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With Insurance Settlements Still In Limbo, Sandy Victims Turn to Legal Remedies

After hurricanes Rita and Katrina, audits found that some insurance companies had paid out more than they were supposed to, so they were forced to pay the government back. Attorneys familiar with the matter say that’s made the industry gun-shy and overly conservative in its payout determinations. And while the insurance companies are afraid of overpaying flood claims, they say there are no ramifications if a government audit finds they underpaid. In addition, even if a policyholder were to sue and win, the worst that could happen is that the insurance company could be forced to pay out more on the claim, since there are no provisions for policyholders to collect punitive damages or attorney’s fees on federal flood insurance cases.

While the prohibition on claimants collecting punitive damages or attorney’s fees serves as a check on what could otherwise be costly litigation, it also means that in most cases, a policyholder who files and wins a lawsuit against his or her flood insurance company has only the increased settlement amount out of which to pay an attorney. As a result, many law firms that specialize in this area are reluctant to litigate such cases unless they expect a large payout -- one attorney interviewed suggested a threshold of $50,000 -- so they can break even. With smaller amounts, it may be hard to find an attorney to represent a plaintiff, and the case could slip through the cracks.

As far as the problems coastal residents are experiencing with their homeowners insurance policies, lawyers working on behalf of claimants note that the scale of the destruction caused by Sandy was unprecedented in recent memory in New Jersey. They claim that it overwhelmed the resources of many insurance companies, particularly smaller and regional ones that had never before dealt with a disaster of this magnitude. They say claims adjusters were overtaxed, and their damage assessments were hastily written, sometimes missing key observations that could lead to larger payouts. And with adjusters in short supply, there’s speculation that some who lacked proper knowledge and experience may have been drafted to assist in the storm’s aftermath.

As might imagine be imagined, the insurance industry sees things differently. Chris Hackett with PCI, an industry lobbying group, says he doesn’t think the number of lawsuits is widespread, and that companies generally did the best they could, under challenging circumstances.

“The insurance industry overall has done an outstanding job overall, responding to Hurricane Sandy victims,” he says. “We adjusted thousands of claims in a short amount of time, not only in New Jersey, but in New York. As with any natural catastrophe where there’s thousands of claims, there are going to be a few claims that will take longer to settle. And that’s not unexpected.”

Glen Ged of the law firm Ellis, Ged and Bodden speaks to Sandy victims in Union Beach, NJ.
Glen Ged of the law firm Ellis, Ged and Bodden speaks to Sandy victims in Union Beach, NJ.

But that’s little consolation for Gigi and other residents and business owners still anxiously waiting for a resolution, so they can move on with their lives.

“All everybody wants to do is go back home,” she says. “You have insurance, you pay your premiums, you do what you’re supposed to do in the event that something happens… This is the event. And not to be paid for it and not being able to move forward . . . That’s hard to swallow. That’s a hard pill.”

It’s made even harder by the fact that she paid $44,000 a year for all her insurance policies before the storm.

As the Vice-chair of the Assembly Environment and Solid Waste Committee State, State Assemblyman Reed Gusciora (D-Trenton) has heard many insurance horror stories like this when he’s participated in Sandy recovery hearings around the state.
As a result, he’s introduced A-4382, a bill to mandate that insurance companies bargain in “good faith” when handling claims arising out of declared disasters. In essence, the bill would lower the burden of proof for attorneys representing policyholders, potentially making it easier to win appeals and setting up a complaint mechanism for the state Department of Banking and Insurance to keep track of “who the bad actors are.”

“By sheer virtue of that being on the books, insurance companies are not going to want to drag things out,” Gusciora says. “It would certainly shorten the time that a claim is presented and resolved, or that’s at least the aim of the legislation.”

The measure has its critics. Chief among them is the insurance industry, itself, which predicts that such a law would fuel excess litigation -- including higher out-of-court settlements and more frivolous lawsuits. And that, insurance companies claim, would ultimately raise premiums for all New Jersey residents.

Previous attempts to pass similar legislation in the state never gained much traction, amid heavy lobbying from insurance companies. Gusciora thinks his bill -- which limits its focus to claims arising out of disasters -- might have a better chance of passage. Meanwhile, back in Union Beach, whether or not things eventually turn out in Gigi’s favor will depend largely on the specific wording of her policy. Her belief that the storm surge that destroyed her business was “wind-driven water” and should thus be covered by her property insurance is a matter of dispute, subject to differing legal interpretations.

Martin Mayo – the Houston attorney who handled insurance appeals after Hurricane Ike and is now serving as counsel for DeFrancesco Bateman – thinks the answer is pretty clear. “People have made the claim for years that because wind is involved, flood damage should be covered by wind insurance,” he says, “but federal courts have opined that ‘a flood is a flood is a flood,’ and there’s a very clear distinction within the industry about what constitutes a flood event. If you’re working on the premise that ‘wind-driven rain’ constitutes a flood event, it’s my experience that that won’t fly. Insurance companies will be very defensive on that.”

Marius Ged, managing partner at Ellis, Ged and Bodden – the firm Gigi has hired – contends that things aren’t so black and white. When it comes to the question of which insurer is responsible when there are concurrent issues like wind and water, “New Jersey isn’t 100 percent committed either way,” he says. “If the flood came first, and you’re the wind carrier coming in second, the whole claim’s denied.” But in this case, he adds, “really, the wind started twelve hours before. The storm started the day before.” That’s why the firm employs its own team of meteorologists, to produce contrary evidence to present before a judge. “It’s a very dicey issue, actually, and it’s going to be litigated,” he says. “It’s not settled in New Jersey law.”

Given that uncertainty, Gigi’s attorneys have gone ahead and started the process of filing a lawsuit. But even if she reaches a favorable settlement, they’ve told her it could take at least another year before the case is resolved. The problem is, without the business a restaurant with an ocean view brings, Gigi doesn’t know if she’ll be able to hold out that much longer.

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