I-Team: Sandy Flood Coverage Denied via "Sinkhole Loophole"

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    NEWSLETTERS

    Six months after Sandy flooded homes and businesses throughout the area, New York insurance regulators are getting flooded with complaints about insurance coverage. Chris Glorioso reports. (Published Monday, Apr 29, 2013)

    Six months after Sandy flooded homes and businesses throughout the area, New York insurance regulators are getting flooded with complaints about insurance coverage.

    Deborah Schochet of Woodmere filed a complaint after her flood coverage was denied when an adjuster determined that the damage to her home was caused by a sinkhole beneath the foundation and not specifically flood water.
    The problem – the driving wind, rain and rushing water from Sandy created that sinkhole.
    “It made absolutely no sense,” said Schochet. “It was a loophole for them to get out of paying what they should be paying.”
    Schochet, who is battling Lou Gehrig’s disease, has to navigate her damaged home each day, with a gaping hole in the basement floor, lack of central heat and water-logged drywall. 
    “I fully paid my premiums and I deserve to be paid,” said Schochet.
    Allstate Insurance manages her policy and denied the claim based on a little-known clause in the National Flood Insurance Program. The clause allows adjusters to claim the damage was actually caused by soil erosion and not flood water – even if the flood water caused the soil erosion.
    The NFIP is a government program. Private insurance companies handle the individual policies for customers and approve or deny coverage based on the federal government’s regulations.
    “The sinkhole is a bogus excuse for them not to pay,” said Schochet.
    In a statement, April Eaton of Allstate Insurance said, “Allstate is legally bound by the rules, regulations and policy language set forth by the NFIP, which pays the claims. We are in close contact with NFIP on this case, and understand the claim is under additional review by the NFIP.”
    Since Sandy, more than 3,388 New Yorkers have filed official complaints with the state against their insurance companies.
    NY Department of Financial Services Insurance Report Card
    As a whole, Allstate has the most complaints in New York, but the company also writes the most policies in the state. Eaton, citing FEMA statistics, said in her statement that Allstate had the best score on timely administration of flood insurance claims following Sandy, totaling more than $718 million.
    When the state list of complaints is broken down per claim, Assurant Insurance tops it with nearly two complaints for every 100 claims, followed by Tower, Narragansett Bay Insurance and QBE.
    QBE denied nearly one-third of all its claims since Sandy.
    Through a spokeswoman, the company said 11 complaints were mistakenly tied to QBE and “there are at least three additional complaints which we believe should not be attributed to QBE. We are talking with the department about these.”
    The superintendent of New York’s Department of Financial Services, Benjamin Lawsky, said any insurance company generating a lot of complaints will grab his department’s attention.
    "If there is a high rate of complaints, not only should individuals be worried about it, but we're worried about it," said Lawsky.
    His department handles insurance complaints in New York. He explained many of the issues that angered New Yorkers.
    “Companies were not there to take people’s calls, they were not getting adjusters out to homes fast enough and they weren’t resolving claims fast enough,” said Lawsky.
    Michael Barry of the Insurance Information Institute – an industry-funded research group – says 3,000 complaints after a catastrophic event is not usual and said insurers have resolved 93 percent of Sandy-related claims in the last six months.
    "When you look at the number of claims and the claims' payouts, we're talking about hundreds of thousands of claims and billions of dollars out the door,” said Barry.
    The I-Team has learned that both Tower and Narragansett Bay are under investigation by state regulators for delays in claims processing.
    A representative from Assurant said his company believes the state's calculations unfairly penalized Assurant because the company handles a high percentage of flood claims.
    Narragansett Bay said in statement it "has closed 98 percent of all claims." The company also disputed the Department of Financial Services' report that it received 215 complaints as of April 19, which resulted in a complaint-to-claim ratio of 1.9 percent. Narragansett Bay said it received 168 complaints, "which totals less than 1.5 percent of total claims in New York." 
    Tower did not return calls for comment.
    The Federal Emergency Management Agency said it is continuing to work with Sandy survivors to recoup their losses. The agency is instructing all flood policy holders who have disputes with the private companies that administer the program to contact FEMA directly by calling 800-427-4661.