Storm Sandy Insurers Battle Flood Claim Lawsuits

Over 1,000 federal lawsuits have recently been filed against certain insurance companies, including the Hartford Financial Services Group and The Travelers Co, alleging that homeowners have had their flood-damage payments improperly reduced in the wake of Hurricane Sandy. Attorneys are claiming homeowners were paid less than what they were owed for flood damage as a result of the storm because of altered engineering reports that insurance companies accepted as part of the claims-adjustment process. According to the suits, the process involved an initial adjuster who would first inspect the home for damage caused by Hurricane Sandy and write up a detailed report with the findings. Afterwards, a second engineer would revise or change the report in a “peer review” process, and reverse the original conclusion that the damage was caused by storm flooding. If these allegations are true, the flood-insurance payments to affected homeowners were severely reduced. In a case involving a home in Long Beach, N.Y., that suffered flood damage, the difference between a city inspector’s report and an insurer’s estimate was over $100,000.
However, possibly one-half or even more of the lawsuits are disputes over the amount paid by a flood claim to a homeowner and do not claim any wrongdoing in the engineering peer-review process. Insurers claim that the peer review process is merely a quality control practice, and is common in the industry to ensure that the federal government does not overpay on flood claims. Nevertheless, one estimate values the cost of defending the lawsuits to be greater than the full amount sought by the homeowners. The legal expenses and the flood claims themselves will ultimately be paid by the taxpayer.