A.G. Schneiderman Announces 50-Count Indictment Over Alleged Forgery Of Damage Reports In Wake Of Superstorm Sandy; Releases Recommendations To Reform FEMA'S National Flood Insurance Program

News from Attorney General Eric T. Schneiderman

August 1, 2016

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Matthew Pappalardo And Engineering Firm Hi Rise Engineering, P.C. Allegedly Altered Structural Damage Assessment Reports For Residential Properties Covered By The National Flood Insurance Program

Attorney General Releases Report Identifying Fundamental Flaws In Flood Insurance Program And Recommends Reforms To Increase Transparency And Accountability

Schneiderman: Today’s Charges Reveal A Flagrant Disregard For The Well-Being And Safety Of New Yorkers, And My Office Will Not Tolerate It

NEW YORK – Attorney General Eric T. Schneiderman announced today 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.  Pappalardo and HiRise Engineering, P.C. (HiRise) are charged with 25 counts of Forgery in the Second Degree, a class D Felony; Pappalardo is also charged with 25 counts of Unauthorized Practice of Engineering, a class E Felony. In addition, Attorney General Schneiderman also announced today 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 reported 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.”

In June 2014, counsel for owners of residential properties in New York that had incurred damage as a result of Superstorm Sandy reported alleged fraudulent alterations in engineering reports to the Office of the Attorney General (“OAG”).  In December 2014, the OAG’s Criminal Enforcement and Financial Crimes Bureau commenced a criminal investigation into the suspected unlicensed practice of professional engineering and forgery of engineering reports by engineering firms operating in Nassau County and elsewhere in New York. 

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. 

Pappalardo, 38, and Hi Rise were arraigned today in Nassau County Supreme Court before the Honorable Robert Vogle.  Bail for Pappalardo was set at $20,000 cash over $40,000 bond.  

The charges against the defendants are allegations and they are presumed innocent until proven guilty in a court of law.  

In addition to the crimes charged in Nassau County, the Attorney General’s investigation into the damage assessment process after Superstorm Sandy has also uncovered evidence of other crimes which fall outside the scope of New York State’s jurisdiction.  As a result, the Attorney General has referred these findings to the United States Department of Justice. 

The Attorney General’s Report, entitled “Murky Waters:  Increasing Transparency and Accountability in the National Flood Insurance Program, Findings and Recommendations in the Wake of Superstorm Sandy,” 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 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.

Attorney General Schneiderman thanks the United States Department of Homeland Security, Office of the Inspector General for their valuable assistance on this investigation, including Special Agent in Charge Gregory K. Null, Assistant Special Agent in Charge Julio Santana, Special Agent in Charge of Headquarters Michael Dawson, Special Agent George Heitz and Special Agent Steven Tseng.

Attorney General Schneiderman also thanks the New York State Education Department, Office of Professions for their valuable assistance on this investigation.

The OAG investigation was conducted by Senior Investigator Michael Leahy and Investigator Anna Ospanova. The Supervising Investigator is Sylvia Rivera and the Deputy Bureau Chief is John McManus. The Investigations Division is led by Chief Investigator Dominick Zarrella.

The case is being prosecuted by Assistant Attorneys General Joseph D’Arrigo and Robert Miller of the Attorney General’s Criminal Enforcement and Financial Crimes Bureau.  The Bureau is led by Bureau Chief Gary T. Fishman and Deputy Bureau Chief Stephanie Swenton. The Division of Criminal Justice is led by Executive Deputy Attorney General Kelly Donovan.

The original Consumer Frauds investigation was handled Assistant Attorney General Melvin L. Goldberg of the Consumer Frauds and Protection Bureau.  The Bureau is led by Bureau Chief Jane Azia. The Division of Economic Justice is led by Executive Deputy Attorney General Manisha M. Sheth.