Disaster insuranceFEMA will review denied or underpaid Sandy-related claims by owners of damaged homes

Hundreds of homeowners who were denied claims for damages caused by Hurricane Sandy will now have their claims reviewed, according to a series of reforms by the Federal Emergency Management Agency (FEMA), which operates the National Flood Insurance Program. According to FEMA administrator, W. Craig Fugate, contractors hired to handle homeowner claims allegedly conspired to underpay flood insurance settlements to homeowners. Several documents were even falsified to deny claims, according to the allegations. “We must do better,” Fugate wrote in a letter to the contractors. “Policyholders deserve to be paid for every dollar of their covered flood loss.”

The reforms include:

• Revising how insurers are compensated to ensure claims aren’t underpaid
• Releasing draft reports suspected of being doctored to deny claims
• Reopening claims of 270 homeowners whose appeals were denied because they missed a paperwork filing deadline
• Expanding the role of a flood-insurance advocate to assist policyholders with future claims

Senator Kirsten Gillibrand (D-New York) welcomed the reforms. “This is finally some good news for these families devastated by superstorm Sandy,” she said. “These changes by FEMA will mean significant progress to ensure that homeowners can receive the critical funding that they deserve.”

The reforms are partly due to findings by federal Judge Gary Brown regarding cases in New York, in which claim reports for Sandy-damaged homes were systematically rewritten to blame damage on erosion or structural defects, as opposed to flooding. Fugate’s announcement drew cheers from homeowners in Long Island, many of whom have spent months in legal battles to collect settlements to rebuild their homes. “Sandy victims must receive prompt reimbursement from flood insurance providers based on the damages incurred to their property — end of story,” said Senator Charles Schumer (D-New York).

Newsday reports that Senator Robert Menendez (D-New Jersey) has been asked by FEMA to convene a task force to review and recommend new measures for how contractors are paid for processing flood claims. Penalties may be issued for underpayments. “While I certainly understand the need to protect taxpayer dollars from waste, fraud and abuse, I equally want to protect homeowners from getting swindled out of money they deserve,” Menendez said last Friday.

Lawyers for Metairie, Louisiana-based U.S. Forensic, one of the firms accused of falsifying claims, have denied the allegations. They insist that the claim reports were not rewritten, but instead edited as part of peer reviews- an industry standard.

FEMA has ordered all contractors charged with rewriting claim reports to release draft reports. “We owe it to our policyholders to provide this level of transparency,” Fugate wrote.