Class action suit filed for Isabel flood victims

Attorneys claim insurers cheated policyholders

May 12, 2004|By Andrew A. Green | Andrew A. Green,SUN STAFF

A Washington law firm filed suit yesterday in federal court on behalf of thousands of Tropical Storm Isabel victims, alleging that seven insurance companies systematically sought to shortchange flood policyholders.

The class action suit, apparently the first ever to target private insurance companies for their handling of policies from the federal government's flood insurance program, claims that victims were coerced to sign "proof of loss" forms that understated their damages. The suit also alleges that the insurance companies employed price guidelines that significantly underestimated the cost of labor and materials.

"After everything I've read and all the people I've talked to, I'm sickened, but I'm also sort of amazed by the consistency of how they've been treated," said Andrew Friedman, an attorney for Cohen, Millstein, Hausfeld and Toll, which filed the suit in U.S. District Court in Baltimore. "It's nothing short of amazing."

The plaintiffs are not requesting a specific amount of money, but they are asking:

That the insurance companies recalculate Isabel claims using appropriate price estimates for materials and labor.

That the companies refund flood insurance premiums that victims paid for policies in effect during the month when the storm hit.

That the companies be stripped of all profits and compensation they received for selling and servicing the policies.

The complaint names seven plaintiffs from Anne Arundel, Baltimore and Talbot counties, but the suit could possibly affect 24,000 people from six states and the District of Columbia who filed claims after the storm.

They, like many others, were told that if they did not sign a "proof of loss" form prepared by an adjuster before a deadline, they would receive nothing, Friedman said. And in many cases, the policyholders weren't told that the deadline had been extended, he said.

The suit also claims that because adjusters are only paid after a claim is settled, they have an incentive to push flood victims into quick settlements and to err on the side of caution in deciding how much to offer, for fear that their work would be overruled by the third-party administrators who review claims.

Charlene Kotrla, whose husband, Frederick, is one of the named plaintiffs, said the attorneys who filed the suit asked them not to discuss it.

But Bernice Myer, a flood victim from Millers Island who has been a leader in the effort to have settlements re-evaluated, said a class action lawsuit is crucial because individual suits aren't feasible.

"By the time you pay attorneys fees and court costs, you could end up in the hole financially," Myer said. "As an individual, you're standing in front of a double-barreled shotgun and hoping for the best."

The defendants are: State Farm Insurance Companies, Omaha Property and Casualty, Travelers Property and Casualty, USAA General Indemnity Company, Selective Insurance Company of the Southeast, Indemnity Insurance Company of North America, and Harleysville Mutual Insurance Company.

All seven companies either did not return phone messages yesterday or declined to comment because they had not had a chance to review the suit.

Flood insurance is a federal government program, but in the 1980s, in an effort to encourage more people to buy coverage, the National Flood Insurance Program created a system in which private insurance companies sell and service policies.

The suit comes amid the largest re-evaluation of claims in the history of the NFIP. Recognizing the widespread complaints from flood victims in the wake of Isabel, NFIP Director Anthony S. Lowe said in March that the agency would re-evaluate any Isabel claim in which the policyholder was dissatisfied.

Steven B. Larsen, the former Maryland insurance commissioner who wrote a report on Isabel claims, said the filing of the suit was only a matter of time. "I think it was inevitable that a class action lawsuit would be filed based on the initial disclosures that have been made about the handling of claims," he said.

Loretta Worters, a spokeswoman for the New York-based Insurance Information Institute, said this is the only instance she knows of in which private companies have been sued over federal flood claims. She questioned whether the lawsuit was appropriate since flood insurance is a federal program.

Friedman said the private insurance companies are the proper target because the policies are a contract between the policyholders and the companies, not the government.

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