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'If the earth moved, you're not covered' and other Sandy blowback

After our multi-post discussion of the National Flood Insurance Program and rising premiums for Florida homeowners, we came across a story about a couple of flood insurance coverage issues that we thought worth sharing. The story does not involve Florida property owners, but it does involve hurricane-damaged homes, something many of us know well.

The homeowners and businesses affected by Superstorm Sandy last year are still dealing with the clean-up. They have learned the ins and outs of the Federal Emergency Management Agency's flood insurance program the hard way. The good news is that at least one state government has stepped in to make up for almost undecipherable claim denials.

New York Gov. Andrew Cuomo announced recently that the state will "fully compensate" property owners whose Superstorm Sandy claims were denied under their policies' earth movement exception. The state will use its share of federal disaster relief funds to make up the differences for property owners who have run up against the rule.

As one homeowner learned, the exception means there is no coverage for damage that results from "the flood contributing to differential movement of supporting soils." The homeowner said his house was damaged beyond repair by, among other things, four feet of oil-soaked flood water. The family's insurance paid just half of their limit. While the details of the state's bailout are not quite in place, it is possible that the state would kick in the other half, allowing the family to rebuild.

The house was on the Atlantic Coast, right in the path of the storm surge. It was one of hundreds of homes in New York alone that were left with cracked foundations and buckled floors when the storm passed. For Cuomo, the policy exclusion didn't make sense, so the state had to do something.

Homeowners affected by Sandy may have another problem on their hands, though, and consumer activists, attorneys and building experts believe few realize the trouble they could be in.

We'll explain in our next post.

Source: Insurance Journal, "New York to Compensate Storm Victims for NFIP’s ‘Earth Movement’ Exclusion," David B. Caruso, Sept. 30, 2013

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