A unit of Travelers
Cos. is the latest insurer to be accused by homeowners of using faked engineering reports to reject legitimate flood damage claims resulting from Superstorm Sandy.
The suit from two New York homeowners includes The Standard Fire Insurance Co., an engineering firm and other claims handlers, whom lawyers say participated in a racketeering scheme by driving up claims handling expenses after referring to reports that falsely eliminated flooding as the source of damage to their homes.
The Standard Fire Insurance Co. “reaps greater profit by driving up claims handling expenses and denying legitimate claims,” the suit alleges.
Travelers is the third insurer to be accused of this practice, following similar racketeering suits implicating Hartford
Financial Services Group and Wright National Flood Insurance Co. and a statement from federal judge Gary R. Brown indicating the practices may be widespread.
According to a Bloomberg report, insurers benefit from the National Flood Insurance Program’s reimbursement program, which incentivizes prolonged litigation “in order to charge and collect unnecessary claims handling expenses and attorneys’ fees.”
Insurers may also have been trying to avoid triggering an audit through unusually high claims payouts, as FEMA penalizes carriers for overpaying flood claims.
FEMA Administrator Craig Fugate attempted to stem the flow of such Sandy complaints by urging insurers participating in NFIP to provide reports to policyholders litigating Sandy claims, who currently number about 1,500.
Fugate also pushed for changes to the program, including penalties for underpaying legitimate claims that would be equal to the penalties for overpayment.
Sen. Robert Menendez of New Jersey praised the decision, saying the reforms will “inject fairness and level the playing field for homeowners who have been forced to fight an uphill battle.”
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