Sandy Stirs Legal Mess
March 6, 2013 Leave a comment
Sandy Stirs Legal Mess
Residents Struggle With Bureaucracy
Mark Abramson for The Wall Street Journal
Firefighter Nicholas Dorman, above, in his Staten Island home that was wrecked during Sandy. He is getting legal help on insurance claims.
The backlog of insurance claims resulting from superstorm Sandy may be easing, but now home owners are confronting an array of thornier issues.
Insurance payments are falling dramatically short of what residents believe they need, many said. They have learned about loopholes in policies that exempt entire floors—such as basements—from coverage. Banks aren’t releasing payments that have been issued by insurance companies because they want better proof of how the money will be spent.
"We’re seeing more issues that are beyond just the chaos of what happened," said Ann Dibble, of the New York Legal Assistance Group, which received $2.1 million in grants to create a Storm Response Unit, including hiring 27 new attorneys and financial counselors. Ms. Dibble directs the unit. "It’s not uncommon for people who have a housing problem as well as an insurance problem as well as a FEMA [Federal Emergency Management Agency] problem as well as a food stamp problem."
Of the $60 billion Congress allocated toward Sandy funding, $1 million was dedicated to funding legal services. But as storm victims wade through hundreds of technical documents issued by multiple agencies, they are swamping legal clinics in search of help, according to interviews with more than a dozen attorneys.
Several legal nonprofits said they temporarily had waived their income requirements, hired new staff and connected with attorneys from other states more familiar with natural disasters to glean advice on claims they are not sure how to handle.
"I know this sounds ironic especially in a place like New York, but there just aren’t enough lawyers," said Thomas Maligno, who is leading Sandy outreach efforts for Touro Law School, which includes a legal hotline and a new legal clinic on Long Island staffed by a professor and eight students.
On Staten Island, Allison Thies and her husband took out a combined $368,000 in flood and homeowners insurance on her New Dorp Beach home after Hurricane Katrina. The lower level of her two-story home was destroyed in superstorm Sandy, but she has received $34,731—only enough, she said, to strip down the first floor to the concrete.
The homeowners insurance replaced the roof, but wouldn’t cover any damage inside the house or in the yard, which they credited to the flood. The flood insurance wouldn’t cover most of the damage to the lower level, which they called a basement. FEMA, which she heard might cover the difference, paid an additional $4,795.
Ms. Thies said a contractor estimated she still had $83,000 left in repairs. After days spent tracking down forms, arguing with inspectors and holding for hours on the phone, "you just wind up breaking down crying," she said.
She finally hired a lawyer from a firm specializing in disaster cases who will take 15% of any settlement—and 33% if the case goes to court.
Many said they expected FEMA grants to cover any insurance shortfalls, only to be surprised. Out of 252,296 FEMA grants issued to New York and New Jersey residents, 5,485 are for the maximum award of $31,900.
Michael Byrne, the federal coordinating officer for New York, noted that the percentage of people receiving the maximum FEMA grants for Sandy-related claims was higher than in Mississippi after Hurricane Katrina. "I think that is reflective of the costs and factors that we see in New York," he said.
Still, the numbers are lower than in Louisiana after Katrina, where 4% of grant applicants received the maximum.
"The need is so vast," said Lynn Kelly, executive director of the City Bar Justice Center, a nonprofit arm of the New York City Bar Association that has worked on more than 400 Sandy-related cases. "We’re trying to spread the services as broadly as possible throughout the city."
Insurance companies have received more than 400,000 Sandy-related claims in New York and processed about 87%, according to the New York state Department of Financial Services. The state has received more than 3,900 Sandy-related consumer complaints. Response times from insurance companies have ranged from an average of eight days to 38 days, officials said.
In New York, three insurance companies are being investigated for failure to send adjusters and inspect claims in a timely manner, the department of Financial Services announced last month.
Overall, however, the industry "has done a fantastic job in adjusting the claims in the aftermath of this unprecedented storm," said Gary Henning, the northeast region vice president of the American Insurance Association.
Still, he said: "There is a problem of consumer awareness in regard to what coverage they actually have," adding that "most people don’t read" the pages of disclosures in most policies. "We’re trying to figure out how to tackle this issue in a way that will actually work," he said.
Banks have also raised concerns among officials. In testimony before the Assembly Standing Committee on Insurance last week, New York Superintendent of Financial Services Benjamin Lawsky noted "troubling" reports of banks refusing to release settlement checks affecting more than 6,600 customers and worth $208 million.
As a result, the state is working with banks, Fannie Mae and Freddie Mac and others to streamline the process, he said. Those negotiations yielded a promise by the state’s five largest banks to release around $75 million immediately, department officials announced last week.
Local attorneys and nonprofit legal services groups say the intricacies of Sandy-related claims seem to fall heaviest on low-income residents and those who don’t speak English.
Marcos Garcia, a 36-year old father of three, said through an interpreter that he was denied a FEMA grant because he shared a house in New Dorp, Staten Island, with another family. When both families relocated to separate apartments, only one received assistance for rent and new furnishings.
He signed up with Make the Road New York, a nonprofit legal assistance group for low-income New Yorkers that is working on more than 500 Sandy-related cases, officials said.
"Whatever framework FEMA is using, which isn’t clear, it doesn’t seem to have an appreciation for the way that low-income people are living," said his lawyer, Danielle Grant, who was hired to help handle the influx of Sandy cases. "That’s a big problem."
"It’s a tough issue," Mr. Byrne said. "We want to get to yes to help people. But we do have to be honest with them and follow the rules."
There are many sources of help beyond FEMA, he noted. But those sources frequently conflict, lawyers and families said.
An engineer recommended Nicholas Dorman’s house in Great Kills, Staten Island, be razed and rebuilt after being smashed by two Sandy-tossed yachts. Mr. Dorman, a city firefighter, and his wife, a public-school teacher, had taken out homeowners insurance and flood insurance totaling $598,000. To date he has received $65,000, he said. FEMA declined to issue him a grant because he had insurance coverage, though it provided $2,948 in rental assistance. He hasn’t yet returned to his home. "I just want this off my back I want this over with," Mr. Dorman said. "I don’t want to worry about phone calls. I’ve never had problems like this. My wife and I work hard, and it shouldn’t be like this."
In the two years before the storm, Mr. Dorman said, he and his wife had remodeled a bathroom, put in an above-ground pool and renovated their kitchen. On a recent afternoon, his yard was littered with debris—including the pool—and inside, the first-floor walls were stripped to the lathing.
Mr. Dorman’s mortgage lender agreed to allow him to suspend payment for five months, but he said the sum of his missed payments will be due in April. He and his wife can’t afford that $14,500 payment, continuing mortgage payments and his current rent, he said. Mr. Dorman sought help from the New York Legal Assistance Group, which put him in touch with the firm Anderson Kill & Olick, which is handling his case pro bono.
In the meantime, he has signed up for a $193,000 loan from the federal Small Business Association at 1.68% interest.
"A disaster just happened and they’re making money off of us," he said. "That’s just not right."
—Heather Haddon contributed to this article.
A version of this article appeared March 5, 2013, on page A21 in the U.S. edition of The Wall Street Journal, with the headline: Sandy Stirs Legal Mess.