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Case Closed: Many Sandy Claims Not Eligible For Insurance Payment

Except for a couple of ZIP codes, less than 30 percent of homeowners along the entire New York coast had flood insurance in 2010, according to an issue brief by Resources for the Future, a nonprofit research group based in Washington, D.C.

"Storm after storm over the last several decades has shown that take-up rates for flood insurance are often lower than one would expect, leaving many homeowners without access to capital to rebuild," wrote authors Carolyn Kousky and Erwann Michel-Kerjan.

Not all that surprising

The fact that so many New York Sandy claims have been closed without payment doesn't surprise Amy Bach, executive director of United Policyholders, a consumer advocacy group in San Francisco.

"We expect the number of denied claims to be quite high, solely based on input we're getting and time we've spent on the ground after Sandy," she says.

After Hurricane Katrina devastated the Gulf Coast in 2005, debate roiled about whether a storm surge - meaning rising ocean water driven by wind -- should be considered a flood or a wind event. Standard home insurance policies cover damage from wind, but not floods.

After Katrina, insurers asserted that a storm surge was a flood, and the courts generally sided with the industry.

"Insurers drew that line in the sand, 'This is a flooding event,'" Bach says. "We knew they were going to take a hard line."

The fine print

Another factor that works against homeowners is something called the anti-concurrent causation, or ACC, clause, contained in some home insurance policies.

Basically it says if two causes acting together, such as wind and flood, damage your home, the ACC clause can limit or even eliminate your coverage for all the damage. That's even if one of those perils had been covered if it were the only cause. So, for instance, if storm winds rip up your house and a storm surge causes water damage, you could wind up with no coverage, period, unless you have flood insurance.

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