Tag Archives: Superstorm Sandy

After Ida, A Look At Sandy’s Flood Insurance Lessons

This article originally ran in Law360 on October 1, 2021. All rights reserved.

Hurricane Ida once again exposed our nation’s severe vulnerability to natural disasters. One-hundred-year storms are now pummeling us on what seems to be an annual basis. The breadth of Ida’s impact was unique, however, leaving a swath of destruction from the Gulf Coast to the East Coast.

While floods are the nation’s most common natural disaster, less than 1 in 10 Americans are adequately insured against flooding, according to a study conducted by ValuePenguin.com in 2019. That same study revealed that although 91% of homeowners have homeowners insurance, only 7% have flood insurance.

But, those are just broad averages. The residents of those states most prone to flooding are much better protected. For example, as might be expected, homeowners in Louisiana and Florida are insured for floods at far greater rates than the average — 44% and 36%, respectively.

Unfortunately, that means that homeowners in other states are insured at rates much lower than the average. For example, homeowners in Pennsylvania and New York — two of the states hit hardest by Ida — are insured only at the rate of 1.7% and 4.6%, respectively.

The National Flood Insurance Program

Damage resulting from floods is typically excluded under standard property insurance issued to home and business owners. Those seeking insurance must purchase a separate flood insurance policy. Flood insurance is available through the National Flood Insurance Program, or NFIP, administered by the Federal Emergency Management Agency, and from many private insurers.

Congress created the NFIP in 1968. It makes federally backed flood insurance available in communities that agree to adopt and enforce floodplain management ordinances.

For the most part, flood insurance policies under the NFIP are issued by private insurers through the Write Your Own, or WYO, program, started in 1983. As of September 2020, 60 insurance companies participated in the WYO program. Those private insurers issue flood insurance policies and adjust flood claims on behalf of the federal government. In 2019, 88% of NFIP policies were issued through the WYO program.

Flood Insurance Claims Are Undervalued

Unfortunately, even those with flood insurance may still be up the proverbial creek without a paddle. FEMA publishes statistics that reveal systematic underpayments of flood insurance claims.

Using Superstorm Sandy as an example, nearly 144,400 policyholders filed flood insurance claims. When numerous problems, including fraud, were uncovered in connection with the adjustment of those claims, FEMA offered those policyholders an opportunity to have their claims re-reviewed.

Over 19,000 Sandy claimants took advantage of that opportunity. As of January 2018, 17,854 of those re-reviewed claims were resolved with the policyholder agreeing to accept the amount as adjusted by the insurer. Of those resolved claims, nearly 85% of the claimants received additional payments totaling $258,648,226 — or nearly $14,500 for each underpaid Sandy claimant.

Take a moment to reflect on those statistics. FEMA’s own internal re-review process revealed initial underadjustments in 85% of the flood insurance claims that were submitted in the aftermath of Superstorm Sandy. Based on that large sample, if every one of the 144,000 Sandy claimants had sought a re-review, the underpayments could have approached $2 billion.

But the evidence of underadjustments does not end there. If a Sandy claimant was not satisfied with the FEMA re-review, they were entitled to a third-party neutral review by, for example, a retired judge. Approximately 2,500 Sandy claimants requested a third-party neutral review. As of Dec. 14, 2017, 2,082 third-party neutral reviews had been completed.

In nearly 11.5% of those cases, additional payments were deemed due and owing. Total additional payments of $44,603,756 were paid in connection with those third-party neutral reviews or approximately $187,000 for each underadjusted claim.

But, there is still more. Sandy claimants that remained dissatisfied with the FEMA processes, including the re-review and third-party neutral review, were able to pursue litigation. Nearly 2,000 Sandy-related flood insurance cases were filed against NFIP insurers in the federal district courts of New York and New Jersey. As of February 2018, 1,631 have been settled, with checks issued totaling $164,320,515, or approximately $100,000 per claimant.

Lessons Learned

Those that have suffered, or may in the future suffer, a flood loss can learn several valuable lessons from the experience gained in connection with Superstorm Sandy, Ida and other recent natural disasters. Those lessons can be employed both before and after the next storm.

Before the Storm

Every homeowner, renter, business owner, nonprofit and public entity should reevaluate its need for flood insurance. Flood risks that were not apparent just a few years ago are all too real in today’s climate. You can determine if you are located in a high-risk flood zone by looking up your address on the FEMA Flood Map Service Center.

Even if your home or entity is not located in a high-risk zone, the purchase of flood insurance should be considered. No property has zero risk of flooding. Indeed, 25% of all flood insurance claims are made in low-to-moderate flood risk areas.

After the Storm

If loss is sustained by those who have not purchased stand-alone flood insurance, all is not lost. Often flooding is accompanied by other causes of loss that may be covered under more commonly purchased property insurance policies that otherwise exclude flood losses. All available insurance should be examined for potential coverage.

For example, much of the damage caused by Ida in the Northeast was by reason of wind as opposed to flood. Wind damage is typically covered under standard form property insurance policies, including homeowners policies.

By way of further example, after Hurricane Katrina, many businesses argued that flooding was not the cause of their losses. Rather, those businesses contended that their losses were caused by the failure of a negligently constructed levy system. While that argument was ultimately rejected in 2007 by the U.S. Court of Appeals for the Fifth Circuit in In re: Katrina Canal Breaches Litigation after extensive proceedings, it reveals how some creative thinking may uncover coverage where none was perceived initially.

When multiple causes of loss are at issue, however, anti-concurrent causation, or ACC, clauses are often implicated. ACC clauses typically provide that when a loss is caused by a combination of covered and excluded causes, the resulting loss will not be covered.

A typical ACC clause states: “We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”

Insurers often take the position in denying coverage that ACC clauses remove coverage for wind damage if a flood happens at about the same time, which will likely be a serious issue in property damage claims resulting from Hurricane Ida.

Policyholders that suffer a loss after purchasing flood insurance should anticipate and be prepared for FEMA, NFIP insurers and private flood insurers to initially undervalue their claims. While that shouldn’t be the case, the experience after Sandy proves once again that insurers have a strong financial incentive to undervalue claims.

The experience after Sandy reveals further that an insurer’s initial adjustment should never be accepted without a critical review. Policyholders should remain vigilant in the face of an initial undervaluation of their flood insurance claim. Any avenue for further review and reconsideration should be pursued.

The most common issues of dispute in the adjustment flood insurance claims concern the scope of necessary repairs, the actual costs of those repairs and whether the claimed damage was preexisting.

While it shouldn’t be the case, often maximizing insurance recoveries can only be accomplished with the threat of, or the commencement of, litigation. Certainly, that was the lesson learned from Sandy, where successful litigants received an additional $100,000 on average.

Lee Epstein is a shareholder and chair of Flaster Greenberg’s Insurance Counseling and Recovery Department. He represents corporate and individual policyholders in recovering insurance in response to an array of hazards and catastrophic property and business interruption losses. He advises market leaders in the airline, chemical, construction, financial services, food, HVAC&R, packaging, retail and satellite television industries. Lee is currently litigating insurance coverage disputes throughout the state and federal courts of the United States. He can be reached at 215.279.9380 or lee.epstein@flastergreenberg.com.

Matthew Goldstein is a shareholder and member of Flaster Greenberg’s Insurance Counseling and Recovery and Litigation Departments, focusing his practice on complex commercial and corporate litigation in both state and federal courts. Matthew specializes in securing insurance recoveries for corporate and individual policyholders and representing clients in business disputes and financial litigation. He can be reached at 215.279.9392 or matthew.goldstein@flastergreenberg.com.

New Jersey Court Sets Limits For Enforcement Of Mandatory Arbitration Clause


Companies considering including a provision requiring arbitration of disputes in their contracts can learn valuable lessons from a recent New Jersey appellate court decision.  The court’s opinion highlights the pitfalls of relying upon an imprecisely drafted and/or one-sided arbitration clause, especially in a consumer contract.  Despite the continuing rise in popularity of arbitration clauses and the strong preference for arbitration under both federal and New Jersey law, the case reminds us that not every arbitration agreement will be enforced.


Analysis of early impact of the revised federal rules of discroty.

In Dvorak v. AW Development, LLC, (N.J. App. Div. January 13, 2016), homeowners contracted with AW Development to construct and install a two-bedroom prefab ranch home after their previous home had been destroyed by Superstorm Sandy.  Disputes arose about whether the house was timely delivered.  Despite a provision in the contract seemingly requiring non-binding arbitration, the homeowners filed a lawsuit in New Jersey state court alleging breach of contract and other causes of action.  The trial court granted AW’s motion to dismiss the complaint on the basis of the non-binding arbitration provision, and the homeowners appealed.

The Contract’s Arbitration Clause.

The arbitration clause in the contract said, in relevant part:

Any claim arising out of or related to this Agreement shall be subject to non-binding arbitration . . . in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect. . . .  [T]his paragraph does not preclude [AW Development] from seeking prejudgment remedies and/or emergency relief from a court of equity or other court of competent jurisdiction.  Buyer may not seek such prejudgment/emergent relief under any circumstances.  EACH PARTY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR OTHERWISE RELATING TO THE RELATIONSHIP OF THE PARTIES, WHETHER IN CONTRACT, TORT OR OTHERWISE.  (emphasis in original)

The Court’s Decision.  

  1. Imprecise Contract Language.

An arbitration clause will be enforced only when it is the product of mutual assent and clearly explains to the parties that they are waiving their right to go to court.  If arbitration is intended to be a mandatory condition that must be satisfied before a lawsuit can be filed, the contract must clearly say so.  Because this contract did not clearly state that arbitration was a condition precedent to filing a lawsuit, the court ruled that it was not.  In the court’s opinion, the statement in the contract that claims “shall be subject to non-binding arbitration,” does not expressly or impliedly prohibit a party from filing suit or empower another party to force the dispute into arbitration after a lawsuit has been filed; it merely says the parties agree to non-binding arbitration if one of them demands it.

Next, the court took issue with the fact that the jury waiver provision had a broader reach than the arbitration clause.  The latter applied only to “claims arising out of or related to this Agreement,” whereas the jury waiver provision applied additionally to claims “relating to the relationship of the parties, whether in contract, tort or otherwise.”  Certain claims, therefore, could be subject to the jury waiver but not the non-binding arbitration clause.  That inconsistency also led the court to conclude that the arbitration provision was unenforceable.

Finally, with regard to the precision of the non-binding arbitration clause, the court found fault with its reference to “the Construction Industry Arbitration Rules of the [AAA],” because those rules do not include a provision for non-binding arbitration.  For all these reasons involving imprecise drafting, the court found that the arbitration clause did not clearly and unambiguously require the parties to arbitrate their claims before filing a lawsuit.

  1. Unconscionable Contract.

Even if this arbitration clause had been precisely drafted to bar a lawsuit, it would have been unenforceable, nonetheless, because it is an unconscionable contract of adhesion.  A contract of adhesion is one drafted solely by a party with superior bargaining power and imposed on the other party as a “take it or leave it” proposition.  Although calling a contract one of adhesion sounds pejorative, such contracts are, in fact, enforceable unless they are unconscionable in content.  Here, the court found the contract was so unfairly one-sided that it was unenforceable.  Among other reasons, the contract was objectionable because it allowed AW, but not the homeowners, to cure defects, and because it allowed AW, but not the homeowners, to seek recovery of consequential damages.  Such provisions, the court held, reflect the unequal bargaining power of the parties.  The most egregious discrepancy was in the arbitration provision itself.  That clause gave AW, but not the homeowners, the right to seek injunctive and emergent relief from a court without regard to the arbitration requirement.  As the court put it, “[t]his grossly imbalanced approach to the availability of interlocutory or emergent relief constitutes harsh and unfair one-sided terms that do not deserve judicial enforcement.”


  • First, define all contract terms and reference arbitration rules and procedures that actually exist. If your contract calls, for example, for arbitration under the rules of the American Arbitration Association, make sure that the AAA rules and procedures provide for the type of arbitration your contract mandates.
  • Second, your contract must state that the parties are waiving their legal right to go to court and have a jury trial and are agreeing instead to refer their disputes to arbitration. If the intent is to make arbitration non-binding, but a prerequisite to filing suit, the agreement must expressly state those terms.
  • Third, be fair in allocating rights and privileges under the contract and resist the temptation to give the company, but not the other party, a procedural or substantive advantage unless there is an objective rationale for doing so. Courts do not look kindly on contracts that provide for disparate treatment of the parties without justification, and any attempt to use superior bargaining power to gain an unfair advantage over an adversary might backfire.
  • The same dynamics at play in this case involving a consumer contract are frequently found in employment agreements, which are also prone to contracts of adhesion. An employer that chooses to implement mandatory arbitration agreements with its employees should ensure that the contracts are even-handed and comply with other legal requirements the courts have imposed on employment arbitration agreements.

Philip Kirchner is a member of Flaster/Greenberg’s Litigation Department headquartered in Cherry Hill, NJ. He concentrates his practice on resolving business disputes, including complex litigation of all types of business issues in both the federal and state courts of New Jersey and Pennsylvania. He can be reached at 856.661.2268 or phil.kirchner@flastergreenberg.com.

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