Travelers Unit Sued Over Allegedly Manipulated Sandy Report

December 7, 2014 by Christie Smythe

A Travelers Cos. unit was sued by two New York homeowners who accused it of using a doctored engineering report to reject much of their claim for flood damage from Hurricane Sandy, making it the third insurer to face such allegations.

The Standard Fire Insurance Co., along with an engineering firm and others that handled the claim, were sued on Friday, Dec. 5, in federal court in Brooklyn, New York, by homeowners Garry and Melina Shlyonsky, who alleged the conduct constituted a racketeering scheme.

Other homeowners have filed racketeering suits alleging similar conduct by an insurance unit of Hartford Financial Services Group Inc. and Wright National Flood Insurance Co., along with engineering firms and others involved in addressing damages claims.

The Travelers unit “reaps greater profit by driving up claims handling expenses and denying legitimate claims,” said the Shlyonskys, who sought damages due to flooding at a home near the shore in the Manhattan Beach area of Brooklyn.

Patrick Linehan, a spokesman for Travelers, didn’t immediately respond to phone and e-mail messages after regular business hours on Friday, Dec. 5, seeking comment on the lawsuit.

Sandy Damages

Insurers that participate in a flood insurance program run by the Federal Emergency Management Agency are coming under increased scrutiny over their handling of some claims in the aftermath of Hurricane Sandy, the largest Atlantic hurricane on record which caused about $60 billion in damage in New Jersey, New York and Connecticut in October 2012.

Under FEMA’s program, 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.

Homeowners have alleged that the way incentives are structured under the program allows insurers, engineering firms and others to profit from the rejection of claims and extension of the claims-handling process, leading to manipulation of reports to justify rejecting or underpaying damages.

In a Nov. 7 ruling, U.S. Magistrate Judge Gary R. Brown ordered insurers to turn over all drafts of engineering reports to potentially hundreds of policy holders who are litigating Sandy claims in federal court in Brooklyn and Central Islip after he discovered evidence of possible manipulation of a report for a Long Beach, New York, home.

FEMA Letter

FEMA Administrator W. Craig Fugate, in a letter on Friday, Dec. 5, urged insurers participating in the program to obey the order and also provide reports to policy holders litigating Sandy claims in other jurisdictions including New Jersey to “restore the public’s faith” in the National Flood Insurance Program and the private companies that offer coverage. About 1,500 flood claims are still being litigated, mostly in New York and New Jersey courts, Fugate said.

U.S. senators, including Kirsten Gillibrand and Charles Schumer of New York and 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 asked the U.S. Government Accountability Office to audit FEMA’s litigation expenses.

The lawmakers announced on Friday, Dec. 5, that FEMA will be taking steps to improve flood claims handling, including examining incentives under the program with private companies and urging them to make draft engineering reports available to policy holders.

The reforms “will inject fairness and level the playing field for homeowners who have been forced to fight an uphill battle,” Menendez said in a statement.

The case is Shlyonsky v. HiRise Engineering PC, 1:14- cv-07136, U.S. District Court, Eastern District of New York (Brooklyn).

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