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Case closed: Many Sandy claims not eligible for insurance payment
Many East Coast residents who thought their home insurance would come to the rescue after Superstorm Sandy haven't gotten a dime out of their policies for repairs.
Almost one in five Sandy insurance claims in New York has been closed without payment, according to the latest count by the New York State Department of Financial Services.
Of 397,160 Sandy-related homeowners, auto and business insurance claims filed in New York, 375,774 have been closed as of April 12. Of those, 71,948 -- 19 percent -- have been closed without payment.
The data are from report cards issued by the state on how insurance companies have responded to Sandy.
The storm was one of the costliest disasters in U.S. history, causing $50 billion in overall losses and $25 billion in insured losses, global risk management firm Munich Re estimated. Sandy made landfall in New Jersey in October 2012 as a post-tropical cyclone and brought heavy rain, wind, storm surge and snow, eventually affecting some 60 million people in 24 states. Storm surge along the coast from New Jersey to Massachusetts caused the worst losses.
The insurance claim denials in New York were largely the result of two things, according to a Department of Financial Services spokesperson:
- The loss was less than the policy's deductible.
- Claims were filed when there was no insurance coverage.
Sandy was mainly a flooding event, he said, and home insurance excludes flooding. In fact, some homeowners needed denials from their home insurance companies to apply for assistance from the Federal Emergency Management Agency.
To get coverage for flood damage, homeowners must have flood insurance. Policies are provided through the National Flood Insurance Program and sold by private insurers. Here's more on who needs flood insurance.
Although floods are the No. 1 natural disaster in the United States, most homeowners don't have flood insurance, even in areas where it would seem like a no-brainer to buy it.
Except for a couple of ZIP codes, less than 30 percent of homeowners along the entire New York coast had flood insurance in 2010, according to an issue brief by Resources for the Future, a nonprofit research group based in Washington, D.C.
"Storm after storm over the last several decades has shown that take-up rates for flood insurance are often lower than one would expect, leaving many homeowners without access to capital to rebuild," wrote authors Carolyn Kousky and Erwann Michel-Kerjan.
Not all that surprising
The fact that so many New York Sandy claims have been closed without payment doesn't surprise Amy Bach, executive director of United Policyholders, a consumer advocacy group in San Francisco.
"We expect the number of denied claims to be quite high, solely based on input we're getting and time we've spent on the ground after Sandy," she says.
After Hurricane Katrina devastated the Gulf Coast in 2005, debate roiled about whether a storm surge - meaning rising ocean water driven by wind -- should be considered a flood or a wind event. Standard home insurance policies cover damage from wind, but not floods.
After Katrina, insurers asserted that a storm surge was a flood, and the courts generally sided with the industry.
"Insurers drew that line in the sand, 'This is a flooding event,'" Bach says. "We knew they were going to take a hard line."
The fine print
Another factor that works against homeowners is something called the anti-concurrent causation, or ACC, clause, contained in some home insurance policies.
Basically it says if two causes acting together, such as wind and flood, damage your home, the ACC clause can limit or even eliminate your coverage for all the damage. That's even if one of those perils had been covered if it were the only cause. So, for instance, if storm winds rip up your house and a storm surge causes water damage, you could wind up with no coverage, period, unless you have flood insurance.
The Consumer Federation of America and United Policyholders recommend consumers check to see if they have this clause in their home insurance policies and ask about it when they purchase home insurance. The advice is among several tips for homeowners the groups offered after Sandy.
"Unless you have these conversations with a broker and take good notes, you won't know what you have or what you need," Bach says.
Here's more on home insurance exclusions: what your policy won't cover.
Insurance company executives, meanwhile, admit the industry needs to step up education efforts.
"As an industry, we need to do a better job of educating our customers that flood is not a covered peril," said Liam McGee, CEO of The Hartford at the Property/Casualty Insurance Joint Industry Forum in New York in January.