FEMA was warned of allegedly forged documents to underpay Sandy claims, records show

The Federal Emergency Management Agency was warned more than 11 months ago of allegations that government contractors had forged documents to underpay flood insurance settlements after superstorm Sandy, according to court papers.

Yet, the agency didn't refer the matter to investigators until last month, after a political uproar over a judge's findings that an engineering report was secretly rewritten to say a house in Long Beach was damaged by structural defects, rather than flooding.

The ruling by federal Judge Gary Brown, on Nov. 7, concluded that private contractors who adjusted claims after the Oct. 29, 2012, storm for the government-run National Flood Insurance Program may have conspired in a widespread effort to deny settlements on Long Island and elsewhere.

Those findings have led to three class-action lawsuits and an outcry from the four U.S. senators from New York and New Jersey. FEMA, which runs the flood insurance program, vowed to investigate and undertake reforms.

The agency, however, was warned of the allegations months earlier.

In a Jan. 23 letter, a lawyer wrote to FEMA appealing a flood insurance settlement, saying a Brooklyn couple was denied coverage based on a forged report from a Uniondale engineering company, GEB HiRise.

James Sadler, FEMA's director of claims for the flood insurance program, responded to the letter in June, saying the appeal was denied, citing a second engineering report that said the damage was not due to flooding.

SEE PHOTOSSandy's destruction

Yet Sadler's letter, filed in court, says nothing about referring the fraud allegations to the U.S. Department of Homeland Security's Office of Inspector General.

It was not until Nov. 14 -- one week after the judge's ruling set off a firestorm -- that a FEMA spokesman said the agency had begun investigating engineering reports from a Metairie, Louisiana, firm: U.S. Forensic. And on Dec. 17 FEMA said it had asked the inspector general to expand its probe to include the Uniondale firm.

A FEMA spokeswoman declined to comment about why the agency waited months to refer the matter to investigators. A spokesman for the inspector general did not respond to inquiries.

A SYSTEMIC PROBLEM

SEE PHOTOSAerial views of Sandy damage

Sen. Charles Schumer (D-N.Y.) said FEMA needs to move quickly to restore public confidence in the program.

"The more we learn, the more it becomes clear that these are not individual aberrations, but a deep and wide systemic problem," Schumer said.

The engineering companies have denied wrongdoing. They concede that reports were changed, but say it was part of standard "peer reviews."

The Brooklyn couple, Stephen and Sarise Dweck, were not the first to raise allegations of fraud to FEMA.

In October 2013, a Lynbrook couple, Joseph and Patricia Giovinco, wrote letters to several New York politicians, saying that the U.S. Forensic engineer who signed a report describing damage to their home never set foot on the property. Copies of each letter, filed in a lawsuit, were also sent to FEMA.

"Nobody from FEMA ever contacted me to ask about the engineer," Patricia Giovinco said.

Flood insurance is underwritten by the federal government, but FEMA hires private companies to administer policies and adjust claims. Lawyers for homeowners say the program encourages private insurers and engineers to lowball settlements by penalizing them for overpayments to homeowners -- but not for underpayments.

LAWSUITS ALLEGE FORGERIES

In the past month, at least five homeowners on Long Island and in Brooklyn have filed evidence in lawsuits, claiming that engineering companies forged documents as part of an effort to deny flood claims. The New York State attorney general's office has opened a criminal investigation.

The alleged schemes described by homeowners in lawsuits follow the same pattern.

After the storm, insurance companies who work for FEMA hired engineering firms to assess damage in flooded homes. The engineers who inspected the properties were mostly freelancers. They drafted reports, then sent them to the firms to submit to the insurance carriers.

Yet homeowners say some reports never made it to the insurers. Rather, they were surreptitiously rewritten by the engineering firms to blame damage on erosion or structural defects, homeowners said. The firm's staffers who changed the reports never visited the sites and in some cases are not engineers at all, according to lawyers for homeowners.

Homeowners say they learned of the alleged forgeries from freelance engineers who showed them copies of drafts or acknowledged that their conclusions were rewritten.

In his Nov. 7 ruling, Judge Brown ordered all companies being sued over Sandy claims to release copies of their draft engineering and adjusting reports. He has scheduled a Jan. 28 hearing to review the evidence.

ENGINEER SAYS HIS REPORT REVERSED

The Brooklyn couple -- the Dwecks -- said they were stunned when a March 2013 engineering report concluded that flooding didn't cause the cracks in their home's foundation. So the Dwecks called Harold Weinberg, the engineer HiRise had sent to inspect their home, in Manhattan Beach. Weinberg was stunned too, saying that HiRise reversed his conclusions, according to an affidavit he signed.

"The false report issued by HiRise, purportedly in my name, is a forgery," Weinberg wrote.

The Dwecks' lawyer, Mitchell Shpelfogel, reported the alleged fraud to the company overseeing the couple's flood policy, Hartford Insurance Co., in July 2013. Hartford, in turn, referred the matter to the Metairie law firm of Nielsen, Carter & Treas, which represents the flood insurance program.

A lawyer at the firm, William T. Treas, wrote on Aug. 27, 2013, and gave the Dwecks an option: Allow another engineer to inspect the home, or have the claim denied.

That second inspection -- conducted more than one year after the storm -- concluded that the damage was not due to flooding. As a result, the couple was denied $210,000, according to the lawsuit.

The Dwecks then appealed to FEMA in January, telling the agency of the alleged fraud. FEMA denied the appeal, saying the engineering report was correct.

It is unclear if Treas, who did not respond to a request for comment, reported the fraud allegations to the inspector general.

Shpelfogel, however, said investigators never contacted the Dwecks. Nor did they contact Weinberg, the lawyer said.

"Until we brought it to the senators' attention . . . nothing was done," Shpelfogel said.