Insurer conspired to underpay LI Sandy victims, class-action suit claims

Lawyers representing homeowners in Long Beach filed a federal class-action lawsuit Friday accusing an insurance company of conspiring with engineers and adjustors in a widespread effort to improperly deny superstorm Sandy claims.

The suit alleges that the private companies, which worked for the government-run National Flood Insurance Program, falsified reports to claim houses were damaged by erosion or structural defects, rather than the storm.

"They conspired to deny our clients' claims and to underpay them -- while billing the federal government," said Denis G. Kelly, a Long Beach attorney who is part of the team that filed the suit.

The defendants -- who include Wright National Flood Insurance Co., the engineering firm U.S. Forensic LLC and the adjusting company Colonial Claims Corp. -- were unavailable last night for comment.

In an interview last week, Wright president Neal Conolly said his company adheres closely to federal guidelines when awarding settlements. He denied that engineers falsified documents.

"Somehow they have created this aura of subterfuge," he said then. "It's simply not true."

The case was filed in Central Islip under the Racketeer Influenced and Corrupt Organizations, or RICO, act. The statute has long been used in criminal cases against the Mafia, but it also can be applied in civil matters to accuse defendants of widespread coordinated wrongdoing.

The suit comes two weeks after a federal judge issued a ruling saying U.S. Forensic engineers rewrote a report for a storm-wrecked house in Long Beach to blame damage on erosion rather than on flooding, allowing Wright to deny part of the claim.

To determine whether the practice was widespread, Judge Gary Brown ordered all insurance companies being sued by Sandy victims in New York to release copies of any notes, reports, pictures and other draft materials from engineering and adjusting reports. Wright said it would appeal the ruling.

In Friday's class-action suit, lawyers cite four other examples of Long Beach homeowners who they contend were denied coverage based on reports falsified by U.S. Forensic.

Ultimately, all flood insurance settlements come from the U.S. Treasury -- not from the companies who adjust the claims. But the lawsuit contends that Wright, U.S. Forensic and Colonial Claims benefited from the underpayments nonetheless.

By keeping settlements low, Wright avoided being audited by the National Flood Insurance Program -- and protected the company from having to reimburse the government for any overpayments.

The engineers and adjustors, meanwhile, knew that if they wanted to keep working for Wright, their reports had to be written to avoid covering as much damage as possible, the suit alleges.