Underinsured state pays the price

The government's insurance oversight could cost local municipalities millions. Just one more reason to make sure clients have sufficient coverage.

Insurance News

By

On top of the nightmare insurance scenarios for families affected by hurricane Sandy, it appears as if the state of New Jersey now also has a crisis on its hands as a joint flood coverage insurance policy appears to have been severely underestimated. 

For starters, there are 19 joint insurance funds in the state of New Jersey, including the Monmouth joint insurance fund (38 towns) and the Ocean joint insurance fund (31 towns). 

According to reports, the pool of money for all 385 municipalities’ flood coverage was capped at $50 million when Sandy wreaked havoc on the states seaside towns. 

Unfortunately for the state, David Grubb, executive director of the New Jersey Municipal Excess Liability Joint Insurance Fund, estimated that total flood claims to the joint insurance funds may come in between $60 million and $65 million.

Attorney Chip Merlin, who specializes in suing on behalf of policyholders after hurricanes, described the policy as "woefully" underinsured. His firm is representing more than 20 towns in negotiations with the New Jersey Municipal Excess Liability Joint Insurance Fund and the policy provider, Zurich Insurance.

"Most of these towns sit right next to the Atlantic Ocean," he said. "This policy should have been reworked after (2011's Hurricane) Irene."

Not only was the state underinsured but during the corresponding chaos several claims were mishandled. For instance, some of the claims that should have been handled by the Federal Emergency Management Agency were paid out by the policy provider, Zurich Insurance. The aforementioned mistakes quickly depleted what was available for qualifying damages. 

"If Zurich had applied the policy the way we understood at the time the policy was bought, the limit would have been adequate even with the magnitude of the storm," said Grubb.

Grubb said the limit on flood damages has been raised by 50 percent to $75 million for 2014 and the terms and conditions were "tightened up.".
"If you had a Sandy-magnitude storm, we would not exceed the limits today," he said.

Keep up with the latest news and events

Join our mailing list, it’s free!