Good Morning
Good Morning

FEMA: Thousands of insurance settlements did not include sales tax

Flooding from superstorm Sandy damaged many homes on

Flooding from superstorm Sandy damaged many homes on Long Island in late October 2012. Credit: Ed Betz

Federal officials have acknowledged that adjusters who worked on claims after superstorm Sandy for the National Flood Insurance Program systematically failed to factor sales tax into estimates to rebuild more than 5,000 homes.

The oversight, which cost storm victims up to $20,000 apiece, was disclosed at a hearing in Washington by W. Craig Fugate, head of the Federal Emergency Management Agency. He blamed the mistake on a "training issue" and said it fits into a broad pattern of underpayments by the government-run insurance program after the 2012 storm.

"Too often times in government we are more focused on not making an overpayment," Fugate said Tuesday. "Somehow, that bled into the flood-insurance program."

FEMA estimates that 4 percent of homeowners, or about 5,700 families, who filed claims after Sandy were not compensated for sales taxes on labor and building supplies, a spokesman said Thursday.

On Long Island, where the sales tax is 8.6 percent, storm victims were shortchanged about $8,600 for every $100,000 in storm damage. In New Jersey the sales tax is 7 percent.

Lawyers for storm victims say FEMA is vastly understating the problem's scope. John W. Houghtaling, whose Louisiana law firm filed about 1,200 lawsuits after Sandy, estimated that adjusters failed to include sales tax in more than 80 percent of claims.

"FEMA's estimate of 4 percent is shocking," said Houghtaling, who in March filed several class-action suits accusing the flood-insurance program of omitting sales tax.

The problem, Fugate said, hinged on computer programs used by adjusters to calculate cost for rebuilding storm-damaged homes. Those reports, which dictated how much each homeowner received, included line-by-line estimates for labor and supplies. To calculate the tax, adjusters needed to click on -- or check -- a special box.

"It wasn't getting checked," Fugate said.

Fugate's acknowledgment comes as FEMA continues to grapple with fallout from allegations that engineering reports were routinely rewritten after Sandy in an effort to underpay homeowners. In November, a federal judge concluded that the practice was widespread.

Since then, two top officials at the National Flood Insurance Program have stepped down. And the agency has initiated talks to settle roughly 1,800 lawsuits filed after Sandy by homeowners in New York and New Jersey who say they were underpaid on flood-insurance settlements.

FEMA is also establishing a process for all 144,000 Sandy victims who filed flood-insurance claims to have their cases reviewed. Those reviews, scheduled to begin next month, are designed to compensate anyone who was underpaid, including those whose settlements didn't include the cost of sales tax.

Still, lawmakers say they are growing impatient with the agency's reform efforts.

"I have real concerns about the road ahead," Sen. Kirsten Gillibrand (D-N.Y.) told Fugate during this week's hearing. "I am not convinced that FEMA's actions have matched its rhetoric."

More news