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Insurers agree to cover legal bills for about 135 storm victims

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

After weeks of deadlock, talks to settle hundreds of lawsuits from superstorm Sandy inched forward Monday as 11 companies agreed to cover legal bills for homeowners defrauded on flood insurance claims.

The concession to pay attorneys' fees for roughly 135 storm victims whose claims involved disputed engineering reports breaks a two-week impasse. Yet, the offer would still leave most of the 1,800 homeowners with pending suits in New York and New Jersey to pay for their own lawyers.

"It's progress," said Steve Mostyn, an attorney for storm victims who is leading the talks. "We were in the ditch, and now we are on the shoulder."

The break in the impasse came during a conference in Brooklyn called by a panel of federal judges overseeing the cases from the 2012 storm.

The Federal Emergency Management Agency, which runs the flood insurance program, initiated the negotiations in February after one of the magistrates, Judge Gary R. Brown, concluded that a report was forged to deny a claim in Long Beach and said the effort may have been widespread. The allegations have led to a criminal probe targeting two engineering firms.

The talks, however, broke down after FEMA concluded federal law prohibited the agency from paying legal bills, which could amount to one third of any settlement homeowners receive. Instead the private insurers, which process claims on behalf of the government, agreed to pick up the tab in cases involving the engineering firms under investigation.

Monday's conference yielded little change in discussions over whether storm victims who received grants from the state's disaster recovery program, New York Rising, will be forced to return that money if they accept larger payments to settle their lawsuits.

The program, funded by the U.S. Department of Housing and Urban Development, is barred from paying for expenses covered by insurance. Grants were calculated based on how much homeowners received from flood insurance before they sued. So if pending lawsuits lead to larger insurance settlements, the grant calculations may change, forcing homeowners to return money.

FEMA released statistics Monday estimating that about one third of the roughly 900 lawsuits pending in New York were filed by homeowners who received grants from New York Rising. (Lawyers for homeowners had estimated earlier that more than half the cases involved the program.)

Brad J. Kieserman, who is leading the negotiations for FEMA, said it is too early to tell how many of those homeowners would be obligated to return grants.

"For some people it may be nothing," he said. "For others it may be the entirety of the settlement proceeds."

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