The Federal Emergency Management Agency has launched an effort to broker settlements for superstorm Sandy victims who have filed lawsuits accusing insurance companies of using fraudulent documents to deny claims.
In a letter to three federal judges overseeing the cases, the agency said it was arranging meetings between lawyers for the companies and the homeowners, who say engineering reports were secretly changed to blame property damage on long-term deterioration, rather than flooding.
The move, lawyers say, was a broad effort to deny millions in coverage to homeowners from the government-run National Flood Insurance Program.
"FEMA leadership is deeply troubled by recent allegations that . . . companies may have relied on questionable and subpar engineering reports when adjusting claims," the agency's deputy associate administrator, Brad J. Kieserman, wrote in the Feb. 13 letter to the three magistrates in New York.
Lawyers for homeowners greeted the move with cautious optimism, saying that after months of stonewalling, FEMA appeared to be addressing the allegations.
"There has been massive fraud perpetrated," said John W. Houghtaling, a Louisiana lawyer whose firm is representing hundreds of homeowners on Long Island and in Brooklyn. "This is an unprecedented action that demonstrates the seriousness of the violations."
Lawyers for insurance companies did not respond to requests for comment. A FEMA spokesman declined to comment.
The federal government underwrites flood insurance, but FEMA hires private companies to administer policies. Kieserman, who was appointed this month to reform the program, said he is assessing how FEMA supervises the private insurers, engineering firms and others who process claims.
The allegations of forgery have drawn broad attention since November, when a federal judge issued an opinion saying it appeared a report was altered for a house in Long Beach.
That report was initially drafted by an engineer who inspected the house weeks after the storm and concluded that the foundation was ravaged by flooding. Yet his findings were overturned by a second engineer who never visited the house and blamed the damage on erosion.
Since then, at least a dozen other homeowners have made similar claims, including in three class-action lawsuits. All told, attorneys say they suspect more than 1,000 reports were forged in New York alone. A judge has scheduled a hearing for Thursday to examine evidence in several of the cases.
The New York State attorney general's office has opened a criminal probe. FEMA has referred the matter to the office of the inspector general.
Flood settlements are paid by the federal government -- not the companies that process claims. Yet critics say the program encourages those private contractors to lowball by penalizing them for overpayments to homeowners -- but not for underpayments.
In December, FEMA announced a series of reforms to ensure claims aren't underpaid, including instituting penalties for underpayments.