By Tara Hoke
Situation
In October 2012, Hurricane Sandy makes landfall on the East Coast of the United States, causing widespread damage to coastal communities. Many of the homeowners impacted by the disaster have purchased insurance through a "write your own" (WYO) program sponsored by the National Flood Insurance Program (NFIP), a federal initiative designed to offer affordable flood insurance to property owners in participating communities. Under this program, private insurance companies write and administer flood insurance policies in their own names, but the federal government assumes the responsibility for underwriting losses. The private insurance carriers also receive expense allowances from the U.S. government for costs incurred in administering the policies.
A forensic engineering firm is retained by one such carrier to inspect the home of a policyholder who claims his home has been damaged beyond repair by the storm. Because of the sheer volume of claims arising from the storm, this engineering firm has recently contracted with a number of licensed engineers to perform assessments. The firm assigns the task to one of its new contract employees, who personally inspects the property and submits a draft report to the firm, which concludes that the policyholder's home was damaged by hydrodynamic forces associated with the storm.
The draft report is forwarded to a senior engineer within the firm. Though the senior engineer has not personally inspected the damaged property, he performs a substantial rewrite of the draft report, removing or significantly altering many of the original engineer's observations and conclusions. In one instance, the original drafter reported that sand deposits and other obstructions had prevented him from examining whether the structure's foundation had collapsed; the senior engineer replaces this language with a statement noting "no evidence of damage to the foundation components was observed." In another place, the contract engineer noted that he was unable to inspect a crawl space due to debris; the senior engineer replaces this text with a paragraph containing a comprehensive description of observations made within the crawl space. Finally, the senior engineer reverses the report's original conclusion, finding that the observed structural damage was caused not by the storm but rather by long-term differential movement of supporting soils.
The senior engineer emails the redlined report back to its drafter with a note chastising the engineer for "theorizing about damages" and instructing the engineer to finalize the document and resubmit it for issuance. The engineer promptly complies, and the new report is submitted to the insurance company, which uses the report as its basis to deny the policyholder's claim for structural damages.
When the policyholder objects to the insurer's determination, the contract engineer is sent back to the property to make a second inspection. While the engineer is on-site, the policyholder observes and extracts a copy of the original draft report from among the engineer's possessions. This draft report--with its original observations and conclusions--becomes the basis for a civil lawsuit in which the policyholder claims the insurance company and its engineering firm had fraudulently altered the inspection report in order to underpay his claim.
Other policyholders file similar lawsuits against the insurance company, alleging that they, too, have been denied restitution based on a fraudulent report prepared by the insurer's engineering firm. Strikingly, the disputed reports in several of these cases are found to contain identical or near-identical sections of language, suggesting that the purported observations and conclusions had been copied and pasted from one engineering report to another.
Question
If this had been a case involving ASCE members, what ethical issues would be raised by the conduct described herein?
Discussion
Fundamental Canon 3 of the ASCE Code of Ethics reads: "Engineers shall issue public statements only in an objective and truthful manner." While the reference to "public" statements might seem to limit the applicability of this maxim, Canon 3's supplemental guidelines paint a broader picture of this ethical responsibility; guideline b notes the requirement to "include all relevant and pertinent information in…reports, statements, or testimony," while guideline c adds that engineers "shall express an engineering opinion only when it is founded upon adequate knowledge of the facts, upon a background of technical competence, and upon honest conviction." Collectively, these provisions stand for the expectation that engineers serve as a trusted voice in all professional communications, using their knowledge and expertise with diligence and good faith to offer reliable advice and analysis.
In the case on which this scenario was based, the insurance company was quick to characterize the draft's revision as the outcome of an internal peer review, a process they noted was commonly used as a quality check in forensic engineering. Yet, while peer review can indeed serve a valuable role in strengthening the logic and technical accuracy of an engineering report, the facts of this case raise serious questions about the legitimacy of the peer review and its participants' compliance with Canon 3.
With regard to the senior engineer, the insurers pointed to the drafting engineer's relative inexperience with this type of assessment and claimed that the more expert engineer could draw better conclusions from the report's text and photographic evidence than the drafter had made from personal observation. But several of the senior engineer's changes involved observations that were evident neither in the draft report nor in its accompanying photographs, such as descriptions from a crawl space that the report's drafter was unable to access. Moreover, some language inserted by the senior engineer, which appeared to have been copied from another report, had dubious applicability to the present case. For example, one insertion stated there was no sign of erosion or scour of soils around the basement, but the subject property did not have a basement. Given these inconsistencies, it is likely that the senior engineer had not stated opinions "founded upon adequate knowledge of the facts."
As to the junior engineer, while peer review is ideally a more iterative process, in which the drafter is free to discuss, question, and ultimately accept or reject suggested changes, here the drafter was simply directed to accept the senior engineer's edits. That he did so without a murmur raises a question as to whether the report bearing his name truly represented the engineer's "honest conviction" or was simply the path of least resistance.
Because the insureds' claims were ultimately paid by federal funds, it might be argued that neither the private insurance company nor its contracted engineers had any motive to issue deceptive engineering reports. However, the WYO program authorized the federal government to conduct audits of paid claims, and an insurer that was found to have overpaid a claim might be expected to reimburse the government for the overage. Yet there was no similar penalty for underpayment of claims, and if a policyholder sued, the federal government also covered the litigation costs. This imbalance created a powerful incentive for WYO carriers to lowball claims--and potentially, for an engineer seeking regular and profitable work from such carriers to issue reports that supported the underpayment of claims.
Fundamental Canon 6 of the ASCE Code of Ethics states that "Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession and shall act with zero tolerance for bribery, fraud, and corruption." Guideline a under that canon adds that "Engineers shall not knowingly engage in business or professional practices of a fraudulent, dishonest, or unethical nature." If it could be determined, then, that the senior engineer intentionally made or directed false conclusions in an engineering report for the purpose of winning business, it is likely that this conduct would be deemed a violation of canons 3 and 6.
Because of the widespread allegations of underpaid claims, in 2015 the NFIP constituted a Sandy Claims Review Division to reopen and evaluate upon request any policyholder claims that were filed due to Hurricane Sandy. In January 2017, the division reported that some 18,643 policyholders had received a review of their claims and more than 80 percent of these claimants had received additional payment based on that review.
Tara Hoke is ASCE’s general counsel and a contributing editor to Civil Engineering.
© ASCE, ASCE News, September, 2018
