A.G. Schneiderman Announces Sentencing Of Former Engineering Firm Manager For Making Unauthorized Alterations To Superstorm Sandy Damage Report

Attorney General Schneiderman Calls Upon FEMA To Implement His Proposed Reforms To The National Flood Insurance Program

Schneiderman: Today’s Sentencing Demonstrates That We Will Not Tolerate Those Who Undermine The Integrity Of The FEMA Claims Process

   Attorney General Eric T. Schneiderman announced today the sentencing of Matthew Pappalardo, 39, of Nassau County, for Unauthorized Practice of Engineering after admitting to altering an engineering report prepared in connection with the assessment of structural damage of residential properties resulting from Superstorm Sandy. Papparaldo was the former Project Manager for Uniondale engineering firm HiRise Engineering, P.C. (“HiRise”). In January, HiRise pleaded to the violation of Criminal Solicitation in the Fifth Degree, and agreed to be permanently banned from receiving contracts and providing services under the Federal Emergency Management Association’s (“FEMA’s”) National Flood Insurance Program (“NFIP”). 

“Today’s sentencing demonstrates that we will not tolerate those who undermine the integrity of the FEMA claims process. New Yorkers should be certain that their insurance claims are being handled accurately and fairly,” said Attorney General Schneiderman. “Yet there are still too many flaws in the NFIP that allow this type of fraud to happen. It's high time that FEMA implement the common sense reforms recommended by my office -- so that families can be confident that their claims are being handled appropriately when the next storm hits."

In August 2016, the Attorney General’s Office announced the unsealing of an indictment from a Nassau County Grand Jury charging Pappalardo and HiRise with multiple counts of Forgery in the Second Degree, a class D Felony, and charging Pappalardo with multiple counts of Unauthorized Practice of Engineering, a class E Felony. 

As prosecutors stated at the arraignment on the indictment, after Superstorm Sandy in October 2012, HiRise 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. 

The original reports authored by the on-the-ground, subcontracted professional engineers were 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 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 for homeowners under the NFIP. 

On January 10, 2017, before the Honorable Jerald S. Carter in Nassau County Supreme Court, Pappalardo pleaded guilty to Unauthorized Practice of Engineering, a Class E felony, and today was sentenced to three years’ probation and a fine in the amount of $10,000. Also in January 10, 2017, HiRise pleaded to Criminal Solicitation in the Fifth Degree, a violation, agreed to be permanently banned from receiving contracts and providing services under the NFIP, and paid $225,000 in costs of prosecution.

When the original criminal charges were filed in August 2016, Attorney General Schneiderman released a report identifying several fundamental flaws in the NFIP and recommending specific reforms designed to provide homeowners with a better understanding of their coverage and to ensure the integrity of the structural damage assessment process. 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.

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.

On December 30, 2016, FEMA issued a letter bulletin to the Write-Your-Own insurance carriers (“WYO carriers”) that administer the NFIP.  Notably, the FEMA bulletin fails to address several of the key reforms called for by the Attorney General.  The bulletin does not require a plain-language disclosure sheet highlighting the exclusions from coverage, and it does not implement a fee schedule for engineering services.  Additionally, while the bulletin recognizes that FEMA experts must comply with applicable licensure laws, it does not implement training or certification requirements for engineers who perform structural damage assessments.  Lastly, the letter states that WYO carriers must only provide copies of expert reports when requested by policy holders, rather than requiring that such reports be provided to homeowners as a matter of course. As such, Attorney General Schneiderman continues to call on FEMA to implement his recommended reforms.

Attorney General Schneiderman thanks the United States Department of Homeland Security, Office of the Inspector General for their valuable assistance in 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.