More on alleged insurer rip-offs of federal flood money

Here is a story by Mike Kunzelman of the Associated Press that has more about the unsealed lawsuit alleging insurer overpayments of federal flood money that I mentioned in a post yesterday.  If you read the story to the second page you will see a quote from me.  I’ve said what I think about this concept of insurer ripoffs in a number of posts: I’m not saying it couldn’t happen, it just seems implausible that, human nature being constant over time, no one has noted that this occurred before.  The Write Your Own program has been around for 24 years, and you would suspect that a bunch as malicious and larcenous as insurers are being portrayed to be would have long ago figured out how to milk this program exactly in the way they are accused of doing now. 

There have been many occasions since 1983 where at least some wind and storm surge occurred as it did in Katrina, although it probably was not so widespread on any prior occasion.  Are these insurers so uncreative that they never previously figured this scheme out, and did they not at least attempt a few trial runs previously, holding this strategy like a fifth ace up their sleeves until a really big combination of wind and storm surge? If not, then how is it they all hit upon this strategy more or less instantaneously when Katrina came ashore? Was the idea hatched post-Katrina at the Insurers’ Club Lounge, as representatives of the major insurers sat around, puffing on illicit Cuban cigars under the club banner — a pirate flag –chuckling over how earlier in the evening they had fleeced a widow of her life savings in a rigged poker game? You would think that the guy who came up with the idea, rather than sharing it, would seek a competitive edge by not telling other companies, perhaps leading them to foolishly pay out their own money while his company reaped the benefit of his fraudulent scheme.  Again, I am open to all evidence, but it just feeds so naturally into the stereotype of insurers being pushed right now that it looks like propaganda to me.  I’ll begin to take it more seriously when I see a proponent of the insurer rip-off argument answer this question, which they all dodge: if the insurers’ paying out of the flood money was wrongful, was it not also wrongful for the policyholders to accept the flood money? I think the answer is obviously yes, don’t you? If not, tell me how the first part can be true but not the second.    

10 Comments

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10 Responses to More on alleged insurer rip-offs of federal flood money

  1. Daughter for Justice

    David, I can understand why it is so hard to digest and believe that the insurance companies took advantage of the NFIP in such a blatant and wide scale way, but they did. I personally have heard many horror stories, for example my mother-in-law received 12 feet of water in her home and 2 feet of it in the second floor. The entire south side of the her home’s roof was gone. Obvious wind damage had occurred. The adjuster standing in her front yard said there was no reason for him to enter the home because he would max her out on flood and get back to her within a few days to pay the claim. Several days later she received her claim that was maxed out on flood, zero for wind, zero for contents, zero for loss of use. If the water would have never came, her roof would still be gone, her contents destroyed and the loss of use of the home would still have occurred. She accepted the flood check because she did get flooded and it is rightfully hers. In her case she eventually received a small amount for roof damage but nothing on contents or loss of use. The amount of money she received did not exceed her total homeowners policy although her home was a total loss. In this case the adjuster without even stepping foot into the dwelling, billed to the Federal Flood Program the max amount of coverage without considering the damage to the roof which obviously contributed to the damage of the dwelling. My mother-in-law is a widowed senior. She did not have it in her to fight. She received enough money to relocate to another home. I think the one thing that is going unspoken is the human story. It has to be reminded that these people who’s claims were adjusted wrong were emotionally traumatized by what had just happened to them. They had just lost everything, all their personal belongings, their home, all their family members lost everything, neighbors lost everything, in many cases their entire community was wiped off the map. It is the responsibility of the insurer to make sure claims are adjusted correctly. I believe many of these people who accepted flood checks did so because they did get flooded and believed that the insurer would adjust the claim correctly. Only after the fact did they realize just how grossly negligent these claims were handled. Thank you David for keeping Katrina law coverage going. I enjoy reading your blog daily. On a personal note I just wanted to say how much I enjoyed the story of your father. What a wonderful tribute to him and a wonderful way to personalize and remind us all what our veterans have endured and given up for us to live in this beautiful country.

  2. Daughter, I’m glad your back on the comments. I’ve got some stuff I have to get done by the end of the day, but I will digest your comments at greater length and respond further. Thanks for the comments about my Dad, like many others in days gone by and today, he did something I’ve never done — face enemy bullets so that we can sleep easy at night.

  3. Tax Payer

    “I’ll begin to take it more seriously when I see a proponent of the insurer rip-off argument answer this question, which they all dodge: if the insurers’ paying out of the flood money was wrongful, was it not also wrongful for the policyholders to accept the flood money?”
    – You’re kidding me? You expect policyholders to turn down money after such an event? They trusted their insurers to know what they are doing. With all the stories of people not getting paid at all, you think theyd for one second decide to fight about money they received? I also find your argument that insurers have never used such a scheme ever before unbelievable. Can you prove this is first time this has ever happened? I find that pretty IMPLAUSIBLE! This was unprecedented damage, I find it very likely insurance companies would try to save money(by screwing the government over).

  4. Taxpayer, note that I say I don’t know whether the insurance companies wrongly took federal flood dollars. Nor do I say that people who suffered a flood loss were not entitled to the money, or that people who have suffered a catastrophe are looking for any source of money they get. When you sign a contract like a flood insurance policy, however, and apply for and accept benefits under that policy, as a number of courts have noted in the Katrina cases, you are saying that you actually suffered those losses. You can try a version of this theory at home, for example, by accepting a bigger tax refund check from the government than you have coming and then saying you don’t have to pay it back because you needed the money. That argument will not get you very far.
    All I am doing is asking a simple question. If insurers should be indicted for wrongfully taking federal dollars, is it right for policyholders to accept that wrongful money? By answering yes, you don’t have to say you agree that insurers should steal federal money, you only have to agree that those who accepted the money knew it was flood money from the National Flood Insurance Program and by their acceptance signified that they believed they had a flood loss in that amount. We can agree that much is true, can’t we? If it is right for policyholders to accept the money, what happens, for example, in the case where policyholders won recoveries that included punitive damage and totalled an amount higher than the value of their destroyed homes? As a matter of ethics, it would be right for them to repay the flood money to the NFIP, wouldn’t it, because they no longer need it and it was wrongfully taken money.

  5. Daughter for Justice, it was a great tragedy what your mother-in-law and others went through with Katrina losses, and I am thankful she apparently made it out OK and was unharmed. I don’t know a lot of the facts in the claim you speak of, for example, I don’t know the policy limits, the home value, how much flood insurance, but I believe what you say. If I’m understanding correctly, it sounds to me like the flood insurance policy was actually correctly paid out, and should have included contents payout as well, unless that was not part of the flood policy. The problem seems to me to lie less with wrongful payout of flood money than failure to pay out the additional money that you believe was was owed for wind. (Again, I’m just talking hypothetically, because I know nothing of the facts except what you tell me, and I’m just theorizing). So under the insurer rip-off of the Treasury scenario, this does not seem to fit. The problem seems to be more one that you feel the insurer wrongfully denied wind benefits under the homeowners policy, but since the value of the home has not been exceeded by combined or separate payments and there obviously was a huge amount of flood damage, it just doesn’t seem to fall into the class of transfering wind money to flood money. Again, my sympathies to you and your family for all you have gone through, it is very difficult what you are going through and person-to-person you have my support. In a large process of adjusting claims, it would seem likely some or even many mistakes would be made. I run into this in my practice when I represent policyholders, there are many times I think the insurer’s process was flawed or that a decision was built on insufficient or faulty reasoning. In a lot of cases, I’m able to convince the insurer they are wrong, and to their credit, they do reverse themselves at times. Other times it’s necessary to sue. By no means are insurers perfect or free from mistakes, nor will they ever be so long as they are operated by human beings. But to return to my point, I merely say it seems implausible to me that a widespread conspiracy existed to steal federal money and that this had never been tried before nor had it ever been caught before. The NFIP is broke because Congress uses it as a welfare program, it’s not past my suspicions that this whole campaign is an effort to explain away the lack of oversight and the stupidity of Congress. So in sum, I don’t doubt individual horror stories, what I am skeptical of is that there was actual fraud on a systematic, widespread scale as far as stealing government flood money. Anything is possible, however.

  6. FEMA has said more than once that something on the order of 98% of all the expedited claims were handled properly, and in the manner that they would have normally been handled under more ordinary circumstances.
    I’m certainly not the first to crow about Government efficiency, or accuracy, but this certainly doesn’t jive with a wide-spread conspiracy to defraud the Government.

  7. David said, “In a large process of adjusting claims, it would seem likely some or even many mistakes would be made. I run into this in my practice when I represent policyholders, there are many times I think the insurer’s process was flawed or that a decision was built on insufficient or faulty reasoning. In a lot of cases, I’m able to convince the insurer they are wrong, and to their credit, they do reverse themselves at times. Other times it’s necessary to sue. By no means are insurers perfect or free from mistakes, nor will they ever be so long as they are operated by human beings.”
    I would like to build on this a little. Mistakes are certainly made in adjusting claims. And even a correctly adjusted claim, still has room for some ambiguity on pricing and actual repair costs.
    In my experience (which does not include flood/hurricane claims) I have seen many wind/hail claims and other catastrophe claims in which the amount of damage, and the required repairs was disputed by the customer.
    It is the standard procedure in this situation for the company that I work for to have the insured procure a separate estimate from a contractor, and then “re-open” the adjustment, and meet with the contractor at the property and review the damage together.
    In the overwhelming majority of these cases, an agreement on the damage is reached, and the claim is settled, and all parties leave satisfied.
    However, a large percentage of customers do not follow through, and do not even attempt to have the original adjustment reviewed.
    The adjusters are under immense pressure to get a lot of claims adjusted in a short amount of time, and mistakes will inevitably be made. They are simply human. If there is a disagreement, most are more than happy to review their initial decision, and many times revise their decision (in my experience).
    However, in my experience, which is not related to Katrina, far too many insureds just throw up their hands and assume that the “insurance racket” is trying to bilk them out of deserved funds.
    Daughter-for-Justice, I am sorry that your Mother did not receive funds for her contents. It would seem that this was a mistake, unless she did not carry coverage for contents on her flood policy. It is my understanding that the standard NFIP flood policy does not cover for loss-of-use.

  8. Layne, these comments make sense. In my experience, average or even sometimes sophisticated policyholders will not know how to present a claim or deal with the insurance company. This is not to cast blame on them but merely expresses a reality. One could also say insurance companies are often not that great in dealing with the needs of policyholders and understanding what they are saying.
    I always believe in respecting the person on the other side unless they do something that makes them not deserving of respect. So I will assume that the person I encounter is one of good will who acts in accordance with the principles of reason until he or she proves otherwise, and if that happens I have other methods and resources for dealing with that situation. Additionally, if someone goes to the next step — goes out of their way to act maliciously or with extreme prejudice — that calls for stringent measures, for bad and rude behavior is something I do not tolerate. But in many instances, it is not productive to immediately file suit, when with some letters, some research and some personal conversations I can change their minds or get the claim escalated to a supervisor with more experience or a broader picture, and get the claim paid much faster and cheaper than if I had adopted a war mentality. This won’t work in every case obviously, but it does work in a surpringly large number of instances. People with insurance companies are human,it helps if one speaks their language and understands what it is they need to see to pay a claim.

  9. Daughter for Justice

    The point I was trying to make, about my mother-in-laws story, was that I believe the insurance companies were quick to payout money from the NFIP; while denying obvious wind damage, therefore forcing the policyholder to contest and demand a second adjustment. This practice of max payments on flood and zero payment for wind was unfortunately not isolated.

  10. I think I understand the point, but if policyholders had flood damage equal or greater to their flood insurance policies there is no question the flood money should have been paid quickly and maxed out. There are two other scenarios in which questions arise: did they, having justly paid flood money, then fail to pay wind damage that was provable; and second, did they overpay flood damage and then fail to pay the fair share of wind damage from their own reserves? The first scenario does not implicate the type of accusations we have seen of taking flood money to use it as a subsidy for wind damage, only the second scenario does. So all I am saying is, to explore the question of whether insurers used NFIP money to subsidize wind damage, we first have to separate all the first category from that scenario and deal with that scenario and all other scenarios in a different question. What I would like to know is how many concrete examples, with concrete evidence, can we find that fit in the second category. Considering that likely, of all the Katrina damage, the category of people who had flood insurance in the first place, and who received flood checks which even a superficial examination would disclose to be in excess of the flood damage, is probably not that large. How many could we guess are potentially within that universe? So just as an objective exercise in reasoning, we need to separate out all the things that are not alike from those that are alike.