Almost two months after Hurricane Sandy flooded several hundred miles of low-lying coastline, the picture of the damage is becoming clearer. And no doubt about it, the storm has generated hundreds of millions of dollars' worth of paying work for residential contractors.

But that work is not going to be easy — and the money to be made is not going to be easy money either. Not all the damage is covered by insurance. And where there is insurance money available, contractors who aren't already in the insurance restoration business face a big challenge: learning the insurance game.

To complicate matters further, most insurance claims coming out of Hurricane Sandy are flood insurance claims — and the federally run National Flood Insurance Program (NFIP) has rules and practices that are more restrictive than ordinary homeowners' insurance. It's going to be tough for homeowners to bounce back from Sandy's punch. And it's going to be just as hard for contractors to make a buck helping them do it.

Adjustment Bureaus

The process starts when the homeowner files a claim, and the insurance carrier sends an adjuster to inspect the damage and calculate an award. To better understand that part of the process, Coastal Connection this week interviewed three professionals: independent adjuster Wanda Hogan, public adjuster Dick Tutwiler, and professional insurance claim estimator Vincent Campagna. All three professionals are now actively working on claims adjustment in the affected areas of Long Island, New York.

Professional adjusters, who have to be licensed in the state where they're working, fall into one of three categories. "Staff adjusters" work on salary for the insurance company. "Independent adjusters" also work on behalf of the insurance carrier, but they work as independent contractors, or as employees of a third-party firm. "Public adjusters" are different — they are hired by the insured homeowner, and they represent the homeowner's interest in the claim rather than the insurance company's. Public adjuster commissions are set by the state, typically at around 10% of the payout (contingent on the final settlement). In New York, public adjusters are allowed to charge up to 12.5% of the settlement.

Staff adjusters typically handle routine claims in a local market, but when disaster strikes, insurance companies tend to outsource a lot of the adjusting to independents. Public adjusters are more rarely seen, but there are lots of them active in Sandy. Public adjusters we spoke to said that they are often able to get more money for the insured party than an insurance company's staff adjuster or hired-gun independent adjuster might otherwise award.

Wanda Hogan is an independent adjuster, and she's also the current president of an industry association for adjusters who work big fires, storms, earthquakes, and the like: the National Association of Catastrophe Adjusters (NACA). Hogan arrived in Long Island the week of Thanksgiving to work flood claims for the NFIP, and so far she has adjusted 45 claims. Hogan says she has only met public adjusters on two of those claims, and she says that in the case of flood, there is not much that the public adjuster can do to affect the claim. "The people that have hired a public adjuster up here are the people that don't have time to really deal with meeting us at the claim and that kind of stuff." The public adjuster's role as an agent for the homeowner isn't likely to influence the amounts of settlements, Hogan argues: "Flood is pretty cut and dried. We can either pay for it or we can't."

Public Adjuster's View

But public adjuster Dick Tutwiler argues a different point of view. Tutwiler worked as a staff adjuster for Travelers for 20 years before starting his own public adjuster practice. Tutwiler and Associates is based in Florida, but Tutwiler holds licenses in 11 states, and has an office open currently on Long Island with associates working millions of dollars' worth of claims. With 45 years of experience as a claims adjuster under his belt, Tutwiler says he and his associates can often move the numbers.

"Most of these claims are contestable as to price and scope," says Tutwiler. "Those are the two parts of an adjustment process. Scope is the extent of damage, and the price is the cost of the scope. And then there are the caps on coverage. The NFIP is very rigorous in their defense of their policy, but there is room for argument about some of it."

"We can't do anything about the total cap," Tutwiler admits. "Residential claims for structure damage from flood are capped at $250,000. Commercial is $500,000, just for the structure. And for condos, the condo association could have coverage of $250,000 per unit, times as many units as there are in the project. But so, if a single family homeowner has obvious damage of $300,000, he doesn't need us to go collect his check."

And Tutwiler says it's true that flood policies have stringent limits. "Flood only pays for direct physical damage," he says. "The classic example is kitchen cabinets. Suppose your kitchen is flooded with four feet of water and your lower cabinets are ruined. Flood will pay for that, and there is plenty of room for argument about the price of the cabinets — you might have custom cabinets or you might have Home Depot cabinets or whatever. We might be able to earn our ten percent commission on that basis. But now, if you only replace the lower cabinets, then the new cabinets won't match your upper cabinets. A regular homeowner's policy might replace the uppers too, even if only the lowers were damaged in, say, a fire. But flood won't pay for the uppers, because that's not direct physical damage."

Still, Tutwiler says the Long Island flooding leaves plenty of opportunity for his people to earn their ten or twelve percent. Many of the unfolding arguments are yet to be resolved, he says. Example: "In the southern part of Long Island, down around Long Beach, a lot of those houses were built on fill — stuff dredged out of the bay and brought in. So now our clients are pointing to cracks in the slabs, and what we think has happened there is as the water came in, three or four or five feet of water sat there on that high tide. And each gallon of water weighs 8 pounds. There was a tremendous amount of water sitting in these houses that pushed the slabs down on this fill and caused the slabs to crack. That's unique to this flood. So does the flood pay for that? You could argue, yes they should pay for shoring up the foundation if in fact it was caused by the flood."

Oil contamination is another new wrinkle in Sandy. "Everybody up there has oil-fired boiler heat, and some of the oil tanks are under the house. We have seen two cases where the flood forced oil all throughout the house and soaked all the wood in the house. And the oil also went into the soil around the house. It doesn't go away. Now is that going to be covered by flood?" asks Tutwiler. "We're not sure about that."

Setting the Adjusters Straight

Insurance estimator Vincent Campagna, based in Sound Beach on Long Island's North Shore, offers more examples. Campagna ran a contracting company for 20 years before going into the insurance estimating business, and his jobsite experience helps him identify items the adjuster may have missed, or misunderstood. "Here's one," he says: "A staircase. Let's say you get three feet of water in the house, and it hits the first four risers on your staircase. So the flood adjuster is going to come in, count four stairs, and then put in to repair four stairs in the house, because those are the only four stairs that were hit by water. So we come in and say ‘Wait a minute. I understand that, but the staircase is a unit. When they put these stairs in, they didn't put them in one step at a time. Somebody called the stair company, they manufactured the stair, there are fourteen risers and thirteen treads on these stairs, and in order to fix the stair I have to pull the whole staircase out.' Well, the flood adjuster can see that once you explain it."

Windows are another example, says Campagna. "You have an Andersen window installed with vinyl siding. You get four feet of water in the house, it touches the window, and basically, anything the water touches, the flood adjuster is going to replace. So he'll pay for the window." But when we come and meet the flood adjuster, we'll say, "Well that's okay, Mr. Flood Adjuster. But we have 12 of those windows and we have vinyl siding on the outside of the house, and they are wrapped with J channel. To replace an Andersen window, you have to pull the siding off, pull the J channel off, and pull the nails out of the nailing flange that is into the side of the house. So I know you're not going to replace the siding because it's not damaged, but you have to pay me money for a siding guy to come here, use a zip tool to pull the siding off from around the window so we can replace the window, and then put it back. And those are real world examples of where, if the policyholder doesn't have representation, the flood adjuster is not going to address those issues."