Hurricane Sandy was devastating. It set records for barometric reading lows and produced a record-setting surge of water into locations like New York City. It affected an untold number of people living on the East Coast and the Caribbean when it swept through in 2012. There were at least 149 deaths. Thousands of people were homeless because of the storm and millions of people lost power.
The storm also brought an unprecedented amount of flooding. Even homes that were not damaged by its 78-mile-per-hour winds were affected by the flooding that occurred in the aftermath of the storm. Homeowners turned to their insurance companies and emergency government funds for help. Unfortunately, some sources state that underpayment, particularly in New York and New Jersey, may have been a common occurrence.
The Class Action Lawsuits
Homeowners in New Jersey and New York whose homes were flooded from the storm filed a series of class action lawsuits on Friday, March 13, 2015. They are claiming that insurance companies deliberately unpaid them within FEMA’s National Flood Insurance Program. One suit out of New York even names the National Flood Insurance Program as a defendant, arguing a pattern of underpayment. These lawsuits are in addition to lawsuits already pending.
One of the arguments for underpayment is based on the fact that the insurance payments were not supposed to be subject to the state’s sales tax. For example, New Jersey has a 7% sales tax rate. That means that for every $100,000 in hurricane damages, the homeowner was taxed $7,000. Adding all of these occurrences together could mean a deficient amounting to hundreds of millions of dollars. A uniform cover-up based on software manipulation is also alleged regarding these tax payments.
Another argument is based on the insurance estimate process. The cases indicate that the engineering reports that produced insurance estimates may have been altered. Additionally, the number of engineering reports is surprisingly low—only 14% of Sandy flood insurance claimants received engineering reports. In one case, for example, the engineering report stated that there absolutely no flood damage when, in all likelihood, there actually was.
FEMA’s National Flood Insurance Program will reopen all 144,000 insurance claims from Hurricane Sandy so that they can be reviewed. In fact, David Miller, who was the Associate Director for the Federal Insurance and Mitigation Administration, has stepped down. However, this action may be more a reaction to pressure from lawmakers than a result of this lawsuit.
Most of the companies that worked with the federal government to provided insurance payment for Sandy damages have been unavailable for comment. Companies include Selective Insurance, Standard Fire Insurance (a unit of Travelers Insurance), and Wright National Flood Insurance. The company that created the software involved here, Simultaneous Solutions, Inc., was also unavailable for commentary. Regardless, the federal government is conducting an ongoing investigation to determine what happened and whether these homeowners were actually short-changed.
The National Flood Insurance Program
As a result of these lawsuits and others, the National Flood Insurance Program has expressed a willingness to settle and reform the program. The program is already indebted to the U.S. Treasury an estimated $24 billion. They are seriously concerned about the vitality of the program if Congress must provide them with more money every time that a large storm or hurricane hits. Despite the fact that this program is struggling financially, Congress has passed reforms that have reduced subsidies and restricted the program’s ability to increase policyholder insurance payments. There is obviously a problem, but the alleged underpayment and report alteration is not the way to solve these problems.