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FEMA orders insurers to turn over data for 15,700 Sandy claims

An aerial photo taken on Nov. 14, 2012,

An aerial photo taken on Nov. 14, 2012, after superstorm Sandy moved through Long Island, shows damage to house on an island near Jones Beach. It is not known if it is part of the legal action. Credit: Doug Kuntz

Federal officials on Monday ordered companies that processed flood insurance settlements after superstorm Sandy to turn over data for all claims that included engineering reports as part of an ongoing effort to uncover whether homeowners were defrauded.

The mandate, from the Federal Emergency Management Agency, applies to roughly 15,700 claims on properties from North Carolina to Maine. It comes after a growing number of storm victims on Long Island and elsewhere have accused companies of forging property-damage reports to deny settlements after the 2012 storm.

"We're committed to putting survivors first, and that's why we're taking action to ensure we have the best information available concerning all Hurricane Sandy claims that used engineering reports," FEMA spokesman Rafael Lemaitre said.

FEMA, which runs the National Flood Insurance Program, has been working for weeks to address the allegations of fraud that began quietly last year and have snowballed into a scandal.

Two officials who ran the flood insurance program have stepped down. FEMA has vowed to establish a process for all 144,000 Sandy victims who filed flood-insurance claims to have their cases reviewed. The New York State attorney general, meanwhile, has launched a criminal probe.

The insurance companies, which are hired to process the claims, have until Friday to give FEMA the data.

Robert Hartwig, president of the Insurance Information Institute, said the order was unprecedented. He warned it may be costly for taxpayers. "It would be quite reasonable," he said, "for the insurers to ask to be reimbursed."

The allegations of forged reports surfaced amid the more than 1,800 pending lawsuits filed by homeowners saying they were shortchanged on settlements. After a judge concluded wrongdoing may have been widespread, FEMA began negotiating in earnest last month to resolve those cases.

The talks, however, have hit a snag over language in the settlements. A three-judge panel of federal magistrates overseeing the cases has scheduled a hearing for Thursday in Brooklyn to resolve the impasse.

While FEMA pays flood insurance settlements, homeowners say insurers that process claims still lowball. That is primarily, they say, because the program penalizes companies for overinflating claims. So lawyers say insurers err on the side of underpaying.

Hartwig, however, said insurers have no financial motive to cheat. The allegations of fraud, he said, are limited to a handful of cases being disproportionately trumpeted by trial lawyers.

"My expectation is that the vast majority of these claims, while they may be reviewed, will ultimately be found to have been adjusted fairly," he said.

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