A.G. Unseals 50-Count Indictment for Superstorm Sandy Fraud, Recommends NFIP Reforms

Attorney General Eric T. Schneiderman recently announced the unsealing of a 50-count indictment charging Matthew Pappalardo and his former employer, HiRise Engineering, P.C., with allegedly altering engineering reports prepared in connection with the assessment of structural damage of residential properties resulting from Superstorm Sandy. In addition, the Attorney General announced the release of a report identifying several fundamental flaws in the National Flood Insurance Program (NFIP), which includes recommendations to increase transparency and accountability.

“Fraudulently altering engineering reports undermines the integrity of the entire FEMA claims process, which homeowners and families rely upon in a time of crisis. Today’s charges reveal a flagrant disregard for the well-being and safety of New Yorkers, and my office will not tolerate it,” said Attorney General Schneiderman. “Along with our criminal investigation, my office has also released a report calling on federal regulators and industry participants to enact reforms to ensure that the insurance claims process is more transparent, which will help protect homeowners against the alleged fraud that we have uncovered. When the next major storm hits, it’s crucial that families know exactly what kind of damage is covered by insurance, and that their claims are being handled professionally and reliably.”

According to statements made by prosecutors at arraignment, after Superstorm Sandy in October 2012, HiRise, a Uniondale-based engineering firm, was contracted to perform structural engineering assessments for properties covered under the National Flood Insurance Program. HiRise, in turn, retained numerous licensed professional engineers to perform house inspections and prepare engineering reports.

According to prosecutors, the original reports authored by the on-the-ground, subcontracted professional engineers were allegedly altered by employees of HiRise, under the direction of project manager Pappalardo. Pappalardo and the other HiRise employees who made the alterations to the original reports did not personally inspect the damaged buildings and were not licensed to practice engineering in New York State. The altered reports were then allegedly submitted by HiRise, and ultimately provided to the adjusting firms, without the consent or approval of the underlying professional engineers. Federal flood claim administrators and adjusting firms then relied on these reports as part of their evaluation of coverage under the NFIP. 

The Attorney General also released a report, entitled “Murky Waters: Increasing Transparency and Accountability in the National Flood Insurance Program, Findings and Recommendations in the Wake of Superstorm Sandy,” which identifies several fundamental flaws related to both the scope of coverage and the structural damage assessment process under the NFIP.  The report also calls for the immediate implementation of specific reforms.

Flaws in the NFIP identified by the Office of the Attorney General (OAG) include:

  • A lack of clarity in the scope of coverage under the Standard Flood Insurance Policy;
  • Inadequate training and lack of certification requirements for structural engineers retained in connection with flood claims; and
  • Poor administration and supervision of the flood claims process, including the failure to provide important documentation to policyholders.

Reforms to the NFIP recommended by OAG include:

  • Increase the transparency and clarify the scope of flood insurance coverage and any applicable exclusions, to provide consumers with a better understanding of what is and is not covered under their flood policy, through the creation of a plain language disclosure sheet;
  • Provide policyholders with all documents created during the course of the flood claim administration process and ultimately relied upon in determining payment or denial of a flood claim, including all final adjuster and engineering reports, as a matter of course;
  • Implement a national certification process for all engineers retained to provide structural damage assessments in the wake of a flood event; and
  • Ensure the transparency of fees paid to engineering experts by implementing a standardized fee schedule for all engineering services.