Letter to Craig Fugate, Administrator of the Federal Emergency Management Agency - Write Your Own Insurance Companies and Disaster Victims

Letter

November 14, 2014

The Honorable Craig Fugate
Administrator
Federal Emergency Management Agency
500 C Street SW
Washington, D.C. 20410

Dear Administrator Fugate:

We are writing to express our deep concern and to demand that you take immediate action to remedy what U.S. Magistrate Judge Gary Brown refers to as "reprehensible gamesmanship" being perpetrated by Write Your Own (WYO) insurance companies against disaster victims. As revealed by the Court, WYOs have engaged in a pervasive practice of tasking firms to issue "baseless report[s]" in order to reduce the amount of money provided to policyholders. While these actions were undertaken by WYOs -- these insurance servicers ultimately work for and report to FEMA -- making you ultimately responsible for their behavior.

The actions to limit the proceeds for policyholders reaffirms what Sandy victims have been telling us and the concerns expressed at the hearing you testified before on July 30, 2014. At this hearing, you heard about FEMA's unbalanced penalty structure that punishes WYOs for making overpayments far more than it punishes them for making underpayments. With WYOs responsible for every dollar deemed by FEMA to be overpaid, it's no surprise they work aggressively to reduce the amount paid to policyholders. And without a counterbalancing penalty for improperly underpaying or lowballing policyholders, there will inherently be a bias to underpay claims.

Countless stories of New Jersey disaster victims claiming they were lowballed, as well as testimony from a WYO representative and legal advocate on the ground in New Jersey, all supported these findings and exposed the claims process to be unfair and tilted against policyholders. The recent findings by Judge Brown appear to be the "smoking gun" of a pervasive and intentional effort to lowball disaster victims who did the right thing and paid their flood insurance for years if not decades.

The conversation during the hearing was productive and your thoughtful remarks were encouraging; but we are dismayed and genuinely disappointed by your inaction that followed. As a result either of FEMA's lack of oversight or tacit encouragement of these procedures, WYO insurance providers continue to engage in these highly questionable practices.

As Judge Brown stated in his decision, this case "has exposed reprehensible gamesmanship by a professional engineering company that unjustly frustrated efforts by two homeowners to get fair consideration of their claims. Worse yet, evidence suggests that these unprincipled practices may be widespread." Judge Brown further states that the engineering firm hired by the WYO to alter the original adjuster's report had never actually visited the property and that the rewriting process "journeyed beyond misleading into the realm of misrepresentation."

Not only was the claims process heavily tilted against the policyholder, there was also a concerted effort to suppress documentation that show these revisions. According to the Court, these facts were, "concealed by design from the homeowners, remained uncovered during the Court-assisted discovery process and came to light through near happenstance." Judge Brown correctly points out that allowing the WYO to conceal these documents "would constitute a serious injustice."

While the Court ruled that all documentation must be made available to policyholders, this order only applies to cases in New York. But as Judge Brown indicated, concealing these documents is likely a widespread practice that "may have affected hundreds of Hurricane Sandy flood insurance claims -- and possibly more." This finding is indeed startling, but is not altogether surprising, as it is consistent with my early concerns about the pervasiveness of unprincipled practices being concealed by a lack of transparency.

In light of recent developments, we urge you to take swift action to increase transparency, protect policyholders from these unfair practices, and restore credibility to the National Flood Insurance Program. Doing so requires:

1. WYOs to comply with the New York Court order to New Jersey cases and fully disclose to policyholders each variation of adjuster and engineering reports on the assessment of the policyholder's damage with relation to the policyholder's coverage, including an explanation of why an additional report was ordered.

2. A full investigation by FEMA into the pervasiveness of WYO adjuster and engineer report alterations taking place behind closed doors without disclosure to the policyholder;

3. A report to Congress on the findings of this investigation with FEMA's suggested plan for increasing the transparency of the NFIP and instituting greater consumer protections for policyholders;

4. Imposition of sanctions and penalties against WYOs engaged in this practice;

5. Correct the imbalance between WYO penalties for over and under payments, which this examples shows clearly influences WYOs to lowball policyholders.

If left unaddressed, these practices threaten to stunt our recovery from Superstorm Sandy and leave many families without the ability to rebuild their homes and move on with their lives. They are not asking for a handout -- only what they deserve and what they've been paying premiums for. We look forward to your prompt and decisive action to fix this injustice.

Sincerely,

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