Hurricane Sandy Fraud Allegations: New York and New Jersey US Senators Call For FEMA Oversight Hearings

Four U.S. senators say mismangement and possible criminal activity within FEMA's flood insurance program require congressional oversight hearings amid allegations widespread fraud deprived Hurricane Sandy victims of claims payments. Sens. Kirsten Gillibrand and Charles Schumer of New York, and Robert Menendez and Cory Booker of New Jersey requested the hearings Monday after a senior FEMA official admitted the agency saw signs of potential fraud more than a year ago.

In a letter addressed to the chair of the Senate Banking, Housing and Urban Affairs Committee, the senators cited a range of concerns regarding accountability in the National Flood Insurance Program, which FEMA largely contracts out to private insurance carriers.

"It is shocking to us,” the senators wrote, “that FEMA officials received specific allegations of fraudulent activity that served as the basis for claimants being denied the coverage they had paid for, including homeowners who lost their homes, and either did not appropriately investigate these claims or simply looked the other way."

Momentum has been building for months in federal courts, among law enforcement officials, and in Washington around allegations of altered engineering reports and lowball payouts in Sandy insurance claims. According to lawyers currently negotiating mass settlements with FEMA in pending court cases, thousands more homeowners who never brought lawsuits also may be victims of fraud.

A “60 Minutes” investigation Sunday detailed the stories of Long Beach, New York, homeowners who allege their insurance carriers underpaid them by tens of thousands of dollars after engineering firms changed damage reports on their properties. In a watershed case against Wright National Flood Insurance, Long Beach resident Robert Kaible managed to snap photos of an initial engineering report on his house. Kaible testified last fall before a New York federal magistrate about the stark differences he saw in two versions of the report authored by the firm U.S. Forensic.

U.S. Magistrate Gary Brown last November called the “secretly” rewritten report, and its concealment, an act of “reprehensible gamesmanship.” Fearing such a practice could be “widespread,” Brown and a panel of fellow magistrates ordered insurance companies to turn over all draft engineering reports in pending cases.

Wright Flood, U.S. Forensic, and HiRise Engineering all declined to be interviewed by “60 Minutes,” and have denied allegations of criminal wrongdoing. Just last month, New York Attorney General Eric Schneiderman executed a search warrant at the offices of another engineering firm, HiRise Engineering, as part of an ongoing criminal investigation.

Yet in “late 2013” -- nearly a year before the case of Kaible and his wife Deborah Ramey exploded into public view -- FEMA saw “signals” of potential fraud used to deny claims, the agency’s Brad Kieserman told “60 Minutes.” He was appointed as FEMA’s deputy associate administrator for insurance at the beginning of February, and is now leading the settlement process. Approximately 2,000 insurance cases are pending in federal courts in New York and New Jersey.

Asked during the program why allegations of fraud weren’t elevated sooner within the agency, Kieserman said, “This would be the type of thing that I would run to the boss with. And I need to find out why that didn’t happen.”

Now senators from the region hardest hit by the 2012 storm are seeking a chance to find out what happened -- as potentially more cases remain to be uncovered. Many of the allegations that have surfaced so far arise from New York cases, but the senators said they are “concerned that firms that prepared insurance reports for homeowners in New Jersey may have also purposely falsified documents to lower their payouts.”