(Bloomberg) -- Wright National Flood Insurance Co. and U.S. Forensic LLC, an engineering firm, were sued by New York homeowners who claim the companies conspired to manipulate reports and avoid paying for damages from Hurricane Sandy in 2012.

Wright, which provides coverage on behalf of the government’s National Flood Insurance Program, “systematically sought to underpay legitimate claims” through the use of “fraudulent engineering and claims handling analysis” by U.S. Forensic and other firms, policyholders alleged in a complaint filed Nov. 21 in Central Islip, New York, federal court.

Owners of a storm-battered home in Long Beach, New York, said the insurer rejected their claim using a baseless engineering report. They are seeking to represent potentially hundreds of other policyholders whose claims are alleged to be either denied or underpaid based on similarly-conducted reports.

By denying or underpaying claims, Wright mitigated its risk of facing a government audit and financial penalties for overpayment, according to the complaint.

A U.S. magistrate judge found earlier this month that an engineering report for the same Long Beach house was potentially fraudulent, having been rewritten to say the problems were due to long-term deterioration after inspectors initially found it was damaged beyond repair by the storm.

Unprincipled Practices

The “unprincipled practices may be widespread,” U.S. Magistrate Judge Gary Brown said in the Nov. 7 ruling. The process, which defendants described as “peer review,” may have affected hundreds of Hurricane Sandy flood insurance claims or more, Brown said, ordering that draft reports be disclosed to plaintiffs in as many as 1,000 cases.

The Federal Emergency Management Agency, which administers the National Flood InsuranceProgram, has asked Brown to reconsider his order, saying that it is burdensome and “unjustly applies to the conduct of one engineering firm to suggest systemic misconduct by all engineering firms.” FEMA is also named as a defendant in some Hurricane Sandy cases.

The case is Ramey v. U.S. Forensic LLC, 2:14-cv-06861, U.S. District Court, Eastern District of New York (Central Islip).

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