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Thousands of flood insurance lawsuits pending in U.S. federal courts in New York and New Jersey are now on hold, as presiding judges in both states are choosing to give the Federal Emergency Management Agency (FEMA) a second chance to settle cases with homeowners. For its part, FEMA is now giving flood-impacted homeowners a second chance to get the money owed to them — even if their flood insurance case has already been closed once.
FEMA official Brad Kieserman addressed aggrieved homeowners directly with a YouTube video last week, vowing to treat homeowners fairly and give all flood insurance claimants a fair hearing (below). Insurance Journal reported on the Kieserman statement (see: "FEMA Official: 'We Are Undertaking Sweeping Reforms' at NFIP").
Earlier in the month, FEMA announced new guidelines for settling the 2,000-plus flood insurance cases that are currently in litigation in New York and New Jersey, the two states most heavily impacted by Sandy's storm surge. At the same time, the agency said it would develop a process for more than 100,000 homeowners to have their flood insurance cases reviewed, even though the cases were already closed. The New York Times has that story (see: "FEMA to Review All Flood Damage Claims From Hurricane Sandy," by David W. Chen).
A key issue in the still-litigated cases will likely also factor into any re-opened flood claims: whether insurance companies reversed the conclusions of field investigations by adjusters or forensic engineers. Back-office insurance company practices in those flood claim investigations have been kept obscure in most cases, but FEMA is now requiring insurance companies to open up those records to scrutiny. This month, Newsday reported, the agency ordered insurance companies to come clean in thousands of cases (see: "FEMA orders insurers to turn over data for 15,700 Sandy claims," by Joe Ryan).
FEMA has long offered a process for homeowners to appeal claims. But the mechanics of that process have not included a third-party review, or any representation for the policyholder. And in practice, NPR reported this month, the appeals process has amounted to little more than a rubber-stamp for the insurance company's already-determined preferred result (see: "FEMA's Appeals Process Favored Insurance Companies Almost Every Time," by Charles Lane).
FEMA is now creating a new process and guidelines for settling with homeowners, reports NJ.com (see: "FEMA moves closer to settlements with Sandy homeowners over insurance payments," by Jonathan D. Salant). "The Federal Emergency Management Agency will negotiate directly with Hurricane Sandy homeowners to settle their insurance claims out of court, moving closer to resolving disputes over how much they will receive in compensation," NJ.com reports. "FEMA announced that it has developed a written agreement that sets parameters for settling the 2,200 lawsuits. The agreement will guide negotiations between FEMA and its policyholders, and enable the agency to tell the private insurance companies that handle the flood insurance program to make payments based on those talks."
But FEMA is by no means promising to pay every homeowner the full value of the flood policy (which is typically capped at around $150,000 to $250,000 dollars, regardless of the value of the property). Many homeowners may still be disappointed with their payouts, even after FEMA reassesses their cases. And attorneys for both sides are still gathering evidence and filing briefs in those lawsuits. For now, however, judges in the courts managing the ongoing lawsuits are pausing to see what happens. The Asbury Park Press has the New Jersey story (see: NJ Sandy lawsuits paused for settlement talks," by Russ Zimmer).
"The Federal Emergency Management Agency's newfound enthusiasm to settle lawsuits with disgruntled flood-insurance policyholders has prompted the U.S. District Court of New Jersey to set aside all of its active superstorm Sandy cases, according to an order from the court's top judge," the Press repors. "The order, which was issued by Chief U.S. District Judge Jerome Simandle on Friday, presses the pause button on all pending Sandy cases — about 800, according to a court spokesman — where flood-insurance payouts are being contested. The lawsuits will be on the sideline for at least 60 days."