New Jersey Insurance Blog

Judge Gary R. Brown, a United States Magistrate Judge from the Eastern District of New York,  recently issued a decision concerning changes to a report made by an insurance company’s consultant during the adjustment of a Sandy claim.  The insurance company sought to rely on that consultant’s revised report in an action commenced against it by the insured.  The decision presents somewhat of a cautionary tale against using result-oriented experts and the need to closely vet the work of expert consultants.

Raimey v. Wright National Flood Ins. Co., 14 CV 461 (JFB)(SIL)(GRB), 2014 WL 5801540 (E.D.N.Y. November 7, 2014), involved a claim by Deborah Raimey and Larry Raisfeld for damages sustained to their home as a result of Sandy.  Upon receiving notice of the claim, their insurer, Wright National Insurance Company (“Wright”), retained U.S. Forensic, an engineering firm, to inspect the home.

The engineer who inspected the home prepared a report indicating that the home had been damaged beyond repair as a result of Sandy.  Under the guise of doing a “peer review,” a second engineer employed by the same company subsequently revised the report to state that the home had not been damaged by Sandy.  Rather, he indicated that the damage to the home was the result of long-term deterioration.  The second engineer did not conduct an inspection of the home; he simply reviewed the photographs taken by the first engineer.  According to the court, “this ‘peer review’ process may have affected hundreds of Hurricane Sandy insurance claims–and possibly more.”  Decision at 3.

There was no evidence that the insurance company or its counsel was aware that the report had been altered.  It appears that the plaintiffs learned about the earlier report when the first engineer was asked to re-inspect the premises.  The engineer brought a copy of his original report along with him to the inspection, and the plaintiffs viewed and photographed portions of the report.  It was not clear how the plaintiffs were able to gain access to the report.   The plaintiffs raised the issue of the revised report with the court after an initial attempt at mediation failed.

Wright did not produce a copy of the original report or any of the correspondence concerning the revisions thereto during the course of discovery.  Counsel for Wright offered two excuses for its failure to turn over the documents.

First, Wright argued that it was not obligated to turn over those documents because “draft” reports are not subject to discovery under Rule 26(b) the Federal Rule of Civil Procedure.  The court rejected that argument, noting that “the protections relied on by defendant under Rule 26(b) apply only to drafts ‘that are prepared in anticipation of litigation or trial’.”  Id. at 17.  The court observed that the reports in question were prepared in connection with the adjustment of the loss, not in anticipation of litigation or trial.   The court further observed that “permitting defendant to withhold these documents would constitute a serious injustice.”  Id. at 17-18.

Wright further argued that the documents at issue were protected by the work product doctrine.   The court also rejected this argument, concluding that “[b]ecasue counsel did not even appear in the matter until a year after their creation, the documents at issue simply cannot contain any mental impressions of counsel, and were clearly not prepared for the purposes of litigation.”  Id. at 18.

Second, counsel for Wright argued that U.S. Forensics never provided a copy of the documents to it.  The court also rejected this argument, noting that “counsel has a duty to conduct a ‘reasonable inquiry’ to ensure that discovery responses are ‘complete and correct’.”  Id. at 18.  The court further noted that a party has an obligation to produce documents even if they are not in its possession if the party has the “legal right or practical ability” to obtain them from a third party.  Id. at 19.

Judge Brown referred to the revision of the report as “reprehensible gamesmanship by a professional engineering company that unjustly frustrated efforts by two homeowners to get fair consideration of their claims.”  Id. at 2.  He concluded that by not turning over the documents “counsel for Wright violated its obligations to comply with [the] Court’s discovery order.”  Id. at 22.  As a sanction, Judge Brown held that Wright was prohibited “from supporting it defenses or opposing plaintiffs’ claims with any expert testimony other than the testimony of [the original engineer who inspected the home], and [it] may not produce, rely upon or create any expert reports other than those already produced.”  Id. at 24.  He further held that the plaintiffs were entitled to an award of attorneys’ fees and costs.  The court declined, however, to dismiss Wright’s answer or hold anyone in contempt.

Significantly, the judge went on to hold:

As a result of the startling findings contained herein, plaintiffs in this case, as well as all other Hurricane Sandy cases, must be provided with additional discovery to determine whether there are other expert reports, drafts, photographs and email communications that have not been disclosed to date. . . . Therefore, as an initial response, I am directing that—within thirty days of the date of this Order— all defendants in any Hurricane Sandy case provide plaintiffs with copies of all reports . . . —plus any drafts, redlines, markups, reports, notes, measurements, photographs and written communications related thereto—prepared, collected or taken by any engineer, adjustor or other agent or contractor affiliated with any defendant, relating to the properties and damage at issue in each and every case, whether such documents are in the possession of defendant or any third party. Such production should provide counsel with sufficient information to proceed to mediation and/or settlement and, where necessary, trials in these cases.

Id. at 25-26.  Judge Brown was able to order that discovery take place in all the other pending Sandy cases because those cases are all subject to the same case management orders.

Given the magnitude of Sandy, there was a shortage of experts to go out and conduct inspections of damaged properties, and many insurers had to rely on expert consulting firms that they had not used in the past.  Unfortunately, this is not uncommon following a major disaster.  Given the influx of new business, consultant firms are required to quickly “staff up” to handle the new business.  The engineer who inspected the home in Raimey had been retained by U.S. Forensics “after answering an ad on Craigslist for a New York licensed engineer.”  Id. at 5.

As a general rule, it is very important for counsel to meet with the consultants that have been retained early in the process and to request complete copies of the files maintained by the those consultants.  Should any problems come to light, those problems should be rectified right away.  It goes without saying that it is important not to try to defend any “indefensible practices” once they are exposed.  Id. at 21.  In light of the Raimey decision, insurers and their counsel who are litigating Sandy claims in the Eastern District of New York are no doubt going to be scrambling to make sure that they do not have a similar situation on their hands.  Insurers and counsel involved in Sandy litigation in other jurisdictions would be well served to do the same.

A copy of the decision is available here:  Raimey v. Wright National