David Yates Aug. 1, 2016, 2:04pm

NEW YORK – On Aug. 1 Attorney General Eric T. Schneiderman announced the unsealing of a 50-count indictment charging Matthew Pappalardo and HiRise Engineering with allegedly altering reports of structural damage caused to homes after Superstorm Sandy made landfall in October 2012.

After the news broke, Amber Mostyn, the wife of Steve Mostyn and partner at Mostyn Law, sent out a tweet asserting that the indictment “is based on evidence that” Steve Mostyn and Mostyn Law uncovered in Sandy cases.

The Houston-based firm has represented numerous Sandy clients in their suits against insurance companies.

In May, PBS aired a report on the Mostyn Law Firm’s battle with insurance companies following Sandy.

The report described how Steve Mostyn purportedly learned that insurance companies were denying hurricane victims full compensation and engaged in fraudulent behavior, such as falsifying engineering reports.

Schneiderman and Steve Mostyn share a connection beyond Sandy.

On Jan. 11, 2013, the Texas attorney donated $60,800 to the New York lawyer's re-election campaign for attorney general, finance contribution records show.

Businesses associated with Mostyn also made contributions to Schneiderman's 2014 campaign, including three $41,000 donations from 504 Noah LLC, 6300 WLS LLC and Amitch LLC and a $60,800 donation from Equitas Commercial Real Estate Holdings. 

All four of the businesses listed have the same address as Mostyn's firm, 3810 W. Alabama Street, Houston, Texas 77027.

In total, Mostyn gave $244,600 to Schneiderman that election cycle. 

The indictment

Pappalardo and HiRise Engineering are charged with 25 counts of Forgery in the Second Degree. Pappalardo is also charged with 25 counts of Unauthorized Practice of Engineering.

“Fraudulently altering engineering reports undermines the integrity of the entire FEMA claims process, which homeowners and families rely upon in a time of crisis,” said Schneiderman in a statement. “Today’s charges reveal a flagrant disregard for the well-being and safety of New Yorkers, and my office will not tolerate it.”

Schneiderman also released a report identifying several “fundamental flaws” in the National Flood Insurance Program, which includes recommendations to increase transparency and accountability.

The NFIP is a FEMA program. Private sector insurance companies sell and handle the flood policies on behalf of the federal government.

“Along with our criminal investigation, my office has also released a report 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,” Schneiderman said.

“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.”

The NFIP expires in September 2017.

According to statements made by prosecutors at arraignment, after Superstorm Sandy in October 2012, HiRise was contracted to perform structural engineering assessments for properties covered under theNFIP.

HiRise, in turn, retained numerous licensed professional engineers to perform house inspections and prepare engineering reports.

According to prosecutors, employees of HiRise, under the direction of project manager Pappalardo, allegedly altered the original reports authored by the on-the-ground, subcontracted professional engineers.

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 the reports as part of their evaluation of coverage under the NFIP.

Pappalardo, 38, and Hi Rise were arraigned in Nassau County Supreme Court before the Honorable Robert G. Bogle. Bail for Pappalardo was set at $20,000

Schneiderman’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 supposed 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.

Alleged flaws in the NFIP identified by the AG’s office 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.

Recommended reforms 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.

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