By Pierce Gibson Crosby ¦ Published December 16, 2012
With the holiday season quickly approaching, this week Hurricane Sandy victims will begin receiving their insurance claim settlements in the mail from both local policy providers and nationally sponsored agencies. Property owners and businesses have filed for everything from lost hours at work, to expired food, and are now hoping for some kind of compensation to help them back on their feet.
Due to the sheer volume of claims still being submitted to local and national agencies, many policyholders will be disappointed by the settlement amount, many others will face denial.
“We need this money.” Said Neil Rogers of the Great Kills in Staten Island, “I know they’ll give it to us, because we ain’t got nothing to run on now. They said they’ll pay for the house, and that’s the biggest thing I got.”
Because of the rate by which the insurance claims are being settled – considered extremely slowly – Governor Andrew Cuomo and the Department of Financial Services announced on Wednesday to tighten regulations on housing claim inspections, expediting the assessment period from fifteen business days, to six.
“In the wake of Hurricane Sandy, it is vital that New Yorkers receive their claim settlements as soon as possible, so that they can rebuild their homes, businesses and lives,” said Governor Cuomo. “There simply is no substitute for speed when it comes to insurance payouts after a storm.”
The primary insurer for homes in the tri-state area flood plains is the FEMA-managed flood division, National Flood Insurance Program (NFIP). Commonly if the NFIP determines homes as too dangerous an elevation for full coverage, they will redirect or subsidize the policies through local providers. While local providers have been critical of risky properties as well, historically, surveyors have been giving Elevation Certificates to properties that they now consider “uninsurable”.
For many like the Rogers, who did manage to receive insurance in a Zone A floodplain, the most important detail now is not the exact cost of the damage caused by the storm but the cause of the damage itself.
Chip Merlin, partner at the Merlin Law Group has been handling insurance claims for Florida and New York, specifically in Staten Island, since the storm passed. He says many clients are not only unsure about what caused the damage to their homes, but whether or not the houses are even covered for the various forms of damage that are applicable.
“One of the most challenging issues with respect to first-party claims is determining which perils actually caused the property damage.” Said Merlin, “In the case of Hurricane Sandy, damage to property could have been caused by anything; wind, rain, storm surge, flooding, power outages, or looting/vandalism, just to name a few.”
Even if a claim is determined to be a valid one, professionals like Merlin worry there might not be enough liquidity in the local insurance business to cover the amount of claims coming in.
“We’re talking about the eight billion in claims right?” says Tom Thiele, a local agent in Staten Island serving automobile policyholders. “There is no way FEMA can cover all of that, they need further funding to even think about settling all these claims. There will be definite fall-though I think – and there will be denials.”
Mr. Thiele’s agency filed for federal assistance in settling local claims as well. He is not concerned about the volume of settlements on their books, but only because of they have avoided risky policy exposure. For many insurers, in pre-hurricane season, being so selective was not a paramount concern, and now many of these agencies could buckle under the weight of primary property policy settlements.
Sarah Miles, an independent insurance analyst believed otherwise. “I predict that many companies will take losses but those with the strongest balance sheet will fare reasonably well. It is unlikely that insurance companies’ bottom lines will be too badly affected as they offload their risk to reinsurers.”
But Miles also believed that personal property claims would amount to five billion, not eight.
Said Merlin, often the legal defendant for such cases, “Depending on the wording of a given policy, each peril may be covered or excluded.” Meaning that each type of ‘hurricane damage’ may not be covered independently, such as a tree that damaged a home during a windstorm.
“Insurers are often quick to characterize the cause as a peril that is not covered, even in cases where more than one peril worked in conjunction to cause damage, or in cases where the facts are not yet known. In these cases it is essential to be vigilant and not accept insurers’ self-serving characterizations at face value.” He said.
One of the prominent examples which has recently surfaced, is the denial of coverage based on the categorizing of the storm itself. The National Weather Service said Hurricane Sandy did not meet the technical criteria to be labeled a hurricane when it made landfall. Instead, it classified Sandy a “post-tropical cyclone.” This makes many of the hurricane-sensitive policies theoretically obsolete when hoping for settlements.
If such avoidance becomes common practice, large swaths of lawsuits may well be filed with insurance carriers, while many policyholders will remain without redemptions or settlements for the remainder of the winter.
For homeowners like Cyrus Turner, they can’t wait that long. “I don’t think they’re going to give us much because we aren’t in [Flood] Zone A. But my house is just as much [ruined] as the next guys,” he said. “I haven’t received word from my All State carrier and the rest of my FEMA case is still pending.”
For Turner, the biggest concern is “getting back to normal”. His single family home in New Dorp Beach didn’t have comprehensive coverage because it was a Zone B property. Getting insurance was cheaper, but like many families in the area have consented, he thought of it as unnecessary. Some of Turner’s family has been commuting from upstate New York to help him and his 32-year old wife Abby rebuild, but with such a limited budget, there is only so much they can put back together.
“We didn’t think we could afford it at first, but they assured us the structure was covered, so we started anyways. It’s almost done down here, and thankfully we’ve gotten a lot of help,” said Turner.
Because Zone B was not initially part of Governor Cuomo’s Major Disaster Declaration, there was an interim period of time that left many properties without the assurance of applying with NFIP, now that it is part of the formal declaration, more applications have been submitted as it still falls within the 60-day application period. Turner received partial compensation for “Housing Assistance” provided by NFIP, but “non-Housing Needs” such as personal belongings and workers comp have not been approved.
They have gutted the basement and pulled up the carpet and linoleum on the ground level floor, redone the wiring and installed the sheetrock. It almost seems like a new home, except for the lack of heat.
“I might go to home depot this week,” he said. “I’ve gotta borrow a truck from my friend and pick up everything at once. I’ll rent a truck if I have to, we need a new stove, a new boiler, a new fridge, and a new hot water heater. How am I gonna even put it all together?” He stood there in the doorway with his list in his hand.
He hopes NFIP will be able to help with these costs, working full-time as a gas station manager won’t alone cover the total amount needed for remaking his home.