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Sandy legal bills could hit $100 million, should be audited, Gillibrand, Schumer say

An empty lot on Michigan Street in Long

An empty lot on Michigan Street in Long Beach on Thursday, Nov. 13, 2014, where a home damaged by superstorm Sandy used to stand. Photo Credit: Johnny Milano

Sens. Kirsten Gillibrand and Charles Schumer asked yesterday for an audit of the National Flood Insurance Program's legal bills for superstorm Sandy, saying they could cost taxpayers a record $100 million.

The flood insurance program, run by the Federal Emergency Management Agency, faces more than 1,000 lawsuits in New York alone from homeowners who say they were underpaid on Sandy claims. The senators, both Democrats, asked the Government Accountability Office to investigate whether the private lawyers defending those suits are delaying cases and refusing to settle in order to pad their bills.

"FEMA should be serving as a watchdog for the families trying to rebuild from Sandy and the American taxpayers," Gillibrand said. "Over $100 million in potential legal fees just doesn't add up."

That nine-figure estimate would exceed the total amount FEMA paid in legal fees for Hurricane Katrina, Ike and all other storms in the last 20 years combined, according to a court filing.

A spokesman for the GAO said the agency was reviewing the request for an audit. A FEMA spokesman declined to comment.

Flood insurance is funded by the federal government, but FEMA hires Allstate and other insurers to administer the policies. Those companies, in turn, hire private lawyers when sued by homeowners. Yet Washington pays the legal bills. As of last week, FEMA had paid $12.4 million to defend Sandy suits. But only a small fraction of the more than 2,000 cases initially filed has been resolved.

The estimate that Sandy legal bills could top $100 million came in a letter to a federal judge from Gerald J. Nielsen, whose Louisiana law firm has long defended companies that administer flood policies. Nielsen, who is working on more than a dozen New York Sandy cases, blamed the high cost on homeowners, saying they have refused to turn over contractor invoices, receipts and other evidence.

In their letter to the GAO, Gillibrand and Schumer said FEMA failed to audit the flood program's legal expenses between 2000 and 2007. Plus, the senators said, FEMA is incurring unnecessary travel expenses by hiring Louisiana lawyers to defend New York cases.

The result, the senators said, is that FEMA could wind up paying more to lawyers than it does to settle lawsuits with homeowners trying to rebuild.

The request for an audit comes after a federal judge's ruling saying engineers working on flood insurance claims may have secretly rewritten reports to deny homeowners' claims. FEMA is investigating the allegation.

"Clearly, the time has come," Schumer said, "for an independent investigation into the tactics that flood insurance companies may be using to avoid paying Long Island policyholders the funds that they so desperately need."

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