Flood insurers significantly underpaid homeowners in the wake of last year’s flooding in Louisiana, according to a rash of lawsuits filed in recent months.
Many of the suits were filed in September and October, as homeowners began to face one-year deadlines to appeal their insurance payouts. Lawyers who separately represent hundreds of homeowners say insurers have underpaid their clients tens of thousands of dollars each on average.
The main targets of the lawsuits are Wright Flood Insurance Services, NFIP Direct, Allstate and Louisiana Farm Bureau. Those are some of the “write your own” insurers through the federally-backed National Flood Insurance Program. The companies get paid for writing policies and processing flood claims, while the Federal Emergency Management Agency is on the hook for paying out the claims.
Only Allstate responded to a request for comment, with a spokesperson insisting there is no incentive to underpay customers. Insurers receive more money for processing larger payouts, the spokesperson says.
“Allstate has no incentive to pay its customers anything less than what is owed,” the company says in a statement. “Such an allegation reflects a fundamental misunderstanding of how WYO carriers are compensated for administering NFIP claims on behalf of FEMA.”
The company also says it is simply following the rules laid out by FEMA when it services the flood insurance program.
John Houghtaling, the New Orleans lawyer who led the litigation after Superstorm Sandy that uncovered what he says amounts to widespread fraud from companies servicing the NFIP, says the “exact same” tactics are being used now.
While he says he has no evidence of fraud—which after Sandy came in the form of altered engineering reports and intentional underpayment of policyholders—he does believe there is “systemic” underpayment of homeowners this time around.
And Houghtaling says the same people and companies who were involved in the Sandy controversy are active in the aftermath of Louisiana’s disaster last year.
Raj Pandit, another lawyer who has filed several hundred lawsuits so far and plans to file as many as 900, says a big part of the problem is poorly articulated directives from FEMA on what kind of damage to cover. As a result, insurers and other companies servicing the NFIP are covering flood-damage homes inconsistently.
Plus, Pandit says, insurers may not have an incentive to underpay, but they are penalized for overpaying flooded homeowners, which means the companies are more likely to pay less to avoid the penalties.
Doug Sunseri has also filed around 100 lawsuits on behalf of 2016 flood victims, and says since the storms in Texas and Florida this summer, insurance adjustors have been hard to come by. If nothing else, the suits should spur them into action to get closure for Louisiana’s flood victims. He says thousands more flooded homeowners probably could get more relief if they appealed their payouts, but the vast majority don’t.
“The process is so cumbersome,” Sunseri says. “People just get tired.”
Read Business Report Editor Stephanie Riegel’s September 2016 column on Louisiana’s connection to Superstorm Sandy.
—Sam Karlin
