Lawsuit Focuses on Flood Insurance Claims, Classification of Basement

A recently filed class action lawsuit in New Jersey is alleging “improper handling” of certain flood insurance claims arising out of Hurricane Irene in 2011 and Superstorm Sandy in 2012.

The lawsuit focuses on the classification of the lowest floor of the buildings and whether classifying such floors as “basement” — as that term is defined in the FEMA flood policy — may be inaccurate in some cases.

The lawsuit was filed at the U.S. District Court for the District of New Jersey on Dec. 13 by New Jersey-based law firm of Jeffrey A. Bronster. The insurers named in the court documents include: New Jersey Re-Insurance Co., Assurant Insurance Group, Fidelity National Property & Casualty Insurance Co., Hartford Fire Insurance Co. Liberty Mutual Fire Insurance Co., Selective Insurance Co. of America, Philadelphia Contributionship Insurance Co., State Farm Fire and Casualty Co. and Travelers Insurance Cos.

According to the complaint, the class action has been filed on behalf of all insureds in the State of New Jersey, but also contains sub-classes specifically focused on business and property owners in Jersey City and Hoboken, two areas that were particularly hard-hit.

The class action lawsuit charges that after last year’s Irene, the insurance companies — which write FEMA flood policies under the “Write Your Own” program — allegedly denied certain claims based upon what the lawsuit calls “a misinterpretation or misapplication” of the term “basement” in the policy.

The lawsuit is seeking compensation for insureds whose claims were allegedly improperly handled. The complaint goes on to allege that some claims for the more recent Superstorm Sandy are being similarly mishandled. A number of industry representatives, who declined to be identified, disputed the lawsuit’s allegations and said that insurers strictly follow federal guidelines.

New Jersey Re-Insurance (an NJM Insurance subsidiary), Assurant, The Hartford, Liberty Mutual and Travelers declined to comment on pending litigation. Philadelphia Contributionship and Fidelity National were not immediately available for comment. State Farm and Selective Insurance said they recently received notice of the suit and are reviewing it.