SAN FRANCISCO (CBS 5) – In addition to property insurance policies you can also purchase a federal flood policy. The catch is that you can only get the policies through one of a select group of insurers that are authorized by the Federal Emergency Management Administration (FEMA).

But as some Capitola residents who bought their flood policies later found out, FEMA does not seem to closely regulate how much those authorized insurers actually pay you for your damage.

A little over six months ago, a broken drain pipe turned Capitola into a raging river. Today, the streets are dry and some storefronts are back to business as usual, while others remain empty. The primary difference as to why some doors are open and some are locked shut is the insurance policies.

As we found out in our past installments, Carin Hanna was a lucky one; her insurance company accepted her claim, but she pointed out that many are still struggling because their claims were met with denials.

However, it gets even worse for some residents whose claims were accepted, but did not receive their much needed payout.

Mercantile Building owner Peter Dwares purchased a FEMA flood policy in addition to his own insurance. Although his claim was not denied, he still spent nearly $600,000 repairing his property.

Administrator of Dwares’ flood policy, Selective Insurance, offered to pay him less than 10% of his damage costs, an amount Dwares was not satisfied with.

“The machinery and drying alone was $140,000,” he said.

Michael Fisher, a contractor said that the approximate $50,000 that was being offered to Dwares would likely only cover some of the re-painting.

Fisher said he was shocked that the insurance adjustor pre-determined Dwares’ payout from computer calculations instead of using receipts.

United Policyholder’s Amy Bach, who helped ConsumerWatch with this investigation agreed.

“Computers don’t repair buildings, contractors do,” Bach said.

According to Bach, the Selective Insurance adjustors seemed to be using inaccurate information to calculate a fair cost for the flood repair.

For instance, Selective Insurance adjustors calculated the cost of an anti-microbial treatment to $0.28 per unit, when the actual cost, as confirmed by various restoration companies in the area, was pegged as more than double that.

And those were not the only discrepancies ConsumerWatch found. The true price of water removal to the price of paint were all found to be different than what was quoted by Selective Insurance. The estimate, according to Dwares, also omitted damages to a large portion of his building.

When ConsumerWatch asked Selective Insurance about their payout, the company blamed FEMA, and said it was simply “following procedures outlined by the NFIP (National Flood Insurance Program)”

However, according to FEMA, it “does not provide a price list,” and confirmed that Selective and its Adjustors “came up with [the repair] prices on their own.”

While FEMA does not necessarily dictate payouts, Dwares points out that FEMA does control which companies decide how much money you get.

“They have a few selected insurance companies as opposed to the normal insurance world, which is very competitive,” he said. To him, federal flood insurance is a monopoly.

Bach added that when it comes to government-backed FEMA insurers, lawyers are often reluctant to take them on.

“Yes, some people do recover in full, [but] it often takes more time and effort and money,” she said.

FEMA told ConsumerWatch that its sanctioned insurers are required to follow a strict set of guidelines for investigating claims; however, when ConsumerWatch asked FEMA how it ensures those guidelines are met, there has been no reply.

Among the insurers, there were some standouts during the disaster in Capitola. All State and Farmers insurance seemed to go above and beyond when it came to paying out to its customers, causing some residents to switch over and flock to them.

Bach warned against that though, and said that might not be the smartest move. Just because an insurance company reacted well to one incident does not mean it will in the future.

The streets may be clear and life may seem to be almost back to normal, but now that six months have passed, many Capitola residents are still fighting, and their time, effort, and money are dwindling. Dealing with the floods and its aftermath have been difficult for those affected in almost every way.

“It’s been a rollercoaster, that’s all I can say,” Hanna said.

Below are the full responses from Selective Insurance and FEMA:

Selective Insurance Company of America is an administrator of flood insurance policies on behalf of the National Flood Insurance Program (NFIP). The company receives an administrative fee for providing policies to customers and processing claims based on a set of standards determined by the NFIP. Selective and NFIP policy holders must follow strict procedures in processing all claims and Selective has adhered to the process in this case.

Gail L. Petersen
Vice President
Director – Communications
Selective Insurance Company of America


FEMA does not provide a price list for building or contents claims to insurance companies who write NFIP policies, the NFIP Direct Servicing Agent, or to adjusting firms they hire. FEMA provides guidance that payments must be made fairly and timely, and the Standard Flood Insurance Policy is very specific as to what is covered, what is not covered, what is limited, and what is excluded. An example of this is the limited building and personal property coverage in a basement. The limited coverage in a basement applies regardless of flood zone, or the date the insured building was constructed.

In addition to the rights under the Standard Flood Insurance Policy, FEMA has an appeal process whereby the policy holder may appeal the denial of the claim or any part of the claim directly to FEMA. Anyone who believes their claim has not been adjusted properly has the right to appeal their claim. For more information policy holders can call 1-800-427-4661.

Bradley Carroll


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