Owners of hurricane-damaged homes have brought a putative class action in federal court in Newark alleging that their flood insurance carriers are short-changing them by calling their first floors basements.
The plaintiffs in Donnelly v. New Jersey Re-Insurance Co., 12-cv-7629, allege that claims for damage caused by Hurricane Sandy and Hurricane Irene under "write your own" flood insurance policies, issued by private companies and underwritten by the Federal Emergency Management Agency, are being denied due to misapplication of policy language.
FEMA policies define a basement as a space with all four walls underground, but many homes have a first floor that is partially underground, says plaintiff lawyer, Union City solo Jeffrey Bronster. The difference is significant because the policies provide lower coverage, or none at all, for damage in the basement.
New Jersey Re-Insurance Co. of Trenton denied class representative Patrick Donnelly's claim for damage caused by Irene to his Jersey City home. The insurer deemed the first floor the basement, even though the rear wall of that floor is entirely above ground.
At community meetings in Jersey City and Hoboken to discuss damage from Sandy, many residents identified disagreement over what constitutes a basement as the basis for denial of claims, Bronster says. Faced with high volumes of claims after Irene and Sandy, some insurers hired third-party adjusters who were not well-trained or experienced with FEMA policies, he adds.
The suit seeks creation of four statewide classes of claimant: Irene victims whose claims were denied over misapplication of the term basement; Irene victims who accepted less than the full value of their claims due to misapplication of that term; Sandy victims whose claims were denied over misapplication of the term basement; and Sandy victims who accepted less than the full value of their claims due to misapplication of that term.
Within each of the four classes are putative subclasses of Jersey City residents and Hoboken residents. The Jersey City and Hoboken subclasses are also proposed as fallbacks in case the statewide classes are not certified.
Bronster says he knows of some people who suffered property damage in Sandy who have been denied coverage due to the basement confusion but many others who suffered damage are still awaiting final word on their claims.
"We're hoping that by bringing this now, we may be able to help insureds in general by alerting the insurance companies that their conduct in this regard is being watched," he says.
The complaint includes claims of breach of contract and seeks compensatory and punitive damages as well as attorney fees and costs.
There are nine named defendants: New Jersey Re-Insurance Co., a subsidiary of New Jersey Manufacturers Ins. Co.; Assurant Insurance Group; Fidelity National Property & Casualty Ins. Co.; Hartford Fire Ins. Co.; Liberty Mutual Fire Ins. Co.; Selective Ins. Co. of America; Philadelphia Contributionship Ins. Co.; State Farm Fire and Casualty Ins. Co.; and Travelers Ins. Cos.
A Selective spokeswoman, Gail Petersen, said the company adjusts flood claims consistent with the applicable federal standards.
Spokesmen Glenn Greenberg for Liberty Mutual, Arlene Lester for State Farm and Shawn Kahle for Assurant declined comment.
The other insurer defendants did not respond to a reporter's calls.