Settlements for rejected Superstorm Sandy insurance claims hit roadblock

Settlements for rejected Superstorm Sandy insurance claims hit roadblock | Insurance Business America

Settlements for rejected Superstorm Sandy insurance claims hit roadblock
Legal action taken against several insurance companies in the wake of Superstorm Sandy stalled this week after government officials declined to pay the plaintiffs’ legal fees, citing federal law.

According to a Newsday report, attorneys for the Department of Homeland Security – which oversees FEMA – concluded the government was prohibited from covering legal fees for roughly 2,000 home and business owners involved in the lawsuit. The ruling means plaintiffs will now owe their lawyers as much as one-third of any settlement from the National Flood Insurance Program and affiliated private insurance companies.

Talks, however, are still ongoing and attorneys working on the lawsuits say they are optimistic about reaching a deal. So, too, are government regulators.

“We remain committed to reaching a settlement with policyholders,” FEMA spokesman Rafael Lemaitre told Newsday.

The lawsuits were filed after flood insurance claims from the 2012 storm were rejected with engineering companies associated with private NFIP-backed carriers filed bogus reports eliminating flooding as the cause of property damage. Policyholders allege insurance companies and engineering firms were engaging in a racketeering scheme, driving up claims handling costs and exploiting the storm’s damages for their own financial benefit.

The accusations have led to a criminal probe by the New York attorney general’s office, as well as a federal order for insurance companies to turn over to home and business owners all copies of claims reports made after Sandy.

Perhaps most significantly, reforms to the flood insurance program were made shortly after the lawsuits were filed. As of December 2014, FEMA is authorized to penalize insurers just as much when they underpay a legitimate flood insurance claim as when they overpay a claim. Additionally, a flood insurance advocate’s office will be installed within FEMA to protect consumer rights.

The news comes at an already difficult time for NFIP, as the program faces backlash following significant premium spikes for flood insurance policyholders.

As part of a renegotiation of the Biggert-Waters Act, gradually higher premiums and new surcharges are asking home and business owners to pay an average 15% to 18% on their flood policies. Premiums will increase 25% per year, reducing the number of NFIP policies receiving premium subsidies, until they reflect the building’s actual flood risk.