Eastern District Awash in Sandy Insurance Cases
More than a year after Hurricane Sandy's waters receded, an "onslaught" of litigation is now slamming into the federal court with jurisdiction over the storm's most heavily affected areas.
As of early February, more than 800 Sandy-related cases—most disputing insurance claim denials or alleged underpayments—have been filed in the Eastern District, which includes the outer boroughs of New York City and Long Island, areas that endured the brunt of the nation's second-costliest weather disaster after Hurricane Katrina.
Policyholders and insurers have tried to resolve claims one-on-one. But the influx of cases shows that a large number of those negotiations have proven fruitless.
The cases started pouring in around October and November. Rather than let what Eastern District Chief Judge Carol Bagley Amon (See Profile) described as an "onslaught" overwhelm the court, she tapped three magistrate judges to examine whether the cases could be grouped or organized for more efficient resolution.
The trio—Magistrate Judges Cheryl Pollak (See Profile), Gary Brown (See Profile) and Ramon Reyes Jr. (See Profile)—has submitted a case management plan to address matters such as discovery schedules and settlement discussions. The Eastern District's Board of Judges, comprised of all the jurisdiction's judges, is now reviewing the proposal and will approve the final order.
In preparation, Amon opened a case last month called In re Hurricane Sandy Cases "for the purposes of Pretrial Case Administration in all actions seeking insurance coverage for damage caused by Hurricane Sandy."
"There are a lot of cases, but we're being sensible about it," she said in an interview about the court's approach. "We couldn't let this just happen to us. We had to take charge. As judges, that's what we're required to do."
She added that individual judges could opt out of the case management plan.
Some attorneys have said the cases are too fact-specific for a uniform judicial approach, but Amon said there could be a meaningful method of grouping cases, even in a limited way.
Benjamin Rajotte, director of the disaster relief clinic at Touro College Jacob D. Fuchsberg Law Center, said most of the Sandy litigation will go to federal court because the National Flood Insurance Act dictates that suits challenging flood coverage trigger federal jurisdiction.
Other disputes are being resolved through the New York State Department of Financial Services' Storm Sandy Mediation Program, an arrangement where the insurer picks up the $400 tab for a mediator. As of Feb. 10, the state program had received 2,708 requests for mediation. Of that figure, 1,460 have been settled, said a Department of Financial Services spokesperson.
Rajotte said "the main problems are, the insurers are undervaluing what everyone—the homeowner, the public adjuster—has agreed has been damaged. And number two, they're not considering the proper scope of repairs—what it would take to fix it."
The Touro clinic has already filed four Eastern District lawsuits and intends to file another 15 in the coming weeks. In all of them, homeowners got 50 percent less from their insurers than they needed to repair storm damage.
For example, the clinic represents Joe and Marilyn McDonald, a retired couple whose Amityville home was flooded by five feet of water inside. In the McDonalds' Jan. 23 suit, they allege Allstate Insurance Company breached its obligations to pay the full amount they are due under their policy.
So far, Allstate has offered them $38,400. But the McDonalds said the damages to their home totaled $234,000, and they have been unable to make all their repairs.
The couple's repeated calls to Allstate have been unsuccessful.
"They just totally dismissed me," said Marilyn McDonald, who is 65. "I felt like I was being scammed."
Rajotte said FEMA, which manages the National Flood Insurance Program, extended the deadline to file proof of loss to 18 months after the October 2012 storm, to April 29, 2014. But it did not extend the deadline for policyholders to submit a federal lawsuit against their insurers: that's still one year from the insurer's first written denial of a claim.
Each Sandy victim has his or her own, individual deadline to file a lawsuit, Rajotte explained, which in many cases could come well before April 29.
Javier Delgado of the Merlin Law Group said there could be more suits to come. With main offices in Tampa but also locations including New York and New Jersey, the firm is representing commercial and residential plaintiffs in "several hundred" Sandy cases that are mostly in federal court.
Though some insurance policies on wind storm damage have a one-year window on when its determination can be challenged, Delgado said the "norm" is a two-year statute of limitations.
Despite the possibility of more lawsuits, Delgado, a former adjuster and insurance defense attorney, said there is a "huge percentage of attrition" between policyholders who are denied and those who press on in court.
That drop-off, he said, was attributable to a possible plaintiff's flagging will and also the fact that "some people don't even have the time."
One of Delgado's client's, Dr. Harold Parnes, a certified diagnostic radiologist and neuroradiologist in Brooklyn, had three policies on his business through CNA and put in a claim after getting 40 inches of sewage in the office building's basement.
Parnes said he put in a claim for "millions of dollars" but has only received a "small percentage." He said Delgado is now preparing a lawsuit.
Noting he built the practice himself, Parnes, 53, said he got insurance for "peace of mind in case something happens, then something happens" and he has not been fully covered.
"That's really not appropriate," he said.
As the Eastern District grapples with the case spike, other courts are not as affected.
Southern District Executive Edward Friedland said there were four pending Sandy-related suits over disputed flood insurance claims and another one that closed in December.
Though there could have been other Sandy-related suits that concluded even earlier, Friedland said any previously-uncounted cases would not make for a case load "anywhere near the numbers" in the Eastern District.
The Southern District covers Manhattan, the Bronx and the Hudson Valley; though Lower Manhattan was slammed during Sandy, the storm's full wrath was due east.
In the state courts of New York City and Long Island, there has not been "a significant number of Sandy-related cases," said First Deputy Chief Administrative Judge Lawrence Marks (See Profile).
"The storm and its aftermath has undoubtedly been a contributing factor in some of the cases routinely brought in the courts such as foreclosure, landlord-tenant, consumer debt and child support cases, but we have not yet seen a large number of Sandy cases," he said.
In the months after the storm, the state court system set up dedicated Sandy parts in hard-hit counties including Richmond, Brooklyn and Queens. But the parts have gotten just a handful of cases each, if any, and administrative judges aren't sure why.
"We really have been underwhelmed," said Lawrence Knipel, administrative judge for Kings County Supreme Court, Civil Term. "We have one case for all of Brooklyn and it involves property damage to a private home in Bergen Beach."
In Richmond County, Administrative Judge Judith McMahon (See Profile) has seen just three Sandy-related cases. In all three, plaintiffs are suing their home or flood insurers over underpayments. One has since been removed to federal court.
McMahon said she hopes the lack of cases means people are getting their issues resolved outside of court. "People have called and asked, 'Do you really have a Sandy part?' And the answer is yes, we are open, and we're willing to have as much business as possible," she said.
'One Way or Another'
Back in Brooklyn, about 250 attorneys trekked and trudged through cold, snowy weather on Feb. 5 to the Eastern District's ceremonial courtroom from as far away as Louisiana to discuss how to handle the cases.
Prior to the proceedings, the magistrate judges sought input from the attorneys on potential grouping or streamlining. Yet by and large, attorneys for both the plaintiffs and defense urged against grouping, saying the cases were too individual.
Jerry Nielsen of Nielsen Carter & Treas in Metairie, La., a defense side firm representing carriers issuing flood insurance through the National Flood Insurance Program, said after Hurricane Katrina, some possible groupings of cases were attempted without success.
The ensuing case-by-case approach was a "massive amount of work, but it got done."
Tracey Rannals Bryan of Gauthier Houghtaling & Williams, a Metairie La., firm representing about 2,000 plaintiffs in state and federal actions in New York and New Jersey, also said cases were too specific to be handled together.
Still, she said attorneys would settle 95 percent of the disputes without the need for judicial resolution.
As the proceedings went on, attorneys aired other thoughts like urging "a meaningful, expedient mediation process" and sparring over whether plaintiffs should be expected to itemize losses.
During the proceedings, Judge Jack Weinstein—who has dealt with a number of mass litigation cases during his time on the bench—listened in.
As the proceedings concluded, he said the jurisdiction's board of judges "decided at least tentatively not to go with one judge" taking on all the cases.
He urged speedy resolution of the cases, saying "we owe it to the community to get the cases disposed of, one way or another."