Government Flood Insurance Program Called into Question

More than 100,000 Gulf Coast homeowners who are expecting help from the federal flood insurance program may be in for a bitter surprise, according to victims of a hurricane that hit the state of Maryland two years ago this week.

"Pennies on the dollar.  And they'll be unable to rebuild their homes and lives just as victims from numerous storms across the country have been subjected to for the last years," says Steve Kanstoroom, founder of FEMAINFO.us, a Web site advocating for flood victims, including those whose homes were damaged when Hurricane Isabel triggered a flood surge in the Chesapeake Bay.

Flood insurance is available through the National Flood Insurance Program, which is run by the Federal Emergency Management Agency.   More than 4.5 million people pay premiums to be covered up to a maximum of $250,000.  Residents have to pay extra to cover household goods. 

"My first thing was, 'We have flood insurance,'" recalled Jennifer Dieux of Shady Side, Md.  Her home was hit by the Chesapeake Bay flood surge.  "It's not going to matter.  We're covered.  We're going to be fine," Dieux remembers thinking.

Two years later, Dieux and her family are still living in a government-provided camper parked in front of their flood-ruined home, which they cannot afford to fix. 

  While mold and mildew have spread up the walls to the ceiling, the flood insurance program only pays to replace those portions actually touched by the storm's water. 

  Adjusters offered $44,000 for the necessary repairs.  Builders say $115,000 is needed to restore the home to its pre-flood condition.

  "We have no savings, nothing," Dieux admits.  "We have no way to pay for it."

  Maryland Insurance Commissioner Alfred W. Redmer told ABC News that FEMA adjusters systematically low-balled the losses of Maryland flood victims.

  Eileen Thaden, also of Shady Side, can attest to that.  Although she paid premiums for full coverage, FEMA adjusters offered $99,000 for repairs, which she says will cost $250,000.

  "I'm telling you that I can't find a contractor that's willing to work for these low prices," complains Thaden.  "It simply isn't possible."

  Redmer says FEMA applies the take-it-or-leave-it approach to its offers.

  "At the end of the day, there is no formal process to appeal your claim," he explains.  "You literally have to sue the federal government."

  That is exactly what dozens of Hurricane Isabel victims, who once counted on the federal flood insurance program, are doing.  They are suing FEMA for allegedly systematically low-balling their flood claims. They say they hope to alert victims of Hurricane Katrina to what may await them.

  Even before Hurricane Katrina hit, the Bush administration had quietly sought to cut back the flood insurance program.  In a letter to Congress, the administration said it was only a form of "aid" and a "misconception" that the policyholders' homes should be restored to pre-flood conditions.

  According to a former program administrator, that is at odds with the program's intent.

  "We made it an insurance program so that people, when they have a flood, don't ask for any handout or anything.  They have a right to the money," says J. Robert Hunter, now the director of insurance at the Consumer Federation of America.

  Today, FEMA spokesman David Passey announced plans to improve the current flood insurance program through the use of imagery and field data rather than a single home inspection for those homes completely destroyed. Critics of the program, however, say nothing has been done to address those practices, which result in the alleged low-balling of claims.

    ABC News' David Scott and Avni Patel contributed to this report.

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