A whistleblower lawsuit filed last year by several former insurance adjusters in a U.S. district court in Louisiana has been made public, and it accuses several major insurers of over-billing the National Flood Insurance Program for Hurricane Katrina flood damages that should have been classified as wind damages.
Since flood losses are not covered under most homeowners' policies, any losses attributed to flood would theoretically limit the amount of money insurers would have to pay. According to the complaint, the adjusters — who are identified only as Branch Consultants — say they inspected hundreds of properties and gathered evidence to show grossly inflated flood losses followed by underreported wind losses (see sidebar, end of article). Reports said that the adjusters had direct knowledge of the scheme to defraud the federal government, which is why their names are not being released.
According to the complaint, the average cost per flood claim rose from 2004′s average of $32,000 to more than $100,000 after Katrina. Also noted was the fact that National Flood Insurance Program (NFIP) flood claim amounts had never exceeded $1.3 billion in one year. Current estimates put 2005′s flood claim total between $10-$30 billion.
So where was the oversight? After Hurricane Katrina struck, FEMA waived the requirement that insureds file a proof of loss, and allowed an expedited claim-handling process to be implemented. This is alleged to have swung the balance of power into insurers' hands, who are accused of systematically adjusting and paying out claims, then seeking reimbursement from the NFIP for those claim payments with little supervision.
Among those insurers named in the suit were: Allstate Insurance Co., State Farm Fire and Casualty Co., Liberty Mutual Fire Insurance Co., Fidelity National Insurance Co., American National Property & Casualty Co., Scottsdale Insurance Co., and Travelers.
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