A man paddles a kayak near a flooded home along the AlafiaRiver in Lithia, Fla. A storm surge pushed water into the low lyingarea. (AP Photo/Chris O'Meara)

When Hurricane Sandy pummeled New Jersey in2012 it drowned financial adviser Doug Quinn's house in 3 feetof water, and introduced him to a world of fraud and abuse ledby flood insurance adjusters and engineers, some of whomeven created false reports to underpay storm victims.

Seven years on, Quinn's still fighting toeradicate what he says is an "epidemic" of fraudby insurance industry staff.

But on the other side is another fight — thisone pointing the finger at homeowners.

Like Quinn, Miami-Dade State Attorney Katherine Fernandez Rundleis also leading a campaign, but this one wants to catch adjustersand homeowners who've defraud insurance companies by inventing andexaggerating water damage, causing insurance policy pricesto balloon for all Floridians.

"There's no blood, there's no weapons, no gun shot, no body, butthis is nonetheless a very serious crime that affects every singleone of us," Fernandez Rundle said in an April press conferenceannouncing charges against nine Floridians for allegedlyrunning a countywide $600,000 insurance scam.

Insurers, homeowners, contractors and prosecutors disagree onwho's to blame. But all sides have the same question: Is there ananswer?

'I got shut down'

For a month after Superstorm Sandy, Quinn and his daughter livedout of their car. Their home had to bedemolished, leaving important paperwork, keepsakes andtheir confidence in tatters.

Quinn filed a claim under his flood insurance policy with SelectiveInsurance, which was initially denied when his insurerhired an engineer who said the huge cracks in Quinn's foundationand the giant hole underneath it were caused by earth movement,which was not covered by his policy.

Quinn was offered 37 cents on thedollar, prompting a failed appeal. He then hireda public adjuster and appealed to the mitigation department ofFlorida's Federal Emergency Management Agency, whichalso was a dead end.

What he didn't know what that his case would be one of thousandsto catch the attention of the federal government.

Hundreds of miles away, the Eastern District of New Yorkappointed Louisiana attorney John W. Houghtaling asplaintiffs' liaison counsel to investigate alleged fraudwithin the FEMA flood insurance program. The effort led tothe conviction of Matthew Pappalardo and his New Yorkengineering firm Hi Rise Engineering P.C. for falsifyingreports, often using the same earth movement reasoning used to denyQuinn's claim.

Though no fraud was proven in Quinn's engineering report, itemerged that thousands of others had been changed from "Yes, Thishouse has been damaged by the storm" to "No, it has not." Thatdiscovery led to reopening 144,000 claims, spawning legalvictories and an extra $100 million for stormvictims.

Quinn said that after a year of agonizing over what todo, he turned to the courts.

"I'd never sued anybody in my life," said Quinn,who added he was even a little ashamedto be filing a lawsuit at 50 years old.

A structural engineer later inspected Quinn'shouse, finding proof that foundational damage was caused by floodwater. The case settled, but the litigation cost Quinn$43,000, money that won't go into rebuilding his house, which still isn'tfinished after seven years. His opponent, however, had its legalfees paid by the National Flood Insurance Program, proppedup by taxpayer money.

"It was insulting," Quinn said.

Quinn said he was most alarmed that, even with a "verypro-insurance" attitude, after 27 years providing financial adviceto one of the country's biggest insurance companies, he feltpowerless.

"I'm better suited to have this fight than the average person,and I got shut down," Quinn said.

Fake flood damage?

On the other side of the coin, prosecutors say Floridahomeowners are absorbing costs of up to $700 eachyear for premiums, thanks to scams such as the one allegedly run bytwo public adjusters, Barbara Maria Diaz de Villegasand her father Jose Gonzalez, arrested in May. Prosecutorssay that as homeowner advocates, the pair would appraiseand negotiate inflated claims for a share of the insurancepayout.

Fernandez Rundle's office claims thefather-daughter pair generated more than $2.5 million by recruitinghomeowners through friends and referrals. It claims they had aplumber damage properties, then asked complicit adjusters andinsurance agents to increase coverage on these homeowners'insurance policy, or create policies if the homeowners wereuninsured.

"He'd take a hammer, he'd break some tile, so that the coveragewould be for the whole flooring, let's say, in the house,"Fernandez Rundle said. "He would break water pipes to make it looklike there was a flood, and he actually put the water there aswell, to make it appear as if the broken pipe created theflood in the house."

Meanwhile, homeowners with legitimate claims were struggling tokeep their homes.

After Hurricane Sandy, for instance, more than 50 ofHoughtaling's clients couldn't fix their houses and gave them backto the banks, destroying their credit and going bankrupt.

"I had one [client] that committed suicide because she couldn'thandle the fact that she had paid for her insurance and she waslosing her family home," Houghtaling said.

In Florida, Quinn fought to avoid that fate, as internationalstudies on displacement after flooding showednatural disasters wreaking havoc oncommunities, contributing to higherdebt, divorce and substance abuse rates, along with healthissues and child behavioralproblems. 

Quinn teamed with other hurricane victims, consumeradvocates, public adjusters and attorneys such as Houghtaling tocreate the American Policyholder Association, a nonprofitorganization aimed at promoting best practices in the insuranceindustry's property loss adjustment sector.

"The average person on their best day is in no position to standup to a billion-dollar insurance company," Quinn said. "Now takethem after they have just lost everything in a storm and they'rewondering about where their kids are going to be sleepingtonight."

What's the fix?

Now, a new development might have raised the stakes. On May23, a law was passed in Florida aimed atcurbing insurance fraud. And although Quinn's group neithersupported nor fought the legislation, he said he's worried abouthow it could affect homeowners, considering the main proponentswere pro-insurance lobbyists.

"If I'm a consumer in Florida, you're going to have a tough timeconvincing me that the fox is guarding my hen house because hewants the hens to be safe," Quinn said. "Was there AOB [assignmentof benefits] abuse? I'm sure there was. But maybe throwing the babyout with the bathwater wasn't the smartest choice."

It's not easy to square how insurance companies couldbe on the same side as policyholders, the way Houghtalingsees it, because their financial interests are polar opposite:Homeowners want as much as possible for theirclaims, but insurers want to pay less.

"The insurance company says, 'We think we can fix your house for30 cents on the dollar and the contractor is charging you toomuch.' That's fine if it's true, but if the person that's sayingthat is the person that actually has the liability to pay, then youneed to be suspicious of that. Because it's a function of the factthat they have a conflict of interest," Houghtaling said.

Tallahassee lawyer and president and CEO of the Personal Insurance Federationof Florida Michael Carlson disagrees that the twogroups have divergent interests.

"If we don't serve our customers well, we don't exist anymore,"Carlson said. "It's of great concern to our members."

In any event, like Fernandez Rundle's office, homeowner Quinnthinks the answer lies in criminal prosecution.

Quinn met with at least 16 attorneys general in the past eightmonths to discuss insurance fraud, and hisorganization offers rewards for information leading to thearrest and conviction of engineers who defraud policyholders.

Houghtaling seems to agree, saying civil lawsuitsaren't the answer because many homeowners find it burdensome tolitigate and then surrender a large portion of theirclaim to hire people like him.

"Why does somebody say to themselves, 'I'm going to take 40% or30% of what I need to fix my house and hire a lawyer'? What kind ofdesperation do you need to get into to be in that situation?" heasked. "Could it be that [the insurance company] didn't pay themwhat they were supposed to pay them?"

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