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Nov 23 (Reuters) - After another day of pumping out their swampy, moldy houses, neighbors in Breezy Point in New York City huddled at the quaint generator-powered firehouse Wednesday night, stamping their feet to stay warm. Neighbors picked at food from tin cans and sipped soups from Styrofoam cups as they lamented the growing holes in a safety net they thought they had: homeowner's insurance.
"They're covering five shingles and a piece of gutter, and that's it," says Kathleen Valentine, a fire alarm dispatcher who spent the night of Superstorm Sandy working while her house filled with water and dead fish. Her insurance agent from Narragansett Bay Insurance Company said her policy would pay only for wind damage. She is still waiting for someone from the federal flood insurance program to show up.
Narragansett Bay spokesman John Houle would not comment on specific cases but said the firm is working around the clock. The company has received 90,000 phone calls and is processing 17,000 Sandy-related claims.
It's been three weeks since Sandy destroyed homes, caused fires in others, created torrents that turned thousands of basements into biohazards and smashed up sedans as they were swept down the street. Since then, as many as 40,000 New York-area residents have been living without power, heat and, in some cases, water.
Now, many people in the worst-hit communities in New York and New Jersey are starting to realize that the real hardship may yet be ahead of them, as they confront the second-largest losses from a storm in American history, behind Hurricane Katrina in 2005.
It's hardly what people anticipated the day they signed up for policies in exchange for peace of mind.
The trouble is, many homeowners don't read those policies closely enough to realize that most don't cover flooding. They don't always get both homeowner's insurance, usually provided by a private company, and flood insurance provided through the U.S. government's National Flood Insurance Program.
Only 14 percent of homeowners in the Northeast hold flood insurance policies, according to the Insurance Information Institute.
Federal law requires flood insurance to mortgage any home in a designated high-risk floodplain. But once the initial policy, usually for a year term, expires, no law says you have to renew it, and many people don't because banks don't make them.
In New Jersey, only 231,000 of the homes in the 20 coastal counties had flood insurance, according to FEMA.
Karen Clark & Co, a disaster modeling company, estimates insurers will likely receive more than 1 million claims for residential or commercial damage from Sandy, compared with 1.4 million for Katrina.
"I kind of thought my policy protected my home, my belongings, my family," says retired New York police officer Joe McMahon, of Rockaway Beach, who has three children, including one with special needs, and who had homeowner's insurance with Travelers.
So far, the only thing McMahon says Travelers will cover is spoiled food. They wrote him a check for $500. Travelers says it doesn't comment on the cases of specific policyholders. Spokesman Matt Bordonaro says the company works "closely with our customers throughout the claims process."
The government's flood damage policy can also be limited in what it will pay out. For example, there is only limited coverage for basements, usually for things like boilers and water heaters, but not for other improvements or contents.
Those limits are affecting Mary Clemente, 55. Three weeks ago she had the wardrobe of a movie star, multiple fur coats and a 1983 Mercedes SL convertible in the garage. The luxury goods have since been carted away in garbage bags and her car is a sodden mess. Clemente, who lives in Manhattan Beach, had insured it to the hilt for 30 years. Or so she thought.
Sitting in her darkened kitchen, surrounded by dead appliances and her black cat, she says the insurance adjuster was at her house only five minutes before saying Narragansett Bay would cover nothing because the damage was from a flood.
Clemente, who owns the public relations firm M3 The Image Group, has put $32,000 of repairs on her credit cards. Her federal flood insurance policy has said it will advance her $20,000 to help cover the costs, which included new electrical wiring and a new boiler. She hasn't received the check yet.
If a house is washed away, litigation can last for years. Mike Nelson, chairman of the insurance-focused law firm Nelson Levine de Luca & Hamilton, recalls one case where lawyers argued that a house must have been obliterated by water and not wind because there was flood debris on top of a tree, and the tree was taller than the house had been.
In Rockaway Park, New York City, John Lenihan, 53, lost an argument with an insurance adjuster at Allstate Corp over his destroyed basement apartment that had been filled to the ceiling with water. He argued that at least some of his broken windows were caused by wind, not water. No luck.
Because he had not bothered with flood insurance, all he was able to recoup was $2,600 for repairs to the roof of the rental property he owns next door.
"In the 30 years I've had this house, I've never put a claim in," he said. "I thought I would get more. New boilers alone cost $8,500."
Allstate says it is doing everything it can. "Our goal is to settle each claim fairly and quickly," an Allstate spokeswoman said in a statement.
The Federal Emergency Management Agency offers help for some uninsured losses, but homeowners must first file a claim and wait for word from their insurer. FEMA assistance includes temporary housing and housing repairs, as well as grants to help cover the replacement costs of personal property, cars and medical expenses. But, according to its website, FEMA's programs "are intended to meet only essential needs and are not intended to cover all losses."
Many homeowners end up filing lawsuits to get payouts from their insurers.
"Historically after a major event like this, there is a lot of litigation," said Deloitte's Mills.
In Louisiana, the state's insurer of last resort is just now, more than seven years after the storm wrecked New Orleans and other parts of the state, preparing to pay plaintiffs in a class action over Katrina related to tardy claims adjustments. The state's insurance commissioner, Jim Donelon, said he empathized with people in the Northeast. "People should be prepared to deal with it on a not-short-term basis," he said.
The insurance industry says that much has changed since Katrina, and that insurers are better about responding to storms wherever they happen, i n part because of the lessons they've learned from the increasing number of severe storms in recent years.
Allstate had thousands of employees staged in strategic locations in the days before Sandy so they could begin adjusting claims the moment the storm passed.
"If there are hundreds of thousands of claims over a broad geographic area, will there be some disputes? Yes, but by and large this process is proceeding smoothly," said Robert Hartwig, the president of the Insurance Information Institute, an industry communications body.
Some customers are satisfied so far. Lenihan's next-door neighbor Marge O'Hanlon had flood insurance as a condition of a bank loan. She called her insurer, Liberty Mutual, and within a few days an adjuster came out and told her to submit estimates for repairs to her basement, damage she expects to reach $25,000 or so. She felt cautiously hopeful she would not have to pay much out of pocket.
"I don't know," she said. "I haven't got my settlement yet."
Even after homes renovated or rebuilt, homeowners are apt to suffer another shock, specially those on the Northeast shoreline.
Insurers are expected to raise rates and seek to drop coverage of some places entirely to cover storm-related payouts and as they change their assumptions about the likelihood of violent weather hitting the region.
"There have been rate increases particularly in homeowners and in commercial property for over a year. This definitely broadly helps those increases persist," said Matt Carletti, an analyst covering insurers at JMP Securities.
One thing helping homeowners is the insistence from state governors and federal lawmakers, such as New York Senator Charles Schumer, that insurance companies not be able to get the storm declared a hurricane as it reached land. Most homeowner policies set a $500 to $2,000 deductible for regular claims of all kinds, but hurricane deductibles could be a flat fee triple or quadruple that or upwards of 5 percent or more of a claim, depending on the policy.
Schumer has asked the National Weather Service, whose determinations are usually the key to such things, not to change its classification of the storm despite lobbying of weather authorities from the insurance industry.
Politicians may also compel the insurers not to raise rates, especially with gubernatorial elections coming in 2013 in New Jersey and in 2014 in New York.
"I would not at all be surprised to see the governor and the superintendent send a message to the industry ... (that) this is not the time to raise rates on people," Deloitte's Mills said.
None of that matters much right now to people along the Rockaway Peninsula, on Staten Island, or in other hard-hit areas between the New Jersey shore and Long Island in New York. Many face still-daunting cleanup and demolition, and weeks more without power and heat. When the insurance adjuster arrives, it's just another blow to absorb.
Said Clemente of Manhattan Beach, "There's no such thing as insurance anymore."