Inquiry sought on flood payoffs

Smith asks U.S. attorney to investigate company hired to process claims

`Just sitting on its hands'

Isabel victims await damage reassessments

May 09, 2004|By Andrew A. Green | Andrew A. Green,SUN STAFF

Baltimore County Executive James T. Smith Jr. has asked the U.S. attorney's office to investigate whether the company hired by the federal government to process flood insurance claims is "thwarting" the efforts of Tropical Storm Isabel victims to receive fair settlements.

Smith has raised questions about flood insurance payments since December. He said that he passed on information to the U.S. attorney's office at a meeting last week because he believes it has the resources and federal jurisdiction necessary to investigate the conduct of the government subcontractor, California-based Computer Sciences Corp. and to ensure it "operates with the highest integrity and ethics."

"Some of our Baltimore County families are still in FEMA trailers, and it appears, as far as I'm concerned, that CSC is just sitting on its hands," Smith said. "There are just too many of our victims who question whether the very government contractor, CSC, that was hired to serve them is thwarting the settlement of their claims."

CSC spokesman Charles Wilkins said the company was unaware of Smith's complaints and would not comment on his request to the U.S. attorney's office. The spokesman added that the company is cooperating fully with the National Flood Insurance Program in the re-evaluation of claims.

A spokeswoman for the U.S. attorney's office declined to confirm or deny whether an investigation is under way. U.S. attorney offices handle criminal matters and civil cases in which the United States is a party. The office's mission statement also says U.S. attorneys have the discretion to use their resources to "further the priorities of the local jurisdictions and needs of their communities."

After Isabel struck in September, property owners filed more than 24,000 claims with the government's National Flood Insurance Program.

Widespread complaints from Maryland, Virginia and North Carolina - areas where hundreds of victims have yet to return to their homes - led NFIP Director Anthony S. Lowe to acknowledge that the program didn't work properly.

In addition to proposing reforms, he took the unprecedented step of offering to re-evaluate any claims in which the policyholder isn't satisfied.

As of last week, the NFIP had received 948 requests for claims reviews. A total of 273 have been re-evaluated, and inspectors found that 33 policyholders deserve more money, an average of more than $15,000 each.

Victims' complaints have drawn the attention of local, state and federal officials, who have questioned how adjusters determined repair and replacement costs for homes.

The manner in which adjusters are paid has also been noted as potentially creating incentives for low settlement offers.

Focus on CSC

But in recent weeks those looking into the problems apparently have increasingly focused on CSC, a company with billions in federal contracts, including one through a subsidiary to train Iraqi police.

The company, known as the "Bureau and Statistical Agent" for the NFIP, handles the day-to-day administration of the flood insurance system. Federal flood officials have given CSC responsibility for heading up the re-examination of claims.

Smith said he believes CSC rigidly enforced the use of guidelines it developed for pricing repair and replacement costs, leading to artificially low settlements.

He questions whether the company is hindering the efforts of NFIP officials to ensure fair settlements to Isabel claims and is ignoring direction from Congress on how settlements should be made.

The conclusions, he said, are based on conversations with flood victims, meetings involving flood victim activist Steve Kanstoroom and top NFIP officials that Smith attended, and documents that Kanstoroom gave him, including letters to and from victims, federal regulations, contracts and other materials.

Maryland Insurance Commissioner Alfred W. Redmer Jr. said last week that his office has undertaken an investigation of complaints from Isabel victims in recent months and is nearing a report on its findings, which he declined to discuss in detail.

However, he agreed with Smith's contention that the price guidelines CSC produced were used improperly.

"CSC, they indicated that the guidelines aren't created for use in estimating damages or making claim offers. However, it's clear that some adjusters or third-party administrators, I believe, are using guidelines for that specific purpose," Redmer said.

In response to a March inquiry about the price guidelines, CSC released a statement saying they are produced with the guidance of the Federal Emergency Management Agency, of which the NFIP is a part.

The guidelines, the statement says, are created by using construction-cost estimation databases and take into account local labor costs and surveys of local hardware and lumber dealers.

"This guide is merely a reference tool for adjusters in order to assist them in establishing fair and equitable costs," the statement says.

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