeowners, these are staggeringly large sums.”

Under Rule 37(b), Brown said he was prohibiting Wright National from supporting its defenses or opposing plaintiff’s claims with any expert testimony other than that of Hernemar, and it may not produce, rely upon or create expert reports other than those already produced.

Given defense counsel’s discovery failures and “counsel’s shocking attempt to curtail inquiry during the hearing,” Brown said, it was reasonable to charge the costs of the hearing to defense counsel. Plaintiff’s counsel, Brown said, may apply for reimbursement from defense counsel for all costs for the hearing and related briefing.

Further, Brown directed that within 30 days of his Nov. 7 order, all defendants in any Sandy-related case must provide plaintiffs with copies of “all reports” previously described in the court’s case management orders, plus any drafts, redlines, markups, notes, measurements, photographs and written communications, prepared or collected by an engineer or other agent affiliated with any defendant, whether the defendant or a third party possesses the documents.

In an interview, Neal Conolly, president at Wright National, denied any wrongdoing by his company and said defense attorneys would appeal. Conolly said Hernemar’s initial report was based on assumptions because sand obscured a view of the foundation.

“I’m shocked that anybody would be surprised that somebody who wasn’t able to see the full condition (of the building) could change their mind,” he said.

Larry Demmons, General Counsel at U.S. Forensic, said he “respectfully disagrees” with the judge’s characterization of how the matter was handled.

“The process of having preliminary work reviewed by a more experienced peer is a widely accepted practice used in most types of professional services, including engineering,” Demmons said in an email Wednesday. “The goal of the forensic engineering process is to provide a technically correct final evaluation, which was accomplished in this instance.”

“U.S. Forensic stands by the results and conclusions it issued … which have yet to be validly contradicted,” Demmons added.

The plaintiff’s attorney, J. Steve Mostyn, of Texas-based Mostyn Law, said in an interview that he believes this ruling would hasten settlements in other Sandy cases.

“It is a rather earth-shattering development that an engineering company … has been found by a federal judge to have made misrepresentations,” he said.

Mostyn said the decision “has significant effects not only for the Sandy litigation but litigation across the country because there is always a fight about what should be turned over.” He said there could be thousands of Sandy cases in which an engineering report has been altered or is inaccurate. He said he has seen other engineering reports with the same language as the altered report.

Given the small recovery and unable to rent the home, Ramey sold the property and the building has been razed.’

The case is Deborah Raimey and Larry Raisfeld vs. National Flood Insurance Co., 14 CV 461, part of In Re Hurricane Sandy Cases 14 MC 41. A spokesman for the plaintiffs’ firm said Ramey’s name was misspelled in court papers.

@|Christine Simmons can be reached via email or on Twitter @chlsimmons.