Talks with FEMA on Hurricane Sandy payouts falling apart

Talks between the Federal Emergency Management Agency and hundreds of Hurricane Sandy victims cheated out of insurance money have hit a major setback, according to people familiar with the negotiations.

At a status hearing Tuesday in Brooklyn Federal Court, a tentative deal to pay each of the nearly 700 claimants an average settlement of $112,000 has collapsed, sources said.

Lawyers and congressional aides tracking the talks said Homeland Security Department General Counsel Stephen Bunnell overruled a FEMA decision to offer homeowners additional funds equal to 25% of payouts to cover legal fees and other expenses.

"To say this is outrageous does not cover it," said Steven Mostyn, an Austin attorney who represents the plaintiffs.

Sources said FEMA had agreed to cover the legal fees in exchange for plaintiffs agreeing to give up the right to join future lawsuits over the issue.

FEMA spokesman Rafael Lemaitre denied talks have broken down. “Settlement negotiations continue and they are making progress,” Lemaitre said.

FEMA agreed to negotiate directly with lawyers for thousands of homeowners affected by Sandy who allege that private insurance companies denied their flood insurance claims because of fraudulently altered engineering reports.

The agency is working to settle at least 2,200 claims and agreed to reconsider 144,000 claims by storm victims who may have been fraud victims.

Affected homeowners are concentrated on the south shore of Long Island, Staten Island and the New Jersey shore.