Sandy Insurance Issues Said Focus of New York Criminal Probe

A criminal probe has been opened by New York’s attorney general based on accusations by Hurricane Sandy victims that insurance companies rejected claims for flood damage to their properties based on falsified engineering reports. The attorney general, Eric Schneiderman, has started an investigation into whether crimes were committed after at least three lawsuits were filed in federal court by New York homeowners. In the suits, the homeowners accused the insurers which contract with the government’s National Flood Insurance Program of scheming with engineering firms, and claimed that others involved in handling claims denied or reduced damage payouts based on fraudulently manipulated reports.

Hurricane Sandy struck in October 2012, causing about $60 billion in damage in New Jersey, New York, and Connecticut, and killed over 100 people in the U.S. The storm is currently the largest Atlantic hurricane on record and resulted in the worst flooding in the more than 100-year history of the New York City subway system. Insurance companies have been required by a federal magistrate judge in Central Islip, New York to disclose draft reports to hundreds of policyholders currently suing over claims relating to the storm. The policyholders are claiming that the insurers took part in a scheme through which they provided flood insurance underwritten by the federal government in order to avoid federal audits and possible financial penalties for making overly generous payouts. The complaints further state that insurers attempted to inflate claims-related expenses that would be borne by the government.