The lawsuit and judge’s remarks made the headlines, but a deeperinvestigation into the issues involved in many Hurricane Sandyclaims finds that while there may have been underpaid claims, ahost of factors contributed to the underpayments.

“Many homes were damaged by Sandy and inspected by engineers.There were some homes that should have been inspected but weren’t,”said Amy Bach, executive director of United Policyholders, a California-basednon-profit that provides insurance information and servesas a voice for consumers in the U.S. “Most independent adjusters(IAs) were told to try and adjust the losses themselves. There havebeen a larger number of claims where the full extent of the Sandydamages were not assessed by engineers.”

Large number of incomplete reports

She says that the number of false engineering reports is fairlysmall. “The number of incomplete reports is larger. The problem isthat those overlooked certain elements — either the engineersdidn’t provide an opinion because they weren’t asked to check thosethings or they missed them. Plus it is also hard to assesspre-existing damage. The quantum of truth of what was caused by agiven event is a challenge — especially where things have beenwashed away. There will be challenges to figure out what was therebefore the event.”

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Bach says another issue involved the experience of the adjustersworking the losses. “Most independent adjusters operated under theprinciples that all adjusters work under — get in, get out, closethe file, move on. There was a lot of pressure to get an adjusterout as soon as possible to a loss. There were limitations with theadjusting force. A lot of guys got out there and focused on makinga payment to the homeowner.”

She adds that some were experienced catastrophe adjusters andothers were new to the process. This lack of experience meant thatwhile adjusters were certified for the program, they may not havehad the practical skills needed to handle these types oflosses.

“There are a number of pressures on independent adjusters tounder-report and it’s not nefarious. They have a lot of empathy andwant to help the homeowners. It’s just that empathy gets outweighedby the rules of the program and the way the IAs get paid.”

Homes in Fenwick Island, Del. are surrounded by floodwatersfrom superstorm Sandy on Tuesday, Oct. 30, 2012. (APPhoto/Randall Chase)

Challenges of the area worked againsteveryone

Dave Charles, a public adjuster and president of Master Claimsin New Jersey, says that every adjuster knows where their bread isbuttered. “It’s the same behavior that occurs on every storm. Thiswas the first time they’ve hung the engineers out to dry. Theengineers know they’ll keep getting paid if they deliver the goods.The only reports altered were the ones from the honest guys. Therest were already written by engineers who knew what the insurerswanted.”

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While there were some knowledgeable adjusters, for many,unfamiliarity with catastrophes and the challenges of the areaworked against everyone. “They didn’t know what to look for or howto price things in Xactimate [an estimating software program],”says Bach. An adjuster from Alabama didn’t know how to price thelosses the way a New York adjuster would. There are differentconstruction issues, debris removal costs and a host of otherexpenses that must be considered as part of the estimate.

Melissa Luckman, practitioner in residence for the DisasterRelief Clinic at the Touro Law Center in New York agrees. “We’vehad clients with every issue — simple things like no overhead andprofit was added in or no sales tax. Some clients had five to sixfeet of water and the adjusters just didn’t do a thorough job.”

Not prepared for the onslought of claims

All of the insurers are having different issues. “It’s reallythe adjusters who went out from the [NFIP] firms where there areproblems. People assumed they were underpaid, but that was not thecase. The issues were adjuster dependent and not with the actualcompanies. A lot of adjusters went up to New Jersey and Connecticutand didn’t have the proper experience and no one looked at theirwork,” she explains. “Adjusters have a lot of leeway. That doesn’tmean it was wrong or intentional, they just weren’t prepared forthe onslaught of claims and didn’t have the training to handlecatastrophe losses.”

Another issue involved all the different adjusters working onthe files. “Some were thorough, but the majority were not,” saysLuckman. “I think they were overwhelmed and didn’t have theexperience for a catastrophic event. They were trying to getthrough as many files as possible to make more money. They weremotivated by getting as many files as possible.”

“Adjusters are paid on a fee schedule,” explained Charles, whohas worked more than 10,000 flood claims in his career. “A commonexcuse given by NFIP was that adjusters had no incentive to holddown claims. The refrain was always, “The more they write on theestimates, the more they get paid. But by taking the low-hangingfruit and writing 60% of the damage on these claims, you could makemore money because you could work more claims. It’s called runningand gunning. Every adjuster knows what it is and does it. They gofor the easy stuff and leave the rest for someone else. The problemwas the system broke down because there wasn’t an effective way todeal with the other 40% of the claims. Adjusters were working 14hours a day, seven days a week and there wasn’t enoughtime.”

Lisa Kravchenko, of Staten Island, stands amongst flooddebris in her princess Halloween costume, Wednesday, Oct. 31,2012. (AP Photo/ John Minchillo)

Changed engineering reports

Luckman explained that the clinic provides pro bono legalservices for any issue stemming from Hurricane Sandy. They havespoken to more than 2,700 households and taken 600 cases forrepresentation. Originally the clinic was involved in just floodinsurance litigation because so many people were reportedlyunderpaid. But now the clinic is seeing more issues with contractordisputes and mortgage modifications.

The clinic has seen a fair number of changed engineeringreports, says Luckman. “Out of the 144,000 flood insurance claims,engineering issues were involved in only about 16,000 of those. Ifyou change an engineering report that said the cause of the damagewas Sandy to it was not Sandy, it’s a huge blow to the homeowner.There are harsher consequences in terms of what homeowners have topay and it maxes out their policies sooner.”

She adds that engineers have told them, “The report I wrote wascorrect, but I never looked back at it. I noticed all of my reportswere changed.” She doesn’t know if they were changed during thepeer review, by the adjuster, the insurer or somewhere else in theprocess. Some answers may come to light with FEMA reopeningthousands of cases. Luckman says that FEMA doesn’t know where inthe process the reports were changed and is trying to identify howit occurred.

Jeff Major with Canopy ClaimsManagement in New York was going to be one of the expertsfor Ramey before the case settled. He has reviewed several hundredengineering reports and found similar language in the reports frommultiple engineers. “In the majority of the engineering reportsthat I’ve reviewed on different houses and multiple scenarios, thefindings were exactly the same on the reports.”

Not asked to write a report

He said he spoke to one engineer for those companies who said hewas not asked to write a report, but was given a list of fourthings to look for during an inspection. He looked at those itemsand signed the report given to him. This occurred with multiplecompanies.

Charles described the earth movement exclusion in the NFIPpolicy and said it gave them a “hammer” to deny claims that shouldhave been paid. “Subsidence or settlement were the terms used todeny coverage,” and he says they were “bogus issues.”

He believes the focus is weighted more towards profits than thegreater good and doing what is best for the homeowner. “It’s aperfect storm of badness with no fear of retribution. Bad faith isa very real sword for everyone but the NFIP. There are no checksand balances that apply to other insurers. If you don’t have apenalty system, then any number of bad behaviors evolve out ofit.”

Erickson says he has never been asked to change a report infavor of an insurer, but that it is possible that some companieswill write what they think the insurer wants tohear. “Insurers just want to know what they owe and they do notexpect us to minimize the damage or tailor the report to anon-covered loss. If there is ambiguity or the cause of damage isdue to multiple factors including a covered peril, in my experienceinsurers typically side with coverage.”

Household items destroyed from flooding from Hurricane Sandyline California Street on Thursday, Nov 1, 2012, in Long Beach,N.Y. (AP Photo/Kathy Kmonicek)

Blown out of proportion?

Multiple experts believe that the issues with the changedengineering reports were blown out of proportion by the mainstreammedia and exacerbated by attorneys, politicians and others seekingto take advantage of the situation. However, that does not excuseany companies that participated in these practices.

As far as the claims he’s handled, Major says that he was notaware of anyone trying to manage the outcomes of theinvestigations. However there were incomplete estimates. “Anadjuster may spend 25 minutes in a house and write an estimate foronly half of the damage, like $100,000 for $250,000 worth ofdamage.” He said he found gross underpayments in scope pricing andsaw less than a handful of adjusters who went out of their way towrite proper estimates. The majority wrote deficient ones.

But he says that the responsibility doesn’t fall solely on theadjusters. “The NFIP is not informing the adjusters. They are notbeing educated on what could be damaged and are not beinginstructed on what to look for.”

Homeowners didn't understand their coverage

If there were changed reports or deficient estimates, they areonly part of the problem. Homeowners bear some of the blame for nothaving the proper coverage or not understanding their coverage andpolicy limits, a fact confirmed by Luckman. “They didn’t know theirpolicy limits and what it covers. They had no idea what theircoverages were.” She said the first thing she does for clients isprovide them with an explanation of flood insurance and what itdoes and does not cover. “Policyholders are stunned to see that.They didn’t read their policies when they purchased them.”

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