Flood insuranceJudge orders review of insurance companies’ processing of Sandy-related damage claims
Several insurance companies contracted to handle Hurricane Sandy claims on behalf of the National Flood Insurance Program, administered by the Federal Emergency Management Agency (FEMA), are facing lawsuits filed by homeowners in New York and New Jersey, who claim that insurance firms improperly reduced flood-damage payments. More than 1,000 lawsuits allege that homeowners received less than they should have for storm- related damages because of altered engineering reports that insurance companies knowingly accepted as part of the claims-adjustment process. The judge described the work done by one engineering firm on behalf of an insurance company as “reprehensible gamesmanship.”
Since 1983 private insurance companies have been allowed to issue federally backed flood policies under the Write Your Own program, while the government retained responsibility for paying the losses. Insurers are then paid an expense allowance for policies written and claims processed.
Several insurance companies contracted to handle Hurricane Sandy claims on behalf of the National Flood Insurance Program, administered by the Federal Emergency Management Agency (FEMA), are facing lawsuits filed by homeowners in New York and New Jersey, who claim that insurance firms improperly reduced flood-damage payments. More than 1,000 lawsuits allege that homeowners received less than they should have for storm-related damages because of altered engineering reports that insurance companies knowingly accepted as part of the claims-adjustment process. Under the claims process insurance companies allegedly used, an initial adjuster inspected a home and submitted a detailed report about damage caused by Sandy; a second adjuster then revised the first report as part of a “peer review” process, reducing the amount of damage caused by Sandy. Homeowners then receive less money in flood-insurance payments.
The Hartford Courant reports that in the case of a flood-damaged Long Beach home, the difference between a city inspector’s report and an insurer’s estimate was more than $100,000. Insurers insist that the peer review process is an industry practice and a quality control measure to make sure the federal government does not overpay on flood claims.
“It’s a good thing that more than one set of eyes is looking at these reports,” Robert Hartwig, an economist and president of the Insurance Information Institute said. Hartwig contends that insurers have no incentive to reduce or manipulate claims since the process is subject to a federal audit.
In response, an attorney representing many homeowners note that more than half of the disputes are in regards to the amount paid to homeowners and not the “peer review” process.
The federal government has paid $8.1 billion on 144,000 claims to Sandy-affected policyholders. Roughly 1,500 flood-policy cases are now being disputed in a U.S. District Court in New York. FEMA administrator W. Craig Fugate has urged insurers to review their claims process, stressing that it could cost more to defend the lawsuits than to pay the full amount sought by homeowners. Both expenses would be paid for by FEMA, and ultimately the taxpayer.
“Unnecessary litigation tactics or failure to resolve litigation in a timely manner could result in excessive legal fees and costs which are ultimately reimbursed from the National Flood Insurance Fund. Policyholders deserve to be paid for every dollar of their covered flood losses, and taxpayers deserve to expect good stewardship of tax dollars,” Fugate wrote in a recent letter to private insurance companies involved in the lawsuits.
In November, U.S. Magistrate Judge Gary R. Brown presided over a case bought by Deborah Raimey and Larry Raisfel, owners of a home in Long Beach. The case revealed that as a result of a peer review report, Wright National Flood Insurance Co., the home’s insurer, issued less than was due to the homeowners. The peer review process conducted by U.S. Forensic, an engineering company retained by Wright National Flood Insurance Co., was “reprehensible gamesmanship by a professional engineering company that unjustly frustrated efforts by two homeowners to get fair consideration of their claims,” Brown said in a 7 November memo. Citing the Long Beach case, Brown has since ordered all Sandy insurers who issued a peer review and are now involved in lawsuits with homeowners to provide “engineering drafts, markups, reports, notes, measurements, photographs, written communications and other materials” submitted by engineers, adjusters, agents, and contractors related to the properties and the damage at issue in all cases. Lawyers for the insurance companies involved contested Brown’s orders, but a panel of three U.S. judges, including Brown, upheld Brown’s orders.
