By Ben Berkowitz and Michelle Conlin and Jonathan Allen
Nov 23 (Reuters) – After another day of pumping out their
swampy, moldy houses, neighbors in Breezy Point in New York City
huddled at the quaint generator-powered firehouse Wednesday
night, stamping their feet to stay warm. Neighbors picked at
food from tin cans and sipped soups from Styrofoam cups as they
lamented the growing holes in a safety net they thought they
had: homeowner’s insurance.
“They’re covering five shingles and a piece of gutter, and
that’s it,” says Kathleen Valentine, a fire alarm dispatcher who
spent the night of Superstorm Sandy working while her house
filled with water and dead fish. Her insurance agent from
Narragansett Bay Insurance Company said her policy would pay
only for wind damage. She is still waiting for someone from the
federal flood insurance program to show up.
Narragansett Bay spokesman John Houle would not comment on
specific cases but said the firm is working around the clock.
The company has received 90,000 phone calls and is processing
17,000 Sandy-related claims.
It’s been three weeks since Sandy destroyed homes, caused
fires in others, created torrents that turned thousands of
basements into biohazards and smashed up sedans as they were
swept down the street. Since then, as many as 40,000 New
York-area residents have been living without power, heat and, in
some cases, water.
Now, many people in the worst-hit communities in New York
and New Jersey are starting to realize that the real hardship
may yet be ahead of them, as they confront the second-largest
losses from a storm in American history, behind Hurricane
Katrina in 2005.
It’s hardly what people anticipated the day they signed up
for policies in exchange for peace of mind.
The trouble is, many homeowners don’t read those policies
closely enough to realize that most don’t cover flooding. They
don’t always get both homeowner’s insurance, usually provided by
a private company, and flood insurance provided through the U.S.
government’s National Flood Insurance Program.
Only 14 percent of homeowners in the Northeast hold flood
insurance policies, according to the Insurance Information
Institute.
Federal law requires flood insurance to mortgage any home in
a designated high-risk floodplain. But once the initial policy,
usually for a year term, expires, no law says you have to renew
it, and many people don’t because banks don’t make them.
In New Jersey, only 231,000 of the homes in the 20 coastal
counties had flood insurance, according to FEMA.
Karen Clark & Co, a disaster modeling company, estimates
insurers will likely receive more than 1 million claims for
residential or commercial damage from Sandy, compared with 1.4
million for Katrina.
“I kind of thought my policy protected my home, my
belongings, my family,” says retired New York police officer Joe
McMahon, of Rockaway Beach, who has three children, including
one with special needs, and who had homeowner’s insurance with
Travelers.
So far, the only thing McMahon says Travelers will cover is
spoiled food. They wrote him a check for $500. Travelers says it
doesn’t comment on the cases of specific policyholders.
Spokesman Matt Bordonaro says the company works “closely with
our customers throughout the claims process.”
The government’s flood damage policy can also be limited in
what it will pay out. For example, there is only limited
coverage for basements, usually for things like boilers and
water heaters, but not for other improvements or contents.
Those limits are affecting Mary Clemente, 55. Three weeks
ago she had the wardrobe of a movie star, multiple fur coats and
a 1983 Mercedes SL convertible in the garage. The luxury goods
have since been carted away in garbage bags and her car is a
sodden mess. Clemente, who lives in Manhattan Beach, had insured
it to the hilt for 30 years. Or so she thought.
Sitting in her darkened kitchen, surrounded by dead
appliances and her black cat, she says the insurance adjuster
was at her house only five minutes before saying Narragansett
Bay would cover nothing because the damage was from a flood.
Clemente, who owns the public relations firm M3 The Image
Group, has put $32,000 of repairs on her credit cards. Her
federal flood insurance policy has said it will advance her
$20,000 to help cover the costs, which included new electrical
wiring and a new boiler. She hasn’t received the check yet.
If a house is washed away, litigation can last for years.
Mike Nelson, chairman of the insurance-focused law firm Nelson
Levine de Luca & Hamilton, recalls one case where lawyers argued
that a house must have been obliterated by water and not wind
because there was flood debris on top of a tree, and the tree
was taller than the house had been.
In Rockaway Park, New York City, John Lenihan, 53, lost an
argument with an insurance adjuster at Allstate Corp
over his destroyed basement apartment that had been filled to
the ceiling with water. He argued that at least some of his
broken windows were caused by wind, not water. No luck.
Because he had not bothered with flood insurance, all he was
able to recoup was $2,600 for repairs to the roof of the rental
property he owns next door.
“In the 30 years I’ve had this house, I’ve never put a claim
in,” he said. “I thought I would get more. New boilers alone
cost $8,500.”
Allstate says it is doing everything it can. “Our goal is to
settle each claim fairly and quickly,” an Allstate spokeswoman
said in a statement.
The Federal Emergency Management Agency offers help for some
uninsured losses, but homeowners must first file a claim and
wait for word from their insurer. FEMA assistance includes
temporary housing and housing repairs, as well as grants to help
cover the replacement costs of personal property, cars and
medical expenses. But, according to its website, FEMA’s programs
“are intended to meet only essential needs and are not intended
to cover all losses.”
LAWSUITS AND RAPID RESPONSE
Many homeowners end up filing lawsuits to get payouts from
their insurers.
“Historically after a major event like this, there is a lot
of litigation,” said Deloitte’s Mills.
In Louisiana, the state’s insurer of last resort is just
now, more than seven years after the storm wrecked New Orleans
and other parts of the state, preparing to pay plaintiffs in a
class action over Katrina related to tardy claims adjustments.
The state’s insurance commissioner, Jim Donelon, said he
empathized with people in the Northeast. “People should be
prepared to deal with it on a not-short-term basis,” he said.
The insurance industry says that much has changed since
Katrina, and that insurers are better about responding to storms
wherever they happen, i n part because of the lessons they’ve
learned from the increasing number of severe storms in recent
years.
Allstate had thousands of employees staged in strategic
locations in the days before Sandy so they could begin adjusting
claims the moment the storm passed.
“If there are hundreds of thousands of claims over a broad
geographic area, will there be some disputes? Yes, but by and
large this process is proceeding smoothly,” said Robert Hartwig,
the president of the Insurance Information Institute, an
industry communications body.
Some customers are satisfied so far. Lenihan’s next-door
neighbor Marge O’Hanlon had flood insurance as a condition of a
bank loan. She called her insurer, Liberty Mutual, and within a
few days an adjuster came out and told her to submit estimates
for repairs to her basement, damage she expects to reach $25,000
or so. She felt cautiously hopeful she would not have to pay
much out of pocket.
“I don’t know,” she said. “I haven’t got my settlement yet.”
FIGHT OVER MONEY
Even after homes renovated or rebuilt, homeowners are apt to
suffer another shock, specially those on the Northeast
shoreline.
Insurers are expected to raise rates and seek to drop
coverage of some places entirely to cover storm-related payouts
and as they change their assumptions about the likelihood of
violent weather hitting the region.
“There have been rate increases particularly in homeowners
and in commercial property for over a year. This definitely
broadly helps those increases persist,” said Matt Carletti, an
analyst covering insurers at JMP Securities.
One thing helping homeowners is the insistence from state
governors and federal lawmakers, such as New York Senator
Charles Schumer, that insurance companies not be able to get the
storm declared a hurricane as it reached land. Most homeowner
policies set a $500 to $2,000 deductible for regular claims of
all kinds, but hurricane deductibles could be a flat fee triple
or quadruple that or upwards of 5 percent or more of a claim,
depending on the policy.
Schumer has asked the National Weather Service, whose
determinations are usually the key to such things, not to change
its classification of the storm despite lobbying of weather
authorities from the insurance industry.
Politicians may also compel the insurers not to raise rates,
especially with gubernatorial elections coming in 2013 in New
Jersey and in 2014 in New York.
“I would not at all be surprised to see the governor and the
superintendent send a message to the industry … (that) this is
not the time to raise rates on people,” Deloitte’s Mills said.
None of that matters much right now to people along the
Rockaway Peninsula, on Staten Island, or in other hard-hit areas
between the New Jersey shore and Long Island in New York. Many
face still-daunting cleanup and demolition, and weeks more
without power and heat. When the insurance adjuster arrives,
it’s just another blow to absorb.
Said Clemente of Manhattan Beach, “There’s no such thing as
insurance anymore.”
