Business of Disaster (2016) | Frontline | Transcript

Who profits when disaster strikes? FRONTLINE & NPR investigates how much insurance companies profit after a natural disaster.
Business of Disaster

Business of Disaster (2016)

When Superstorm Sandy made landfall in October of 2012, the historic natural disaster killed more than 100 people and caused catastrophic damage along the Eastern seaboard. “Business of Disaster” puts two key parts of the disaster recovery system under scrutiny: the special housing aid Congress gives to local governments after major disasters, and the National Flood Insurance Program that’s run by the Federal Emergency Management Administration. Major insurance companies declined to be interviewed, but FRONTLINE and NPR spent months working to track their profit numbers down. With storms expected to grow in frequency and intensity, this joint investigation raises troubling questions about disaster relief in America.

* * *

Don’t forget about us.

That’s my point. That’s why I came here.

NARRATOR: More than three years after superstorm Sandy, Frontline and NPR correspondent Laura Sullivan investigate.

The insurance company said, “Oh, no, no, no, that was preexisting.”

NARRATOR: The red tape.

And now I’ve filled this same application out three times.

SULLIVAN: The same application?

The same application.

SULLIVAN: This pile?


NARRATOR: The controversies.

This is a classic dispute, where they gave her just a little bit of money…

I saw blanket denials across the board.

There’s no evidence of any systematic issues with respect to how the claims were adjusted or how the claims were paid.

NARRATOR: And the profits.

SULLIVAN: $400 million in profit. How do you explain that?

While we were providing oversight, it was not enough.

NARRATOR: A Frontline/NPR special report.

People are profiting unfairly on other people’s misery.

NARRATOR: “Business of Disaster.”

We looked around and tried to find the perfect spot between Brooklyn, where I grew up, and she grew up from Jersey, so Staten Island was the medium. We said, “This is the place we want to live.”

He loves fishing, it’s right off the water, and it just fit into our life. There was a lot of joy and happiness that this ocean brought to us.

The ocean can be joyful. And the ocean could also swallow you up at any given time. You know, it’s unpredictable.

Clear and present danger. Sandy swirls along the East Coast.

The time for evacuation is over.

Get back behind the building.

Fishing Staten Island for 20 years, you pretty much know what the tides are. The tide was the highest tide I’d ever seen on Staten Island. I ran up the whole entire block and I said, “This is the storm. We have to leave, or there’s a good chance you’re gonna die.”

Seven subway tunnels under the East River are flooded. The entire system is shut down.

There was an explosion at a transformer. We are essentially in a blackout.

The island of Manhattan all but shut off.

I just couldn’t understand, when I saw water coming out from my son’s bedroom underneath the door and I’m like, “What the heck is that?”

We went to the window, and the car was being washed down the block already. There’s no escape now. Now the thing is we’re stuck in this house.

We’re all upstairs and we’re watching the water level rise. As it’s coming closer to the top step, I’m wondering, “Where are we all going to go?”

As the sun rises on the devastation, Staten Island badly affected by flooding…

The real tragedy from Sandy is the number of people who have died, and that number grows, it seems, by the hour.

The morning after the storm, I traveled down Father Capodanno Boulevard, which is the main thoroughfare right on the shoreline. I saw boats and cars up on people’s property. I saw holes in homes. And when it’s your home community, you are instantly numb. I was beginning to understand the ferocity of Mother Nature, but really had no idea just how difficult recovery would be.

They were hit as hard as anyone. President Obama will see for himself the damage inflicted on the folks and homes of Staten Island.

So to have the president come was a big moment for us.

Well, we’re going to do everything we can to help.

I think a lot of Staten Islanders, whether they like President Obama or not, thought, “All right, we’ll get the help that we need.”

Good to see you guys. You doing okay?

And I never expected the president to just walk into the crowd and put his arms around my wife and I.

I was like, “Wow!”

So some of this is going to be tough. But here, my commitment to you is I’m going to stay on it.

He promised that he would cut all the red tape.

He was going to make it right.

He was gonna make it right.

Not to worry. Don’t forget about us.

That’s my point. That’s why I came here.

God bless you.

It’s always good when a politician comes after the election. (laughter)

God bless you. God bless you, nice to see you.

Economic damage from Hurricane Sandy could go…

Superstorm Sandy could cost $20 billion.

Our requests are about $78 billion.

My instructions to the federal agency has been, “I want you to cut through red tape, bureaucracy, make sure “that we are getting the resources where they are needed as quickly as possible.”

[Three years later]

All the Sandy survivors, can everybody get over here? We’re going to be shoulder to shoulder. Are we standing together until we’re all home?


Are we standing shoulder to shoulder until we’re all home?


All right.

LAURA SULLIVAN: As a reporter for NPR, I’ve covered quite a few disasters and the slow process of recovery. Test, test. From Katrina to Haiti, I’ve investigated problems with disaster aid and looked closely at efforts to rebuild. For the past year, I’ve been hearing stories about Superstorm Sandy victims. A group of them gathered last fall, here at the state capitol in Trenton.

I’d like to bring up one of the families that really can use help.


Good morning. My name is Nancy Wertz. Me and my daughter Samantha are still, three years later, without a home, facing foreclosure, and we still need help. Thank you.


SULLIVAN: I was surprised to learn just how many homeowners were still struggling.

It’s important that the people across the street understand that thousands of us are still not home yet.

We got billions of dollars from the federal government, and those billions still haven’t reached the people who need help.

This is where our house was.

SULLIVAN: As I talked to Sandy survivors, they told me about problems with insurance.

So the insurance company said, “Oh, no, no, that was pre-existing. Everything that’s wrong, it was there before the storm.”

SULLIVAN: And nightmares of government bureaucracy.

If I sent them an email, I’d probably get a response within, you know, about a month later or two months later.

SULLIVAN: And there was one story I heard over and over from so many homeowners, like Doug Quinn.

You know, I was optimistic. “It’s going to be okay. “Everything’s going to be okay. “I’ve been in worse spots than this, I’m sure I’ll work it out.”

SULLIVAN: Is that what happened?

It’s three years and I’m still not anywhere close. I should be at home in my house and part of my community, and instead, I’m here doing this.

SULLIVAN: As a country, we spend billions of dollars every year to help people like Doug Quinn– money that’s supposed to get them back on their feet and protect them from the next storm. Over the past year, we’ve been investigating where those billions are actually going and why, more than three years after Sandy, storm survivors are still not home. That question took me to a dirt lot in Toms River, New Jersey, where I met up again with Doug Quinn. Wow. Hey Doug, how are you? Quinn moved to this waterfront neighborhood in 2011.

Nice to see you again.

SULLIVAN: He’d always dreamed of living on the water.

Yeah, this is it.

SULLIVAN: Holy cow.

This is what’s left of it, at least. My house was over this way. My front door would have been right over here. It was nothing fancy. It was a comfortable, cozy, middle-class home. Soon as I came here, I just was… it definitely spoke to my heart that this was home.

SULLIVAN: What remained from that home was still on his lot. So this is the stuff that stayed dry?


SULLIVAN: And it all fits into a box, huh? This is everything. This is all you’ve got.

You get weird with stuff after the storm, because everything in my house was destroyed. So the process of just pushing all of my possessions out of the front door into a big pile on the lawn was really difficult.

SULLIVAN: He had no idea that the really difficult part was still ahead.

I just assumed there’s gonna be a small period where life will be a little topsy-turvy, and then we’ll work our way back to normal. I did buy flood insurance as a contingency, and that’s what it’s for.

SULLIVAN: He’s right. His situation is what flood insurance was designed for. But most flood insurance is different from other homeowners insurance. It’s run by a government program created after a series of massive floods in the 1950s and ’60s.

(newsreel music)

Along 400 miles of the Kansas and Missouri rivers, the worst floods in U.S. history inundate thousands of square miles of land.

The U.S. was growing rapidly at that time, and increasingly, homes were being built in vulnerable areas. So time after time, the federal government was being called upon to provide disaster aid, and people had very few options even to purchase insurance at that point in time.

SULLIVAN: The insurance industry had said floods were too risky to cover, so Congress set up the National Flood Insurance Program in 1968. The program paid private insurance companies a fee to sell policies and settle claims, especially in flood-prone areas. The premiums from those policies would be used to cover all losses unless the disaster got too costly. Then taxpayers would make up the difference.

The insurance companies don’t have any risk in the program. The risk is all the taxpayers.

SULLIVAN: Bob Hunter ran the flood program in the 1970s, and he says he had problems with the insurance companies from the beginning.

We developed information that showed that they were charging us too much and the taxpayers were paying them too much money. At the same time, they were also refusing to pay what we thought were some legitimate claims. And ultimately, we kicked them out of the program.

SULLIVAN: How’d they take that?

They didn’t like it. They went to Congress and tried to fight it, but Congress stood with us and they left.

SULLIVAN: But they weren’t out of the program for long. The 1980s brought a new president and renewed faith in the private sector.

A flood is coming. You try to keep it from destroying everything.

SULLIVAN: The insurance industry was brought back into the flood program to sell and service policies, and expand its reach.

Ask your insurance agent about National Flood Insurance now.

SULLIVAN: By the early 2000s, FEMA was overseeing the program, and four and a half million homeowners had government-backed flood insurance.

Now, that number goes up and down depending on the frequency of floods that exist. Nothing sells flood insurance like a flood.

SULLIVAN: And the floods kept coming.

Incredible pictures show the ferocity of Hurricane Wilma.

SULLIVAN: In 2005, a series of devastating hurricanes put the national flood program deeply in debt.

We see neighborhoods that have been flooded. We see the front of churches just ripped off.

SULLIVAN: None more than Katrina.

The city, absolutely devastated by Katrina.

For all intents and purposes, it immediately bankrupted the National Flood Insurance Program, which had to resort on borrowing from the U.S. Treasury.

SULLIVAN: By the time Sandy came around, the flood program was nearly $18 billion in debt, and that debt was going to have a big impact on thousands of homeowners like Doug Quinn. So this is it.

This is it. This is the rental that I’ve been in since the month after Sandy. I pay for this, plus in my Sandy-damaged property, I pay for the mortgage, and particularly insulting, I pay the flood insurance on a house that’s a dirt lot.

SULLIVAN: You have to pay flood insurance on a house that doesn’t exist? How are you affording this?

I’m not. I’m going broke.

SULLIVAN: But he had an even bigger problem. So how much insurance did you have on this house?

I had a $250,000 flood insurance policy. I bought the maximum amount that I was legally allowed to buy.

SULLIVAN: What did you get?


SULLIVAN: Can you build your home again for $90,000?

Not even close.

SULLIVAN: He was convinced he’d been underpaid. He hired his own experts, who said it would cost $252,000 to rebuild his home. So he filed an appeal with FEMA, and then he waited for nearly five months.

So finally, I get this letter from FEMA. “FEMA concurs with Selective’s final decision, “and no further administrative review can be provided through this appeal process.” They sided with the insurance company.

SULLIVAN: What did you do?

I hired an attorney. There was nothing to do. Like I say, I’m 51 years old. I’ve never sued anyone in my life, and my back was against the wall because I knew something was wrong here.

SULLIVAN: To understand Quinn’s fight with the insurance company, I had to journey deep into the complex world of flood coverage. The search took me to New Orleans and a high-stakes legal battle. Hi, are you John?


SULLIVAN: Laura Sullivan. Nice to meet you.

Very nice to meet you as well.

SULLIVAN: John Houghtaling is a bit of a New Orleans legend, a plaintiff’s attorney with a taste for French antiques.

So it’s restored just like at the time.

SULLIVAN: He made millions for his clients and for himself, taking on the insurance companies after Katrina.

Insurance policies, even for a lawyer that’s been doing this for a long time, they’re very complicated. I mean, they’re thick. If you’ve ever tried to read an insurance policy, it’s very difficult to read. It’s not written in plain language. There’s lots of loopholes in it, lots of exclusions. So everybody here is working on Sandy, and these are the clients that we represent.

SULLIVAN: After Sandy, Houghtaling focused his law firm’s attention on problems developing with flood claims in New York and New Jersey.

I looked at some of the cases, and I had never seen anything worse in my entire career.

SULLIVAN: He eventually signed on to represent about 600 Sandy victims in lawsuits against 20 insurance companies, and he says the companies used a variety of ways to systematically underpay homeowners.

If you look at this, all of these neighborhoods were all underpaid uniformly. They used the same process to underpay everybody.

SULLIVAN: As the lawyers dug into the Sandy cases, they made a shocking discovery.

The FEMA-run National Flood Insurance Program appears riddled with widespread cheating…

Thousands say they have become victims again.

SULLIVAN: Evidence that several engineering firms the insurance companies were using may have committed fraud. A big-time Texas attorney, Steve Mostyn, had joined Houghtaling in the fight.

These are notebooks that were used at some of the hearings that we had, and this one here…

SULLIVAN: The lawyers found engineers who said their managers changed their reports without them knowing about it.

This is the original first report.

SULLIVAN: This is the original report.

This is what the engineer tells him out at the house. “The physical evidence observed at the property indicated “that the subject building was structurally damaged by hydrodynamic forces associated with the flood.” And then we go over here, and it says, “The physical evidence “observed at the property “indicated that the subject building was not structurally damaged by hydrodynamic forces.”

SULLIVAN: Not flood.


SULLIVAN: Same report.

Same report, same engineer, supposedly. I’m talking about a process where a person who never went to the house, never saw the house, never discussed with the original engineer, changed the report.

SULLIVAN: The engineering companies accused of fraud wouldn’t talk to us, and neither would insurance companies involved in the lawsuits.

This here, it says…

SULLIVAN: But both argued in court that they used a standard peer review process to change reports.

I can’t comment on any individual engineering report or whether or not there had been changes or what the reason for those changes were. But what I will say is that in a peer review process, can two engineers potentially disagree as to the cause and to the amount of damage that occurred? That can happen.

SULLIVAN: But as the lawyers dug deeper, they uncovered another suspicious pattern.

This is the conclusion, but the observations, right, it’s as if…

SULLIVAN: Observations are what they see at the house.

Are identical, okay? In report after report after report. And every one of them says, “Long-term differential movement, not structurally damaged.” “Long-term differential movement, not structurally damaged.”

SULLIVAN: The lawsuits focused attention on what would become the most controversial exclusion in flood insurance.

“…the result of long-term differential movement…”

SULLIVAN: It was the same exclusion Quinn’s insurance company used to deny coverage for his foundation.

“That was caused by long-term differential movement.”

SULLIVAN: It’s known as earth movement, and it’s considered a pre-existing condition.

They said that it was long-term earth movement, it was damage, those big cracks in my foundation, that was all there before the storm.

SULLIVAN: And they said the earth had moved. Long-term earth movement.

Long-term earth movement, which mysteriously is not covered by flood insurance.

SULLIVAN: Is it possible that the earth movement exclusion might not be in the best interest of homeowners, but it is in fact in their policies and it’s written there and that’s what they’re paying for?

We have no dispute that there’s an earth movement exclusion. Our dispute is, “Did the flood trauma break the foundations of the homes, or was it like that before?” They’re making up fake facts to put it into the exclusion. That’s the problem.

SULLIVAN: In February 2015, the fraud allegations…

State authorities raided a Uniondale engineering company today.

SULLIVAN: …prompted investigations by state attorneys general in New York and New Jersey that are still underway.

Armed with a search warrant, investigators removed dozens of boxes from the building.

SULLIVAN: And in Washington, criticism over FEMA’s management of the program was growing. The administrator of FEMA, Craig Fugate, declined to be interviewed. But amid the controversy, he replaced the leadership of the program and promised a wide-ranging overhaul. The new head of the flood program is Roy Wright. What do you think was happening with these examples of forged signatures, and not just changed conclusions, but changed observations?

Of all the issues in front of me, I find these engineering reports to be the most maddening. Many of them were done right, but I’ve seen reports where they took pictures of damage, they described the damage, and when you get to the conclusion on page 32, they said there was no damage. That’s shoddy, sloppy work.

SULLIVAN: Is it sloppy work, or is it fraud?

So the questions of fraud I need to leave to the legal investigators to play out. I look forward to what the states’ attorney generals can bring to me.

SULLIVAN: This was happening across multiple engineering companies represented by multiple insurance companies. How was this happening across so many different platforms if it was just shoddy work?

So… and this is a piece that I’m here to fix. There is no incentive in this program to do anything other than pay for everything covered under the policy.

SULLIVAN: On the face of it, the companies don’t seem to have an incentive to underpay homeowners. They don’t pay claims with their own money; it’s the government’s money. But as we continued to investigate, we heard stories from industry insiders about the pressures to keep payments down. One veteran of the flood business told me what he’d seen happen over the last decade.

Hurricane Andrew, Katrina, Hugo, the Northridge Quake, the World Trade Center disaster. Anything disaster-related. That’s all I’ve ever done is disaster relief work.

SULLIVAN: Okay. David Charles took me inside a Sandy-damaged home.


SULLIVAN: Yeah, this is a mess. He now helps homeowners fight insurance companies, but for nearly 30 years, those companies hired him as an adjuster. It also feels like this house is leaning.

It is. You can feel it as you walk.

SULLIVAN: His job was to figure out how much the national flood program should pay homeowners.

This is a classic dispute where they gave her just a little bit of money and the house needs to come down.

SULLIVAN: He says the program changed after Katrina amid mounting debt and concerns about overpayments on flood claims.

There was so much money spent on Katrina. The insurance companies paid out so much that there was a noticeable sea change in the attitude of the insurance companies going forward.

SULLIVAN: How do you know that?

Well, I worked the claims and I felt that coming down from middle management, telling me how to operate.

SULLIVAN: You were told to be stingy?

No, not told to be stingy, but things that I used to pay for were being rejected. Every single change that they made reduced the cost. There was never anybody telling you to increase it.

SULLIVAN: Why do you think they were doing this?

To save money. They were getting tremendous pressure from Congress to tighten up everywhere that they could, and one of these was to make sure that there’s no overpayments on claims.

SULLIVAN: Let’s go check out this one.

All right.

SULLIVAN: The pressure to tighten up intensified after Sandy, according to several other adjusters who agreed to speak with us. One of them was Jeff Coolidge, a manager who oversaw Sandy claims. What happened when you started adjusting claims in Sandy?

Guidance was coming back from the carriers, saying, “Remove these items.” So I would send those back to the adjuster, saying remove– fine example– remove the fireplace. Fireplace, well, they need to have an expert come in. We’ll put it on the insured or the policyholder to prove additional monies are owed. So it was a systematic way of low-balling these insureds to say 80% of these people will never come back and ask for more money.

SULLIVAN: You’re saying that your supervisors, or the insurance companies that you worked for, were telling you to pay homeowners less.

Yes, and that was done on a wide spectrum.

SULLIVAN: To help control spending after Katrina, FEMA increased its auditing of flood claims. Some of the most expensive claims originate here, in the basement. Yeah, there’s ocean grass.

The worst thing I’ve ever seen in 37 years is the earth movement exclusion. The foundation is obviously the most important element of any building. That’s the most expensive thing to fix. These are cracks. That’s fresh. If there’s any one place that they shouldn’t be cutting coverage and making things more difficult for the homeowner, that’s the place.

SULLIVAN: Despite homeowner complaints, a Senate committee last year said it couldn’t find any widespread problem of underpayments.

There’s no evidence of any systematic issues with respect to how the claims were adjusted or how the claims were paid. An event like Sandy, would you expect some disputes to arise after an unprecedented event of that magnitude? Yes, you would expect some to arise. But they were very small in number.

SULLIVAN: Why do you think so many people alleged and felt that they had been underpaid?

I think that the National Flood Insurance Program has been under attack since Katrina. And I think that they thought that if they didn’t protect this pot that they had, if they went deeply into debt again, there would be a push to end the National Flood Insurance Program, and for some of these companies and some of these lawyers and some of these engineers, that’s how they make their living.

SULLIVAN: That raised a question we wanted to get to the bottom of: how much money do insurance companies make off the flood program? It’s not easy to find out. We looked at what’s called “the arrangement.” That’s the contract between FEMA and the insurance companies. Every year, the companies take about a third of the premiums they collect as fees for running the program. The rest goes to settling claims. Those fees come to about a billion dollars a year, sometimes more depending on the number of claims and policies. So how much of that is profit? Seven years ago, Congress’s investigative arm, the GAO, told FEMA to figure that out. Do you think you’re paying the insurance companies too much?

You know, there’s a cost to running a business, and we are a private-public partnership that is there. But the costs are one of those things that I’m examining.

SULLIVAN: What kind of a profit do you think they’re making?

I’ve never looked at the book of business to understand their profits.

SULLIVAN: That’s a big statement for somebody that is giving insurance companies more than an excess of a billion dollars a year to not know what their profit structure would be on that.

Yeah, so flood is one of the perils that these companies run. So you’d need to go specifically to the companies to understand those numbers.

SULLIVAN: Since the insurance companies wouldn’t agree to be interviewed, I asked their representative about the profit margins. Do you know for a fact how much it actually costs the insurance companies to run the expenses every year?

The insurers will price their services to cover their costs and what they consider a reasonable profit margin. Other than that…

SULLIVAN: Do you know what that profit margin is?

I don’t off the top of my head know, but if they didn’t think it was reasonable, then they would not participate in the program.

SULLIVAN: Why is it so hard to understand how much the insurance companies are making, how much they’re paying, what their expenses are, and what their profit is?

Because obfuscation is helpful to them in this situation, and we’ve never seen the numbers. FEMA should get them and publish them.

SULLIVAN: Hey, Jim, it’s Laura Sullivan from NPR. We started trying to find those numbers– the data that would help us figure out what kind of profits the insurance companies are making. Take care, thanks so much again. And that would take some time. But our investigation took us to another stream of federal money, beyond flood insurance.

New York City got its plan from $1.8 billion in aid…

SULLIVAN: Insurance only goes so far, and many don’t have it at all. So, when big disasters strike, Congress sends billions of dollars to state and local governments to help homeowners rebuild. To see where that money is going, I headed to Staten Island. At a local nonprofit in Midland Beach, I met up with Tommy Cunsolo.

This is before the water came.

SULLIVAN: He helps homeowners apply for the extra housing aid.

This is where all the water went. 15 feet is what we got.

SULLIVAN: This is 15 feet of water? Is the damage really bad throughout these neighborhoods?

Every single one of them.

SULLIVAN: Can we go see it?

Let’s go.

SULLIVAN: Sandy devastated communities along the eastern shore of Staten Island. This was like a giant ocean that we’re driving through right now.

Yeah, the ocean was here. It was over the signs. It was over these signs.

SULLIVAN: Oh my gosh. Many homes have been abandoned.

Any one that’s got the boards on them, they’re already bought out and they’re gone.

SULLIVAN: And for some that stayed, building back means taking extreme steps to stay above the next flood.

See how high it’s gonna be?


That’s the height.

SULLIVAN: You gotta walk up to a front door up there?

Yep, that’s the height. That’s where you’ve gotta be at to survive.

SULLIVAN: I could see there was still a lot of work to do. Did you think it was going to take three years to get to this point?

Not at all. I once told somebody, I says, “You know what? “We built the Empire State Building in one year. How can we not rebuild single family homes?”

SULLIVAN: The job of rebuilding these homes in New York City is the responsibility of a special housing program called Build It Back.

We’ve created a powerful program.

SULLIVAN: The program got $1.7 billion from Washington.

And we’ve secured federal aid money. The name of the program is NYC Build it Back, and it’s here to make your home safer…

SULLIVAN: One family that was told they’d be among the first to be helped by Build It Back was Diane and Nick Camerada, the couple the president had comforted.

Just don’t forget about us.

That’s my point. That’s why I came here. (laughter)

SULLIVAN: Hi! But three years later, they were still living with a fish tank filled with Sandy storm water.

This is our fish tank.

SULLIVAN: Is this the water from the tidal surge?


SULLIVAN: This is tidal surge water.

Tidal surge plus the fish tank water. I mean, everything must have intermingled, because the water actually went up to the top step before my second floor.

SULLIVAN: The water came all the way up here? This whole floor was underwater?


SULLIVAN: This used to be your entryway? The Cameradas were still waiting to get their first floor fixed up and their house elevated.

We had our television, our couch, our living area.

SULLIVAN: Like many homeowners, they gambled and didn’t have flood insurance. They were now counting on help from Build It Back.

Do you know I had to itemize every single thing that I lost?

SULLIVAN: Diane showed me what that process has been like.

I know I filled this same application out three times.

SULLIVAN: No, this same application, this pile?


SULLIVAN: How do you keep all of this straight?

I have no choice but to keep it straight. I have to know where everything is so when somebody says, “Oh, you didn’t fill this out,” or “You didn’t fill that out,” here it is, I filled it out. I filled it out three or four times.

SULLIVAN: It wasn’t just lost paperwork. It was also hard to get a straight answer.

You would talk to one person and then if you would talk to another person, you would get a totally different story. So who do you believe? You’re going on good faith. You’re trusting what this person says, you’re doing everything he says. Then when you go back and that person’s no longer there and this person takes over and you’re getting a totally different story, all that time goes by and nothing’s been accomplished.

SULLIVAN: The Cameradas’ frustrations with Build It Back were far from unique. The New York City comptroller audited the program’s first year.

People came in expecting to file paperwork and then go through a process. And what really happened was people would come in, deliver their documentation, and it would vanish.

SULLIVAN: Is this incompetence?

It’s gross incompetence.

SULLIVAN: The city had hired outside consulting firms to run the Build It Back program at a cost of $50 million.

This is the whole contract.

SULLIVAN: The auditors discovered why so many homeowners were frustrated. The people that were on the front lines helping victims, were they qualified to do this work?

Many were not.

SULLIVAN: What did you find? How do you know?

We just found that the résumés did not match the job.

SULLIVAN: Let’s see. Case workers were supposed to have a degree in social work, or experience in the field. But a review of the résumés showed that most had no social service experience at all. Some were cashiers at Walmart, Staples, and Rite Aid.

Think about how outrageous it is that we were paying these huge consulting companies hundreds of thousands of dollars a month for creating a system using unqualified people with no oversight by the city.

SULLIVAN: How bad was the damage here?

We had a lot of damage.

SULLIVAN: Brad Gair was the top official overseeing Sandy housing recovery for New York City.

The water came up from the East River, which is right there, and covered this whole area.

SULLIVAN: He’s a 20-year veteran of disaster recovery, and we wanted his explanation for the problems with Build It Back.

I saw that we as New York City, with all the best intentions, created a big, hard-to-understand, bureaucratic, slow, inefficient process for getting people funds or to get them back in their homes.

SULLIVAN: Why did that happen?

The system makes that happen. You can’t expect any government large or small to create a $2 billion corporation and expect them to roll that out in any short period of time and not have a chaotic mess. You can’t build this thing on the fly and expect it to work. The contractors came and gave their best estimate of what they thought they could do to make a profit. It’s not a charity. Were they making excessive profits? I don’t know. (on recording): Were they making excessive profits? I don’t know.

SULLIVAN: That was a question we had, so we got records of Build It Back payments to the consultants during the first year, and this is what we found. The consultants were getting paid to provide caseworkers based on rates of $40 to $100 an hour. But in fact, the firm paid less than $18 an hour to a temp agency for some of those caseworkers.

The one thing that stood out of this audit, the consultants always got paid. And that became what this was about.

We’re not making widgets. This is not like we screwed up the conveyor belt. These are people whose homes are still gone, and life has been upside-down for three years. Think about it– they don’t know where it’s going. And I won’t even get into the sort of– unless you want to– get into the “Let’s take a home that’s worth $80,000 and let’s pour $600,000 into it to elevate it and rehab it.”

SULLIVAN: Is that what’s going on?

That’s one case that happened, and we… It was a… It’s, um… Oh my God, where do you start?

SULLIVAN: That $600,000 house? We found it here on Topping Street.

This house should have been a total knockdown. The city came in, did their survey, and said, “No, we can lift it,” and they did. They raised the house up in the air, and then they came in and they looked up and, my hand to God, they looked up and they went, “Uh-oh.”

SULLIVAN: Why? What was up?

Because they realized how everything was just… everything was shifted.

SULLIVAN: The house fell apart and had to be entirely rebuilt in the air.

My neighbors and I, we joke about it sometimes, what it actually cost to put these houses up, the ones that were miscalculated, because I could have gotten myself home and my neighbor next door who’s still waiting. After three years. And that’s hard on me.

SULLIVAN: Yeah? Why?

Because I’m home and they’re not.

SULLIVAN: Yeah. The head of Build It Back is Amy Peterson. One of the homes that we saw is a home not too far away from here where Build It Back spent $600,000 to raise a house. Does that make a lot of sense to you?

So that’s a good example, because I know the home you’re talking about. That’s a good example of kind of learning as we go along. Sometimes when you start to elevate a home and you start to take kind of the skin away from the home, you realize there’s a lot of structural work that has to happen, and so we have faced those situations. The work that we’re doing moving forward, we’re making changes. But it costs money to build elevated homes within kind of these tight communities.

SULLIVAN: Does it cost $600,000?

We’re looking at all of the costs across all of our programs and trying to figure out the best way to do this.

SULLIVAN: Out on the streets of Staten Island, I could see the challenges with rebuilding in these increasingly risky areas. Some homeowners had had enough. You live here?

I used to.

SULLIVAN: This used to be your house?


SULLIVAN: After Sandy, did you end up leaving?


SULLIVAN: Do you think you’re coming back?


SULLIVAN: You’re done.

I’m done. I want to pay off the mortgage. I don’t know if Build it Back is going to buy it or if I’m selling it to a private person.

SULLIVAN: Some homeowners were content keeping things the way they are.

They want to give us money to knock these down to build two separate ones higher up off the ground. It’s not really worth it for us. Why knock things down now that we’re making rent on? It makes no sense.

SULLIVAN: Others were worried about the choice they faced.

I’m fearful that these bungalows should not be elevated. I’m not an engineer, maybe engineers can say differently, but I mean, these are 90-year-old homes that I just don’t think were built to withstand these elevations.

SULLIVAN: It’s okay? Everyone seemed to have their own concerns.

I just want to show you something. Here’s our front door. They said they can’t put a stairway here to get up. They want to put an elevator, you know, a lift, in the backyard. You gotta walk 72 feet around the house to get to the elevator in the backyard.

SULLIVAN: The more time I spent here and the more people I talked to, the more complicated it all seemed. It was hard to see where all this was headed. What’s the plan here?

After the storm, there was a lot of thoughts about what individual communities wanted, but in the end, it’s about what individual homeowners want. And so some homeowners are committed to elevate their home, some homeowners have decided to sell their homes.

SULLIVAN: You say it’s up to the homeowners, depending on what they want. You can end up with neighborhoods where half a block is empty, half a block is still below sea level, some of the houses are raised. Is this something that makes sense for our communities?

Well, I think that helping these communities get to be more resilient is important.

SULLIVAN: Is that more resilient?

I think every single home that gets raised is more resilient.

SULLIVAN: Is it possible that in some of these areas, we shouldn’t be rebuilding at all?

A city that has as much coastline as we have, that has, you know, generations and generations of families that have lived here, that if there’s ways to make these homes and neighborhoods more resilient, it’s important to keep these as part of the fabric of New York City.

SULLIVAN: Does it make sense to have different people doing different things on the same block, different communities doing different things right next to each other in terms of resiliency?

Does it make sense? No. Anything that is happening in a non-systematic way inherently isn’t going to make a lot of sense. Does it do exactly what the programs, as they’re currently designed, do? Yes. It gives individuals the choice and it doesn’t tell them that you have to participate in a solution that’s better for your block or your neighborhood or your community or your state. There is no larger strategy where we say, “What do we want to have this community look like before the next one hits?”

SULLIVAN: New York City has taken greater control over Build It Back and has renegotiated its contracts to try to speed up the process and save money. The program plans to spend $1.7 billion to help about 9,000 Sandy homeowners. About 20% of the homes are expected to be elevated. So far, 64 of those have been completed. One family still waiting to have their house elevated was the Cameradas. And before I left Staten Island, I wanted to see if they were any closer to getting it done.

Hi, stranger!

SULLIVAN: It’s so good to see you. Nick, good to see you. There were signs of progress. No fish tank.

No fish tank.

SULLIVAN: But it turned out their plans were still mired in red tape. It looks fantastic.

It does. They did a wonderful job.

The furniture is coming? When are you getting settled?

Not quite. It’s going to get ripped out.

SULLIVAN: They’re going to tear out all the renovation when they lift the house. They’re going to rip all of this out?

Every bit of it.

SULLIVAN: Before Build It Back will elevate their home, the Cameradas needed old building permits closed out, and that meant they had to fix up their first floor.

So basically, they’re going to come halfway up the walls, and then they’re going to push the house up in the air, and everything that was just done in the house was just to close the permits.

It’s crazy, right?

When you see what the storm did to these people and then you see what government has been doing to them, yeah, this is the most infuriating, frustrating experience probably of my life, not just my career. People made some mistakes, and we need to make sure that others learn from them, benefit from them, and don’t repeat them.

SULLIVAN: The federal agency that oversees housing programs is HUD. I asked the agency’s head of disaster recovery about the delays and problems with Build It Back. At some point, isn’t this an oversight issue for HUD?

So, absolutely. We’re overseeing them. We’re working very closely with them to insure that where there are these problems that they’re getting solved.

SULLIVAN: Do you feel like you could have maybe brought a little bit more of a hammer down to make some of these problems go away?

Ultimately, there aren’t a lot of hammers here. The way that the Congress provides the money, they want us to let the local governments make those decisions.

SULLIVAN: And this is what our communities are now going to look like– these sort of ad hoc streets and neighborhoods?

I think that’s up to the affected communities to decide. They get to make the choices about what to do with the dollars that we provide to them. But is there a better way of doing this? I hope that there is, or that we can all work together to do it this way even better, because that’s what people are counting on the federal government for.

SULLIVAN: In the aftermath of all the Sandy troubles, FEMA, too, has been promising changes.

So this is the Sandy Claims Review Center that we have here where all of the work comes in for the folks that we are looking at their claims again.

SULLIVAN: A year ago, it gave 144,000 Sandy homeowners who had filed claims a chance at a new review.

Square yards are different.

SULLIVAN: 19,000 homeowners came forward, and so far, nearly 80% are getting some additional money.

Let me tell you what. Do me a favor and take a look at the photos on that file.

SULLIVAN: But some homeowners say FEMA is still underpaying those claims, and the review process alone has cost more than $100 million.

This is the Sandy Review Task Force.

SULLIVAN: Since last year, the agency has also been settling those lawsuits against the insurance companies, now nearly 1,700 in all.

There was a deadline for me to accept. I did accept.

SULLIVAN: One of those settlements was Toms River resident Doug Quinn. He got an additional $130,000, but it won’t all go to rebuilding his home.

I won’t get all that money. A third of it is going to the attorneys. They will not cover me for legal fees.

SULLIVAN: They won’t do legal fees.

Oh, no, they’ll do legal fees. They’ll pay the legal fees for the insurance company that tried to cheat me. But they won’t pay for the storm victims’ legal fees. So, I had to pay over $40,000 to a law firm because my government would not honor their obligations that they made when they accepted my premium money. And that money’s gone. That’s not going to be used to rebuild my house.

SULLIVAN: Why does FEMA pay the legal bills of the insurance companies?

So these are some of the contract stipulations that I inherited, and we’re making some specific changes because at the end of the day, I want dollars to go to policyholders, not to lawyers.

SULLIVAN: Figuring out where all those dollars do go was exactly what we’d been working on: trying to determine the profits the insurance companies were making off the flood program. FEMA wasn’t keeping track, but we finally got a hold of some key data: the expenses the companies report to state insurance regulators. And from FEMA, we got the fees it pays to the insurance companies. Using these numbers, we calculated the profits before taxes. Companies have varying ways of accounting for their expenses and revenue, but without access to their internal books, this was the best possible look at the scale of profits. Here’s all the FEMA data. This is all the money FEMA has paid the insurance companies. We took our findings to the former head of the flood program, Bob Hunter, who’s also an actuary.

So you deduct those expenses from what they received and you got their profits.

SULLIVAN: Our analysis showed that between 2011 and 2014, total profits for all the companies in the program averaged about $325 million a year. Is that too much money?

Oh, definitely. Look, we’re talking about somewhere near 30% profit margin compared to what they receive as payments, and they have no risk.

SULLIVAN: So what do you make of this, then?

Well, it’s obviously a sweetheart deal.

SULLIVAN: There was one number that really jumped out. With all the claims in the wake of Sandy, the profits were more than $400 million.

Because they’re handling a lot of claims that year, and they make a lot of money when they handle claims.

SULLIVAN: When a big storm hits, then, they make more money?

Yeah, at the very time you need them to make less money, if anything, because the burden is going to be borne by the taxpayers, they make a killing.

SULLIVAN: We explained our methodology and results to the insurance industry representatives. They disputed our 30% estimate and said profits are really 10% to 15% after taxes, but provided no additional data. They also said several companies have left the program because the profits don’t justify participating. The GAO is now examining how the insurance companies are paid and how much they make. FEMA says it’s also looking into these questions. It’s hard to look at profit numbers after Sandy when tens of thousands of people believed that they were underpaid by the insurance companies and see that the insurance companies walked away with $400 million in profit. How do you explain that?

So what I can tell you is that I am focused on those policyholders and ensuring that they get the resources and they get the payouts that they are entitled to. As we manage this program going forward, we will provide the appropriate level of oversight, because as I go back and look, while we were providing oversight, it was not enough.

They can’t begin to fathom the amount of heartache that they’ve created, the amount of financial wreckage they’ve created for average people. We’re average, middle-class people, and we’re in ruins here. It makes me really angry. It makes me angry to watch the way that people are profiting unfairly on other people’s misery.

SULLIVAN: Is our country in a good place in terms of the next disaster?

No, we’re not in a good place. You can look at any of these big disasters and ask yourself the most basic question: Did we put a bunch of money out? Yes. Is everybody mad? Yes. Did people get what they needed to get back into a home? No. Is there a grand strategy, a national resilient strategy that says this is how we’re going to deal with these big disasters when they happen? No. It’s not there.

I don’t think enough people know the different areas that can be affected by storms like this, and something has to be set up, because I don’t think we could bounce back if it happened again.

For more on this and other Frontline programs, visit our website at Frontline’s “Business of Disaster” is available on DVD. To order, visit or call 1-800-PLAY-PBS. Frontline is also available for download on iTunes.


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