FEMA Will Ban Problem Insurers, Pay Hurricane Sandy Flood Victims 'Every Penny' They Deserve: Senator Menendez

A top FEMA official has committed to cleaning up the embattled National Flood Insurance Program by banning any insurance company or engineering firm shown to have acted in bad faith, or to have committed fraud, against Hurricane Sandy victims. The official, Brad Kieserman, said the agency will also establish a process to review cases of claims that were lowballed or fraudulently denied.

The measures were announced Wednesday night by U.S. Sen. Robert Menendez, one of four senators who earlier this week requested Congressional oversight hearings into mismanagement and potential criminal activity within the federal flood insurance program. FEMA oversees the primary source of flood insurance protection for homeowners, and contracts with private insurance carriers to help serve 5.3 million policyholders.

Allegations that insurance companies relied on fraudulently altered engineering reports to reduce payouts after Sandy -- the second costliest storm in U.S. history -- have roiled the program, and led to an ongoing criminal investigation in New York. Last month FEMA appointed Kieserman as deputy associate administrator to lead settlement negotiations with homeowners, and to create a framework covering some 2,000 cases pending in New York and New Jersey courts.

As Kieserman and plaintiffs' attorneys hash out the details, lawmakers have continued to voice concerns that not all evidence has come to light, and that not all homeowners affected by bad practices had the chance, or the means, to file a lawsuit.

Menendez, who chaired a Senate hearing last summer on Sandy claims payments, spoke with Kieserman Wednesday evening by phone about the next steps in resolving individual insurance claims and reforming the program. The senator called it a "very frank and productive conversation" in which Kieserman pledged that FEMA will "take aggressive steps to make sure victims of Superstorm Sandy get every penny to which they're entitled."

"Importantly, that means creating a process to not just review cases in litigation, but all cases in New Jersey where there were questionable practices," Menendez stated, according to a release from his office.

During the call, Menendez said, “Mr. Kieserman also assured me that he would take steps to ban any engineering firm or insurance company that acted in bad faith or committed outright fraud from the National Flood Insurance Program (NFIP)."

Menendez said he would monitor these "positive steps" through a task force that is examining short- and long-term reforms of the program. Private insurers have partnered with the NFIP since 1983. Known as "Write Your Own" carriers, or WYOs, these insurance companies collect fees for selling policies and for handling claims after a flood. But, ultimately, they pay all the claims with dollars from the U.S. Treasury.

The Government Accountability Office has kept the NFIP on a "High Risk" watch-list of government programs since 2006, after losses from Hurricane Katrina sent the NFIP spiraling into debt. The flood insurance program currently owes the U.S. Treasury $23 billion.

Menendez has questioned FEMA on whether a penalty structure, applied in the wake of Katrina, created heavy incentives for insurers to avoid overpayments and err on the side of underpaying claims. His task force is reviewing that issue, along with general oversight of the insurance carriers in the program, and FEMA's own appeals process for claims -- the subject of a recent Freedom of Information Act lawsuit.