A Travelers Cos. unit and other flood insurers accused by Hurricane Sandy victims in New York of using falsified engineering reports must turn over the drafts to policyholders, a three-judge panel ruled amid allegations that manipulation may have been widespread.

The group of federal magistrate judges in Brooklyn and Central Islip rejected arguments from insurers that disclosure was unfair or burdensome and ordered the materials turned over to the storm victims by Dec. 12. The panel also set a hearing for Jan. 28 over allegations that insurers used doctored reports to avoid paying damage claims.

The companies’ argument that they need more time to comply with the order “rings hollow in light of the fact that these materials should have been produced many months ago,” the panel said in its ruling yesterday.

The “burdens faced by plaintiffs -- storm victims who may have been unjustly denied recovery for damage to or destruction of their homes” outweigh the hassle of producing the documents, the judges said.

Claims Conspiracy

Homeowners have sued a unit of New York-based Travelers and other insurers including Wright National Flood Insurance Co. and a unit of Hartford Financial Services Group Inc. over claims they illegally conspired with engineering firms and others to deny or underpay claims from Sandy. The October 2012 storm was the largest Atlantic hurricane on record and caused about $60 billion in damage in New Jersey, New York and Connecticut.

The insurers participated in a program through which they provided flood insurance underwritten by the federal government. Homeowners said the insurers took part in the scheme to avoid federal audits and possible financial penalties for making too generous payouts. The companies also sought to inflate claims- handling expenses that would be borne by the government, according to the complaints.

In a Nov. 7 ruling, U.S. Magistrate Judge Gary R. Brown ordered the insurers to turn over all drafts of engineering reports to potentially hundreds of policyholders after he discovered evidence of possible manipulation of a report for a home in Long Beach, New York.

In response to pressure from New York and New Jersey lawmakers, Federal Emergency Management Agency Administrator W. Craig Fugate on Dec. 5 urged private companies participating in the flood insurance program to turn over the draft reports for Sandy claims in litigation in New York and other states.

Unjust Allegations