Testimony by Javier Ortiz, Staff Attorney in Storm Response Unit, and Sunny Noh, Supervising Attorney in Storm Response Unit, before the New York City Council Committee on Recovery and Resiliency:

Res. No. 552 – Resolution calling on the Federal Emergency Management Agency to re-examine all National Flood Insurance Program insurance claim payouts related to Hurricane Sandy for possible underpayment, and to henceforth require insurance companies to make available to flood insurance claimants all drafts of engineering reports that are used in the assessment of damages

April 15, 2015

Chairman Treyger, Council Members, and staff, good afternoon and thank you for the opportunity to speak about the City’s resolution calling on to the Federal Emergency Management Agency’s (“FEMA”) National Flood Insurance Program (“NFIP”) to reexamine claims related to Superstorm Sandy. My name is Javier Ortiz and I am a Staff Attorney in the Storm Response Unit at the New York Legal Assistance Group (“NYLAG”). I am joined by Supervising Attorney Sunny Noh. NYLAG is a nonprofit law office dedicated in providing free civil legal services to the most vulnerable New Yorkers. NYLAG serves immigrants, seniors, the homebound, families facing foreclosure, renters facing eviction, low-income consumers, those in need of government assistance, children in need of special education, domestic violence victims, persons with disabilities, patients with chronic illness or disease, low-wage workers, low-income members of the LGBTQ community, Holocaust survivors, survivors of disasters like Superstorm Sandy, as well as others in need of free legal services.

As you all know, on October 29, 2012, Superstorm Sandy reached the shores of New York City, causing extensive, unprecedented flooding in much of lower Manhattan, Brooklyn, Queens, and Staten Island. According to a 2013 report released by the RAND Center for Catastrophic Risk Management and Compensation (“RAND Report”), at the time of Superstorm Sandy there were 25,916 active NFIP policies in the greater New York City area.[1] As of February 2013, 16,264 claims had been filed for flood losses attributed to Superstorm Sandy.[2] FEMA reported that it had closed 81% of these claims as of that date, with an average payment of only $54,000 out of a maximum policy limit of $350,000 for single family homes.[3]

We at NYLAG believe this to be an inaccurate reflection of the number of New York City homeowners who received adequate coverage. NYLAG’s Storm Response Unit, which launched in January 2013 to address the specific legal needs of Sandy survivors, has assisted and continues to assist more than 300 New York City residents with Sandy flood insurance disputes. We have achieved more than $1,000,000 in monetary benefits for these clients. However, the number of clients who have been erroneously denied coverage or underpaid on their claims far exceeds those who have been made whole. NYLAG believes that the high percentage of reported closed cases does not reflect the number of homeowners who received appropriate payouts, as we know many homeowners who were either too exhausted or did not have the resources and/or capacity to continue what often feels like a futile fight.

Thus, we commend the Council for supporting this resolution. We further acknowledge that, in light of the allegations of widespread problems in the processing of Sandy flood claims, FEMA has committed to taking aggressive steps to ensure that all Superstorm Sandy survivors receive another review of their NFIP claims. FEMA has stated that it will create “a process that allows people who did not file lawsuits, but ”˜were lowballed due to fraud or bad practices, to have their claim objectively reviewed, so filing a lawsuit is not a prerequisite for justice.’”[4] NYLAG further acknowledges that FEMA has engaged with legal services and community organizations in New York and New Jersey to discuss our concerns and recommendations. As NYLAG will discuss, our collective recommendation is that any reexamination must implement different procedures and standards to ensure that the original problematic process is not repeated. NYLAG looks forward to FEMA’s creation of a reexamination process that will allow Sandy survivors, especially low-to-moderate income homeowners, to finally get a fair review.

As highlighted by the RAND Report, one of the most prevalent challenges that resulted in limited NFIP payouts to homeowners is coverage gaps.[5] Perhaps the biggest and most controversial coverage gap is the earth movement exclusion. The Standard Flood Insurance Policy (“SFIP”) excludes coverage for damage caused by “earth movement,” even if the movement is caused by flood waters.[6] Whether damage was caused by earth movement, and therefore not covered by the SFIP, can only be determined by a licensed engineer. FEMA and the Write Your Own (WYO) insurance companies who administer the majority of NFIP claims, engage licensed engineers to evaluate this issue. To challenge an earth movement denial, a homeowner must hire a competing engineer at a cost of at least $500-$1,500. For low-to-moderate income Sandy survivors, this is an insurmountable burden. Moreover, even when survivors can afford to hire a competing engineer, their engineers’ reports are often denied arbitrarily due to alleged inadequate detail or failure to comply with policy technicalities.

This occurs even when the client is requesting coverage for items explicitly covered within the SFIP. For example, NYLAG represented a single senior homeowner who submitted a claim to her WYO for flood-related damage to the footings in her crawlspace, an item explicitly covered under the SFIP. Her estimated repair cost was only $5,000. However, her claim was denied by the WYO, relying solely on its own engineer’s report which alleged the presence of “differential movement” and lack of damage caused by “hydrodynamic forces” (i.e., water damage). Despite NYLAG’s challenge to this report with a competing engineer’s report that concluded the reverse, the WYO continued to deny her claim. In response to the insured’s competing report, the WYO submitted a supplemental engineer’s report stating that they could not rule out damage from hydrostatic forces. Given this homeowner’s limited resources, fatigue from this process, and the low cost of coverage sought, it is no surprise that she simply gave up.

Another problematic issue that impeded most of our clients from receiving a fair flood payout was the documentation standards required by WYOs. While Article VII (J) subsection (3) of the SFIP permits an insured to “[a]ttach all bills, receipts, and related documents”[7] to support a claim, in practice, WYOs refuse to accept receipts or bills unless they include a line by line, room by room itemization with quantity, square footage, location, description, unit price, and cost. Furthermore, WYOs routinely challenge the sufficiency of any form of estimate. Shortly after Sandy, WYOs refused estimates that were allegedly insufficiently detailed. Later in the recovery, WYOs began refusing to consider estimates outright. This practice egregiously contradicts FEMA’s explicit policy in subsection (4)(f), that allows for, “[s]pecifications of damaged buildings and detailed repair estimates.”[8]

WYOs’ documentation standards place an unduly high burden on low-to-moderate income insureds. Most homeowners in New York City are unable to compel contractors to provide the level of detail demanded by WYOs. Even in cases where they can, WYOs find inadequacies. For example, NYLAG assisted a homeowner who was involved in a lawsuit with her contractor who provided inadequate services. Per a settlement, the contractor was compelled to provide copies of detailed invoices for labor and materials. The contractor provided the homeowner with more than ten itemized invoices that precisely corresponded to line-items in the WYO’s adjuster’s report. However, even in this case, the WYO refused to grant further relief, alleging, among other things, that the documents were insufficient.

Another common issue that prevented homeowners from receiving adequate flood insurance payouts is the WYO’s reliance on the “Improvement” basis for denial. This procedure allows the WYOs to disallow coverage for replacement of damaged property if the WYO deems the replacement to be better than the original and not of like-kind and quality. This basis for denial does not take into account practical and realistic post-storm considerations. Specifically, homeowners often improve storm-damaged homes either because city code mandates it or because in-kind items are not reasonably available, thus improperly limiting their relief.

Finally, there have been several cases where WYO claim adjusters have been a barrier to adequate flood relief. As explained by the RAND Report, the volume of claims related to Superstorm Sandy was more than licensed flood adjusters could reasonably handle.[9] The shortage of trained adjusters caused serious problems in the processing of claims, resulting in untimely and/or biased damage assessments. Furthermore, Sandy adjusters often lacked knowledge for or discounted “disaster capitalism.”[10] As is common during post-storm events, constrained supply and high demand frequently cause the price of labor and materials to increase. In addition to disaster capitalism, most adjusters appeared unfamiliar with the high New York City contracting costs, as most came from other areas of the country.

In conclusion, we advocate that any NFIP reexamination process be carefully designed to avoid these same problems. Our specific recommendations include:

  • That FEMA’s administrative reexamination process be transparent, accountable to insureds, and consistent;
  • That NFIP insureds who did not file lawsuits receive the same relief as those who did;
  • That the presumption of coverage and valuation lie in favor of the insured;
  • That FEMA provide claims representatives, adjusters, and /or engineers with realistic claims processing standards based on the information and documents insureds can reasonably provide 2 ½ years after Sandy; and
  • That FEMA reform its NFIP processing practices to ensure these types of problems will not occur for future NFIP claimants.

Finally, we recommend that FEMA and the City engage directly to address and educate the public on the Duplication of Benefits issue with Build it Back (“BIB”) upon the reopening of these claims. We ask that insureds be provided with all necessary means to make an informed decision on pursuing reopening of their flood insurance claim in light of its potential impact on their BIB case.

We thank the Council for convening this hearing and welcome the opportunity to further discuss or comment on these matters in the future.

Respectfully submitted,

Storm Response Unit, New York Legal Assistance Group
Javier Ortiz, Staff Attorney
Sunny Noh, Supervising Attorney
Ann E. Dibble, Director


[1] Lloyd Dixon, Noreen Clancy, Bruce Bender, Aaron Kofner, David Manhiem & Laura Zakaras, Flood Insurance in New York City Following Hurricane Sandy, RAND Corp., 2013, at 13.

[2] Id. at 21.

[3] Id. at 21-22.

[4] Senator: FEMA Will Re-examine More Cases, Reform NFIP Claims Process, Insurance Journal, Mar. 5 2015, http://www.insurancejournal.com/news/east/2015/03/05/359580.htm.

[5] Dixon, Flood Insurance, supra, at 26.

[6] 44 C.F.R. pt. 61, App. A(1).

[7] Id.

[8] Id.

[9] Dixon, Flood Insurance, supra, at 28.

[10] Id.