In March 2015, it was announced that all Superstorm Sandy flood claims would be reopened. The decision was announced after concerns that flood claims had been manipulated to pay substantially less in damages to flood victims.
Although the announcement comes 2 years after claims were initially filed, it will be welcome news for homeowners and businessowners who believe their claims payments were lowballed or wrongfully denied. Early evidence suggests that insurance companies have engaged in several underhanded tactics to avoid paying Sandy victims their rightful amount.
Fraudulent engineering reports
Approximately 18,000 of the 144,000 Sandy flood claims that were filed involved engineering reports to assess damages. In these claims, an adjuster was initially called to flooded homes to appraise the extent of damage. Their reports were then sent to the insurance companies to begin the claims payout. However, in the final claims payment decision, homeowners sometimes received a much lower payment that was insufficient to cover their damages and lower than their policy maximum. In one case, a couple from Long Island challenged their Sandy claims decision. Their adjuster, the same one who first assessed their home damage, returned to their home and reviewed the report their insurance company had sent back. The adjuster concluded that the engineering report included in the insurance report was not the one he had sent to them, or if it was, it had been significantly altered. Many Sandy victims have come forward with similar stories involving their insurance companies changing their adjusters’ reports in order to underpay their claims.
In these 18,000 claims, FEMA will be looking for evidence of similar fraudulent report fixing. If FEMA finds wrongful tampering in these claims and reports, homeowners may be entitled to additional payments up to their policy maximums up to $250,000 for home damage and $100,000 for contents.
Other tactics used to deny or underpay flood claims
Even though not all claims involved engineering reports, FEMA will be looking for other forms of claims manipulation in other reopened cases. For example, insurance companies may have underpaid or denied claims on the basis that damage was preexisting or caused by a non-covered condition. Insurance policies often have very strict restrictions on what is considered flood damage and what types of damage are eligible for coverage. If insurance companies are found to have falsely recorded flood damage as “pre-existing” or not caused by a flood, these companies will be held liable for correcting these underpaid and denied claims. In one example, a Sandy homeowner was wrongfully denied coverage for his flood claim because his insurance company challenged that the damage was pre-existing – that his house had long had foundation problems due to “earth movement”.
Comparisons with Hurricane Katrina
Evidence of fraudulent engineering reports and tampering of Sandy flood claims has been compared to similar practices that were exposed in the Katrina disaster. In the aftermath of Hurricane Katrina, insurance firms relied on mischaracterizing claims in order to underpay Katrina victims. For example, insurance policies typically cover wind damage, but often do not cover flood damage. Insurance companies intentionally used this against homeowners, stating that damage to their homes caused by wind was instead caused by flooding, making them ineligible for insurance coverage.