A draft report from the Senate Banking Committee’s investigation into underpayment of flood insurance claims arising from Hurricane Sandy has concluded that the federal government’s appeals process is riddled with flaws. Nonetheless, the report also indicates that the evidence reviewed by the Congressional panel did not find evidence of systematic underpayment by Write-Your-Own (WYO) insurance carriers. The investigation was prompted by widespread allegations of underpayment of claims to homeowner’s who suffered devastating losses in Hurricane Sandy. The panel produced a number of findings and suggestions that are worth reviewing.
The Congressional investigation was initiated in the wake of a slew of lawsuits filed by aggrieved property owners alleging carriers collaborated with engineering firms to manipulate reports to minimize insurer payouts. A task force was formed by FEMA, which oversees the federal flood insurance program, to evaluate the unpaid and/or underpaid claims, resolve disputes over property damage, and make appropriate modifications to the program. Criminal investigations also have been initiated by the attorney general offices of New Jersey and New York, as well as the inspector general office of the Department of Homeland Security.
The Congressional panel report does not specifically address individual allegations of fraud brought by homeowners, because the emphasis was the management and structure of the WYO flood insurance program. The report indicates that evidence was not uncovered that supported a finding of systemic incentives to motivate underpayment of claims. However, the investigation also concluded that re-inspections by a 2nd adjuster yielded “low overall error rates.”
Interestingly, the report suggests that many of the issues of underpayment are attributable to the massive number of claims and scope of the damage. FEMA audit data investigators indicated that the number of claims exceeded the capacity of adjusters and engineering firms. It is suggested that FEMA must take steps and implement programs that will allow it to be more prepared in the face of a comparable major catastrophe in the future. Hurricane Sandy is estimated to have prompted 114,484 claims amounting to $68 billion.
The conclusions in the report also emphasize improving the appeals process. Currently, FEMA does not impose any requirement that WYO insurers increase payments to an insured even when the evidence merits such a change. Further, the federal agency does not even monitor the resolution of claims appeals. The agency is directed by the report to implement changes, so victims of Sandy are made whole, but this same process has not been ordered for victims of subsequent mass floods in Texas and Oklahoma. Other reforms that the panel has recommended be implemented by FEMA are the following:
- “Mandatory payments” if FEMA sides with property owners
- More efficient and effective procedures and policies for identifying and rectifying mistakes
- Improved accuracy and detail in terms of recordkeeping
Changes that have been implemented following the Oklahoma and Texas disasters include advances for claims with a relatively small value ($5,000 or less) and establishment of more liberal timelines for filing a sworn proof-of-loss.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].
