“That's not fair”: Federal insurance program falls short for flood victims

A CBS News investigation reveals that a federal fund intended to protect flood victims often benefits private insurance companies instead. The National Flood Insurance Program, run by FEMA, is $25 billion in debt. In some years, up to two-thirds of the money that’s supposed to help flood victims goes to private insurance companies and the attorneys they hire to fight flood claims.

When record floods hit Louisiana in 2016, 150,000 people had damage to their homes with an estimated cost of $15 billion. Two years later, many homeowners are still struggling to rebuild  –  and fighting the same companies and lawyers that they fund with their premiums and taxpayer dollars, reports “CBS Evening News” anchor Jeff Glor. 

Ricky Wall and Melissa Miles were trapped in their home for three days when flooding hit Louisiana in 2016.
“It was coming so fast, it was white-capping over the roads,” Wall recalled.
Covered in sewer water, they thought things couldn’t get worse. Their home was ruined, but they had a flood insurance policy, that they were required to buy, worth $176,000.
“The insurance company was a nightmare,” Wall said. “It was–” 

“Almost as bad as the flood,” Miles added.

“I about had a stroke fighting with them people every day,” Wall said.

Flooding at the home of Ricky Wall and Melissa Miles

When insurance didn’t pay enough to fix their home, they had to come up with the cash themselves to do it. So they decided to fight the National Flood Insurance Program for lowballing them. They are still fighting for $40,000.
“This is ridiculous that I’m paying for something that I have to fight for,” Wall said.

Run by FEMA, the National Flood Insurance Program is responsible for all flood policies in the U.S. Insurance premiums and taxpayer dollars fund the program, about $3 billion a year. But FEMA doesn’t administer all the policies. It outsources to private insurance companies called Write Your Owns – or WYOs. They and all of their agents get paid out of the same pot of money as flood victims. 

Some years up to two thirds of that pot goes to WYOs and the attorneys they hire to fight against flood victims. In effect, by paying their premiums on time every year, homeowners like Wall and Miles help fund the very lawyers fighting them in court.


Melissa Miles and Ricky Wall

CBS News

“How can they sleep at night doing us what they done?” Wall said.

Wall’s insurance company hired the Louisiana law firm of Gerald Nielsen to fight Wall and Miles’ claim. Nielsen’s firm has been fighting flood claims on behalf of insurance companies for over 30 years, not without controversy.
After Superstorm Sandy, Congress criticized Nielsen’s firm for how it defended WYOs whose engineers allegedly altered reports to avoid paying claims.
“He dealt with Sandy victims like they were the perpetrators, enriching himself at their expense,” New Jersey Sen. Robert Menendez said at the congressional hearing. 

A New York judge called Nielsen’s firm “misconduct” in one Sandy case “remorseless” for delaying cases at taxpayer expense. 

To give you an idea of the costs involved here, you can rent a 1965 Bentley Silver Cloud for just under $1,000 for the afternoon. Nielsen’s office spent five times that to ship documents to a law office from one that’s half a mile away.
CBS News obtained a budget, drafted in 2014 for a Sandy case, showing Nielsen’s firm estimated that a single case would cost $188,000 taxpayer dollars if it went to trial. The cap on any home flood policy is $250,000.
Nielsen didn’t want to talk to us about his fees and expenses when we caught up with him in the parking garage by his office.
“I’ve got to go through ethics counsel because some of which you’ve asked clearly is privileged,” Nielsen said.

A public information request revealed FEMA paid Nielsen’s firm at least $29 million for Sandy cases alone.

“Things need to change. Somebody needs to do something about it,” Wall said.

Wall hired attorney John Houghtaling; his firm represents flood victims and fought in court against Nielsen’s firm during Sandy.
“There was no effort to mitigate the costs. In many cases we were asked to have experts reinspect for a third time homes that were totally destroyed,” Houghtaling said.

FEMA said it has no authority to fire lawyers hired by private insurance companies.
“They’re jacking around policy holders. That’s unacceptable and somebody’s gotta do something about it, and by God it’s supposed to be FEMA,” Louisiana Sen. John Kennedy said. He has a bill to change that.
“Once they get that authority, I will chase them like a hound from hell until I find out that they’ve fixed this problem because I believe that there is a problem,” Kennedy said.
Homeowners like Wall wish FEMA had tightened its belt before making him pay out of his own pocket.

“That’s not fair. And they say that’s the American way? That’s not fair,” Wall said.

Nielsen said in a letter to CBS News he could not talk about his fees and expenses, but that he was acting at the direction of his clients and that all of his firm’s bills were reviewed by the clients and FEMA. FEMA responded to our report, saying it will pay “every dime” policyholders are due and that it has created an oversight team to address billing and other litigation matters.

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