But not for everyone.
A barrage of federal lawsuits accuse a number of insurance companies — including The Hartford Financial Services Group and The Travelers Cos. — of improperly reducing flood-damage payments to homeowners in the wake of the 2012 storm.
The conflict involves more than 1,000 lawsuits. Attorneys suing insurers in many of the cases offer a similar, general allegation. They say homeowners were paid less than they should have been for flood damage caused by storm Sandy because of altered engineering reports that insurance companies were complicit in accepting as part of the claims-adjustment process.
A number of the lawsuits say the insurers' claims process worked like this: An initial adjuster or engineer inspects a home and writes in detail about damage caused by storm Sandy; a second engineer or reviewer then revises or alters the first report in a "peer review" process, reversing the conclusion that damage was caused by storm Sandy flooding.
If the complaints are true, the adjusted insurance claims mean a lot less money in flood-insurance payments to the homeowners. In the case of one flood-damaged home in Long Beach, N.Y., the difference between a city inspector's report and an insurer's estimate was more than $100,000.
Some of the lawsuits — possibly half, or more — are purely disputes over the amount paid by a flood claim to a homeowner and do not involve a criticism of the engineering peer-review process, said an attorney representing many of the homeowners.
Insurers point out that the property disputes involve only about 1 percent of all flood claims. In addition, they say, the peer-review process is a common practice and a quality control measure to make sure the federal government doesn't overpay on flood claims.
Regardless, by one estimate it could cost more to defend the lawsuits than to pay the full amount sought by homeowners outright. Both the legal expenses involved in defending the cases, and the flood claims themselves, will be borne, ultimately, by the taxpayer.
Long Beach Home
J. Steve Mostyn, an attorney with the Mostyn Law Firm in Houston, which has an expertise in insurance litigation, represents many of the suing homeowners.
"I see a bunch of people got defrauded, and lost everything they own, and it bankrupted them and something needs to be done about it," Mostyn said.
The lawsuits largely involve homes in New York and New Jersey. A federal judge in the Eastern District of New York has cited one case in particular to set parameters for dealing with the Sandy lawsuits that challenge payments resulting from the peer-review process.
That case was brought by Deborah Raimey and Larry Raisfeld, owners of a home at 24 Michigan St., Long Beach, N.Y., one block from the beach.
A Nov. 7 memo by the presiding judge, U.S. Magistrate Judge Gary R. Brown, details evidence collected at a hearing:
After Sandy passed through, an independent adjuster determined the home was unsafe to live in. The adjuster said the house had about 3 feet of sand next to it, its frame was out of line, in spots the floor had dropped an inch or two from the walls, and one bedroom had a 5-inch difference in ceiling height.
Initially, an engineer confirmed the home was damaged by flooding, but a second engineer, in a peer-review, concluded that the home was not structurally damaged by flooding or soil erosion, the judge says in his memo. A report dated Jan. 7, 2013, said the uneven roof slopes, leaning exterior walls and uneven floor surfaces were the result of a long-term differential movement of the building caused by movement of supporting soils at the site and long-term "deflection of the building framing."
As a result of the revised engineering report, Wright National Flood Insurance Co. authorized less than $80,000 to be paid to the homeowners.
Brown skewered the peer-review process conducted by U.S. Forensic, an engineering company retained by Wright National Flood Insurance Co., in the Long Beach lawsuit. U.S. Forensic's peer review 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 his Nov. 7 memo.
The judge referred to another estimate of damages, this one from an inspector for the city of Long Beach. After a Dec. 31, 2012, site visit, the inspector wrote a "substantial damage letter" that said the house sustained damages equal to 63.4 percent of the value of the home before the storm hit Oct. 29, 2012. The judge noted that the city inspector advised Raimey and Raisfeld that the home had to be removed or elevated to the 100-year flood elevation, and estimated replacement costs to be $269,850 and an "actual cash value" of $204,546.30.
Larry Demmons, an attorney for U.S. Forensic, said in a statement Friday that the company respectfully disagrees with Brown's characterization of the manner in which the company handled its evaluation of damage to the Long Beach home.
"The process of having preliminary work reviewed by a more experienced peer is a widely accepted practice used in most types of professional services, including engineering," Demmons wrote in an email. "The goal of the forensic engineering process is to provide a technically correct final evaluation, which was accomplished in this instance."
Demmons said U.S. Forensic stands by the results and conclusions it issued in its evaluation of the Long Beach home.
'I Smell A Rat'
Private insurers are involved in the flood-damage claims process, but they are not responsible for paying losses.
The National Flood Insurance Program is administered by the Federal Emergency Management Agency, or FEMA. Since 1983, private insurance companies have been allowed to write and service standard flood policies, and the federal government retains responsibility for paying losses. Insurers receive an expense allowance for policies written and claims processed.
The program is called "Write Your Own," and the insurers that sell policies are called "Write-Your-Own" insurers.
After storm Sandy, the federal government paid $8.1 billion on 144,000 claims to policyholders with flood insurance. However, about 1,500 flood-policy cases are being disputed in U.S. District Court in New York.
The notion that homeowners may have been underpaid has outraged U.S. Sens. Kirsten Gillibrand and Charles E. Schumer, both Democrats from New York. In November, Gillibrand and Schumer demanded answers from the head of FEMA.
"I smell a rat in the way Sandy insurance claims are being handled, and we want FEMA to get to the bottom of this sewer," Schumer said in a Nov. 14 statement.
"There have been repeated signs of underhanded practices taken by insurance companies to avoid paying flood insurance policyholders the funds that they so desperately need, and are owed, to rebuild after Superstorm Sandy," Schumer said. "It appears to me that these policyholder claims are being mishandled and delayed at best, and doctored and manipulated at worst."
Gillibrand and Schumer said one of the main problems with the National Flood Insurance Program's claims process is that insurance companies involved in the Write-Your-Own program are penalized more by the federal government for overpaying claims than for underpaying them. In any event, the claims are paid by the federal government, which receives premiums from policyholders.
Taxpayers On Hook
U.S. taxpayers will be saddled with the cost of the protracted legal battle.
It Is not clear how much that might be, but Judge Brown wrote in a Dec. 2 order: "Alarmingly, one attorney prominently involved in coordinating the defense of the [Write-Your-Own] carriers has predicted that the defense of these cases could cost more than $100 million, a figure that likely exceeds the cost of settling all of the cases at full value."
When challenged in court, private insurers are allowed to bill the National Flood Insurance Program for legal expenses related to flood claims.
Citing the Long Beach case, Brown ordered that all storm Sandy insurers who had a peer-review process and are now in litigation must provide engineering drafts, markups, reports, notes, measurements, photographs, written communications and other materials prepared and collected by engineers, adjusters, agents and contractors related to the properties and the damage at issue in each and every case. Insurers are required to track down the documents even if they have to obtain them from a third party, like an engineer, according to the court order.
The judge's order affects a long list of insurers that sell flood policies for the federal government: Allstate; Fidelity National Property and Casualty Insurance Group; Foremost Insurance Co., a division of Farmers Insurance; Hartford Casualty Insurance Co. of the Midwest, part of The Hartford Financial Services Group; Liberty Mutual Fire Insurance Co., Metropolitan Property & Casualty Insurance Co., known as MetLife; The Standard Fire Insurance Co., part of The Travelers Cos.; and others.
Lawyers for a number of the insurance companies argued that Brown's order requires them to spend "enormous time and effort and to incur large expenses to the United States Treasury," which is to say taxpayers, to comply by providing all of the materials.
Brown's orders were upheld in a Dec. 8 ruling by a three-judge panel.
"FEMA and other defendants filed more than 100 motions for reconsideration and clarification of those directives and, in many instances, filed parallel objections to Judge Brown's determination," the panel of three U.S. magistrate judges, Cheryl L. Pollak, Brown and Ramon E. Reyes Jr., said in its Dec. 8 order.
In denying the insurers' motions to reconsider, the three-judge panel authorized insurers to subpoena any information required by the court that they have to obtain from engineers or anyone else.
Also in early December, Gillibrand and Schumer met with FEMA Administrator W. Craig Fugate regarding their concerns about the way the flood insurance claims are being handled.
Fugate¸ in a Dec. 5 letter, implored the private insurance companies to provide the "transparency necessary to address these serious concerns head on."
Fugate wrote: "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."
Why Peer Review?
A research organization funded by the property-casualty insurance industry, the Insurance Information Institute, makes the point that most of the flood claims were paid without dispute. The court cases make up about 1,500 of the roughly 144,000 flood claims from storm Sandy, according to FEMA.
"So, it's about 1 percent," said Robert Hartwig, an economist and president of the Insurance Information Institute.
Hartwig defends the peer review among engineers in the insurance-claims process as a common practice and a matter of quality control.
"It's a good thing that more than one set of eyes is looking at these reports," Hartwig said.
Hartwig contends that insurers have no incentive to reduce claims because every aspect of the process is subject to an audit by the federal government.
Henry "Neal" Conolly, president of Wright National Flood Insurance, wrote in an email: "Wright refers a claim to an engineering firm if it is not clear that damages claimed arise from an associated general condition of flood. A foundation damage claim is an example. The NFIP Flood policy does not cover subsidence, settlement, outdated construction methods, or long term erosion."
Wright Flood said it handled $1.1 billion in flood-claim payments for damages related to storm Sandy, including $554.6 million in payments to New York policyholders. The company said it does not believe the National Flood Insurance Program has a flawed claims administration process, adding that the program provides incentives for speed and accuracy and fairness in adjusting claims.
"The decision to employ the services of an expert to evaluate the source of any damage can assist the insured in proving their claim," Conolly wrote in an email. "The engineering firm has no role in processing claims or settlement; it is retained solely to answer the question as to whether flood waters created damage."
The Hartford's spokesman, Thomas Hambrick, said the company takes the allegations very seriously. "We are actively investigating the actions taken by our vendors and the third party administrator (TPA) that handles flood claims on our behalf," Hambrick said in an email.
Travelers spokesman Matt Bordonaro said the company takes the matter "very seriously" but cannot discuss pending litigation.
On Thursday, the Long Island newspaper Newsday reported that the New York attorney general's office was investigating allegations of criminal activity related to government contractors forging documents in storm Sandy flood-insurance cases. The story did not identify the contractors. It said a separate federal investigation was already underway.
©2014 The Hartford Courant (Hartford, Conn.). Distributed by Tribune Content Agency, LLC.
