FEMA, Insurers, Adjusters Charged in Md. Lawsuit by Isabel Flood Victims

More than 140 victims of the 2003 tropical storm Isabel are suing Homeland Security Undersecretary Michael Brown, David Maurstad, who runs the National Flood Insurance Program, 17 insurance companies and others charging that these officials conspired and knowingly paid claimants far less they deserved to repair their flooded homes and properties.

The NFIP insureds’ lawsuit, which also cites Computer Sciences Corporation and independent insurance adjusting firms, was filed June 8 in United States District Court in Greenbelt, Maryland, alleging that the group conspired to defraud thousands of catastrophe victims who had purchased flood insurance through the federal flood program.

As a result of the alleged failure of those running the flood program to properly compensate victims, families have been strained, marriages have failed, and some residents have been left living in campers without indoor plumbing when temperatures dropped below freezing, with no place for children to study or play, according to the suit.

The suit claims that many victims became “ill and debilitated from exposure to mold, sewage and fuel oil contamination stemming directly from the flooding of their properties” and it blames this situation on the federal officials for refusing to legitimately address the victims’ claims.

The suit seeks more than $2 billion in damages.

The plaintiffs claim that CSC was training sales agents to tell policyholders they would be restored to their pre-flood condition, while simultaneously training flood loss adjusters to allow for only narrowly defined coverage in limited amounts.

“In fact, the CSC adjuster training teaches those persons authorized to adjust flood loss claims made under the SFIP (standard flood insurance policy), and persons authorized to train such adjusters, to employ and teach the employment of systematic ‘low-balling’ and high pressure tactics, as a result of which flood victim claimants, including plaintiffs herein, receive only a small fraction of the amount necessary to place their primary residences in their pre-flood conditions,” the complaint states.

The complaint notes that CSC transacts billions of dollars of business with its insurance company clients, known as Write Your Own companies within the flood program.

The WYO insurer defendants in the suit are said to have participated in a conspiracy “which brought about and sustained the vast difference between the instruction of the marketers of the SFIP and the instruction of the insurance community segment dealing with claims adjustment.”
The insurance company defendants include Allstate, Harleysville Mutual, The Hartford, Liberty Mutual, Nationwide Mutual, State Farm, Travelers and USAA.

The complaint blasts Maurstad, acting NFIP director, for allowing the wrongful conduct to go on despite pleas from state officials and for also declaring at one point that the NFIP “is not insurance and never has been,” referring to it instead as a form of government aid.

The adjusters cited in the complaint — Allied American Adjusting Company, Bellmon Adjusters, CNC Resource, Insurance Claims Catastrophe Services, Jackson Adjustment Company, Pilot Catastrophe Services, Simsol Insurance Services, Valco-USA and Colonial Claims — are accused of employing “high-pressure, low-ball claims tactics.”

Among the adjusting practices questioned in the complaint are the use of new construction prices in lieu of costlier repair and renovations costs; the recognition of damage only where water had physically contacted property; and the denial of payments for debris removal and elevation of structures.

In February 2004, Steven Kanstoroom, a fraud detection expert, reported that many insurance adjusters were using software programs that relied upon inadequate pricing.

In March 2004, the Senate Banking Committee directed FEMA to reevaluate 24,000 victims’ claims – the largest such event in FEMA’s history. But rather than conduct an independent review, FEMA and CSC assembled a task force comprised of the identical management and many of the same adjusters or adjusting firms that low-balled the victims in the first place, the suit continues.

According to the complaint, the questionable claims tactics were supported by the WYO insurers and leaders in the property casualty insurance industry because they were concerned that if they fairly paid the flood claims it would set a precedent for their non-flood claims.

Plaintiff attorney Martin Freeman of Rockville, Md., said that similar actions for victims from a number of other states would likely be filed.

The complaint seeks relief requiring defendants to pay the shortfall, disgorgement of profits, damages for the devastating impact the defendants’ actions have had on the flood victims, and punitive damages to deter the defendants from continuing the unauthorized conduct.

For related information, go to www.femainfo.us.