Appropriateness of Independent Medical Examinations in LTD Claims

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A recent New Jersey Appellate Division decision in Kohler v. Life Insurance Company of North America and Best Med Consultants, Inc., addressed a disability insurance carrier’s right to have a disability claimant examined through a so-called "independent medical examination (“IME”)." The plaintiff was a nurse who suffered injuries, including shoulder damage, requiring surgery. Her treating physician imposed various restrictions on her ability to perform the duties of her former occupation. She was awarded Social Security and long-term disability benefits through her employer.

As a result of an IME, plaintiff's benefits were terminated, based upon the medical examiner's conclusion that she had the ability to function in a sedentary or medium duty capacity and that medical information in the file did not support a functional impairment that would prevent her from working in “any occupation,” as defined by the policy. Her suit alleged tortious interference against the outside contractor retained by the insurance carrier to perform the IME.

The court found the carrier had the right under the policy to conduct an IME "as often as it may reasonably require,” and that the elements of tortious interference had not been satisfied. Similarly, the court concluded that the outside vendor had not engaged in insurance fraud by conducting this examination.

The court recognized that reasonable medical professionals can differ as to their opinion concerning functionality, and disability. The court was persuaded in part by plaintiff’s failure to avail herself of the opportunity to provide additional information in support of her claim, after the IME findings had been rendered. This would have included office notes from her treating physician, objective medical findings, hospital records, therapy notes, and other information. It is unclear from the opinion why this information was not provided.

The take away is that courts construing disability policy language will likely affirm the insurance carrier’s right to conduct one or more IMEs. In my experience many carriers seek out legitimate third-party opinions when sending disability claimants for IMEs. There is always a concern however that physicians conducting IMEs on a regular basis for insurance carriers, may not approach the task with full objectivity, given the temptation to form their opinions with one eye on the flow of additional work. Although that would violate ethical and legal standards, the suspicion lingers, nonetheless, there certainly are instances where the notion of the examination as "independent" is a misnomer.

The bottom line is that claimants and their attorneys must be vigilant in providing to the insurance carrier any and all information the carrier needs to consider regarding the patient's medications, treatment, objective medical findings, day in the life explanations of their limitations and all other information to support a claim. The claimant must also insist that the IME practitioner have available to him or her before the examination, all information necessary to conduct a legitimate examination and form an opinion based upon a full understanding of the claimant's condition.

If it cannot be confirmed that the disability carrier has provided this information, the claimant or counsel should arrange to have the information provided prior to the examination and document that it has been received by the examiner. Once the IME report is rendered, it can be reviewed to verify what information was actually considered in arriving at the conclusions stated.

We also recommend having a nurse practitioner or other qualified individual attend all IMEs to guard against the examiner mis-portraying in the report anything that transpires during the session, and to document the length of the visit, what questions are posed, how the physical examination is conducted, the claimant's reactions in real time, and other important features.

Intuitively, we believe this militates against a temptation by the practitioner to cut corners during the examination. The hope is that in the face of a legitimate IME, a deserving plaintiff’s claim will prevail, or at the very least, claimant will be best positioned in the event of an appeal of the carrier's determination. This case also points out the difficulty in establishing tortious interference which has an intentional component to it – making it a difficult claim to prove in this or other contexts.

We note that this opinion is unreported and obviously other case law may have relevance in construing this issue. This is just a snapshot based upon a recent unreported case. Claimants are advised to consult with counsel at all stages of a disability application for benefits, since there are nuances to the production of information to the insurance carrier and, in order to put the claimant's best foot forward, the process demands a thoughtful presentation of relevant evidence to the insurance carrier.

Reprieve For Community Associations Located In High Risk Flood Areas

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In response to concerns raised by the public, legislators, the Community Associations Institute and others, Congress recently passed the Homeowner Flood Insurance Affordability Act of 2014.  Signed by President Obama into law, the legislation forestalls significant increases in flood insurance premiums that were set to have taken effect.

The Act implements measures, including the following: an 18% annual cap on flood insurance premium rate increases under the National Flood Insurance Program; reinstatement of subsidies on existing properties at the time of sale, thus preventing properties complying with prior flood maps from being hit with significant increases under new maps showing a greater potential for flooding risk; reinstatement of certain grandfathering provisions for properties now located in high risk areas under new FEMA maps; premium refunds to certain homeowners who overpaid premiums; measures to minimize annual premium increases; and completion of a study on implementing additional affordability measures.

Under the Act, there will be efforts to better coordinate flood map updates with local community concerns and to assist local communities in necessary flood mitigation measures in light of the new flood map zones.

This legislation, at least temporarily, provides a reprieve and mitigates against harsh, unaffordable increases, which would have driven even more individual homeowners from their properties, and would have imposed draconian cost increases upon common interest properties in New Jersey and elsewhere. 

It remains to be seen whether the gains felt through the enacted measure will be eroded over time, or whether overall program compromises in this area will allow earlier proposed increases to creep back into the NFIP, as administered by the government.  The NFIP was originally put in place due to the lack of affordability of market rate insurance in flood prone areas.  An additional concern is whether the program itself is sustainable, in the long run, given the significant costs associated with Sandy and with prior storms generally occurring in other parts of the country.

The Impact of "Tolling" on Sandy Suit Deadlines

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With the anniversary of Superstorm Sandy fast approaching, policyholders who sustained damage during the storm who have not yet settled their insurance claims, may be running up against some contractually imposed deadlines.  Most insurance policies limit the time period within which an insured is permitted to file suit against an insurer for the insurer’s failure to provide benefits under the policy. Insurance policies are considered contracts, and normally in New Jersey an aggrieved party has up to six years to sue for an alleged breach of contract. However, parties are free to enter into contracts that contain terms which restrict rights that would otherwise be available to one party or the other. In the insurance context, policy provisions which limit the time period within which an insured is permitted to sue are found in virtually all policies.


Insurance policies often mandate that lawsuits must be filed within one or two years from the date of the loss. For individuals with unresolved Sandy claims, the consequences of not filing suit within the appropriate time frame could prove devastating. However, determining the appropriate date on which claims will be barred may not be as simple as it appears on the face of the insurance policy, and often times, this works in the insured’s benefit.


Although insurers may argue that the insurance policy and its terms regarding bringing suit should be strictly interpreted as written, New Jersey Courts have generally held that insureds should be credited for any time the insurance company spends investigating the claim. Accordingly, from the time the insurance company is put on notice of the loss to the time the insurance company issues its determination, the contractually imposed time period is “tolled.”  This acts to provide the insured with the benefit of the full time allotted by the insurance policy without regard to any delay the insurance company itself may cause during its investigation. However, insureds should be aware that any gap in time between when the loss occurs and when the insurance company is placed on notice still counts against the insured.


Policy holders are urged to review their policies carefully and to contact experienced counsel to review the claim history and take steps to ensure that they do not lose valuable rights. This is especially true for insureds with Sandy damage that have policies calling for a one year suit limitation. The facts of each specific case may be different and although tolling can be a valuable tool for insureds, it is always best to have counsel open a dialogue with the insurer beforehand to confirm that everyone is on the same page in terms of lawsuit filing obligations.  This will act to avoid unnecessary confusion and will give insureds a reliable sense of what the carrier’s position is, so that informed decisions can be made.  

"Raised" New Jersey Home, Damaged by Sandy Flooding, Collapses

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As many New Jersey residents decide whether to modify their existing homes in coastal areas, damaged by Sandy, identifying and retaining qualified, licensed contractors to “raise” existing structures is a major concern.  Owners in Little Egg Harbor recently suffered a catastrophic collapse of their home, just following the home having been raised approximately 10 feet by a contractor they retained to raise the home damaged by flooding during Sandy.

I have been retained as counsel by the owners to assist in determining the cause of this loss and to obtain recovery of monies needed to rebuild the home, from all available sources.  In this process, the means and methods of raising the home will be a central focus.  Given the number of homes needing to be raised, either by choice, or as a consequence of revised FEMA flood map and insurance implications, the available New Jersey contractors with experience in raising homes, pre-Sandy, is far outstripped by the current demand. 

We have seen an influx of out-of-state contractors offering to perform these services.  While some of these firms are quite skilled and competent, that may not be true of all contractors soliciting this work, and homeowners are cautioned to address the following concerns before signing a contract with a contractor to raise their home:

The need to obtain copies of valid NJ licenses for these contractors; full copies of in force  insurance policies, including general liability and workers compensation coverage; comprehensive specifications compiled by a structural engineer to inform the contractor’s work; references from other successfully completed jobs in New Jersey or elsewhere, through online sources, direct contact, or records available through state or local building departments or Departments of Community Affairs; tightly worded contracts which accurately reflect the contract price, scope of work, and other requirements set forth in the statute and regulations issued under the New Jersey Consumer Fraud Act; soil borings, or other pre-construction testing of the site conditions, if necessary; and other safeguards to insure against potentially disastrous consequences.

The New Jersey Department of Community Affairs has a list of 19 “elevation” contractors who have been recognized as licensed to operate in New Jersey.  Additional contractors are expected to be added to this list.

Any time a structure is raised, the potential exists for significant property damage or danger to persons and this work should not be undertaken lightly, or without adequate safeguards and protections in place.  The homeowner should have a full measure of comfort and confidence in whomever is chosen.  Required building permits must be obtained and all site conditions must be taken into consideration so that the site is fully prepared, before any actual work takes place.

Although the cause of the failure claim we are currently examining is still under active investigation, the resulting damage speaks volumes as to the seriousness with which this type of work must be viewed.  Homeowners are strongly encouraged to seek legal advice, which may also include assistance from a structural engineer or trusted contractor, to advise the homeowner, and ensure that all adequate measures are taken.  You want to do everything possible to make sure that you are confident the process will go smoothly, so your home can be safely and successfully repositioned, as needed, and can be enjoyed for many years to come.

Landlords and Storm Damage Insurance Claims

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Landlords and others have suffered from heavy rains, high winds and flooding.  And experts predict that severe storms will become more common due to global climate change.  Although you can’t stop storms, you can reduce risks.

One important way landlords can reduce risks is by reviewing their insurance coverage.  When was the last time you reviewed and updated your insurance coverage and inquired as to the insurance coverage of your tenants?  It is vitally important to know and understand what risks your property is protected from.  Commercial landlords must be sure their certificates of insurance are up to date, accessible and provide adequate coverage for the most likely damage due to storm damage. 

Another important way to reduce risks is to review your leases, contracts, and documented procedures.  Will storms obligate you for unexpected repairs, liabilities and costs? 

These are just a few of the issues that all landlords face as they encounter damage from storms.  Evaluating these and other legal questions requires careful review on an individual basis with experienced counsel.  Stark and Stark’s Commercial Real Estate Group assists landlords in evaluating their risk and work with the firm’s Insurance Coverage Group to be sure that landlords are protected with the proper amount of insurance coverage.  

Post-Sandy "Bad Faith" Bill Targets Insurers

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While Superstorm Sandy brought with it destructive winds and tidal surges, it also ushered in tides of change for New Jersey’s insurance market and regulatory scheme. Now that insurance company coverage decisions are starting to emerge, the New Jersey Unfair Claims Settlement Practices Act, codified as N.J.A.C. 11:2-17.1, et al., is in the spotlight.  The Act is currently only enforceable by the New Jersey Department of Banking and Insurance and action is typically only taken if a pattern of abuse is evident. Accordingly, individual insureds essentially have little to no recourse against insurance companies that overshoot the regulatory time frames for issuing coverage decisions and/or payments, or companies who make claim decisions without a proper investigation. A new bill, S2460, introduced in January 2013,  seeks to change that by giving insureds a private cause of action against their insurance companies for “bad faith.” 
The bill has been tabled for the time being while amendments are made.  The bill, as it stands now, would provide insureds with several benefits, including prejudgment interest, the right to recover the full amount of damages as set forth in a final judgment awarded to them regardless of the policy limits and in some cases, punitive damages.  Of particular importance, the bill would also provide for fee shifting which would entitle successful insureds to collect reimbursement for their legal fees and costs. Additionally, the bill would be effective retroactively to October 2012, to encompass all Sandy claims.  
Whereas the bill would include various types of insurance, federal flood policies will likely be excluded.  The National Flood Insurance Program is administered by FEMA and is governed by federal law.  Because S2460 would call for a change in State law, not Federal law, there would be no impact to flood policies.  However, for insureds who have sustained wind damage or other losses not covered by their property policies and have taken issue with the claims handling practices of their insurers post-Sandy, the bill would certainly provide them with important options. 
Bad faith claims in New Jersey, while not currently permitted by statute, are permitted by case law.  See Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474 (1974);  Pickett v Lloyd’s, 131 N.J. 457 (1993). However, the burden that an insured must meet is high and the success rate of these cases is limited.  S2460 would be a welcome change for policyholders by providing them with a fighting chance against insurers who are employing bad faith claims practices. We will continue to monitor the progress of this bill in the months ahead in the hope that it will be enacted with all of the proposed protections intact. 

Homeowners Insurance Policy Summary Will Be Required Post-Sandy

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It is no surprise that legislation mandating changes to homeowners insurance in New Jersey has begun to make its way through Trenton following Superstorm Sandy.  Most recently, a bill was signed into law which adds information to be included in the required Homeowners Insurance Consumer Information Brochure which accompanies new and renewal policies. The new law will require the inclusion of a one-page summary of the policy including “notable” coverages and exclusions, as determined by the Commissioner of Banking and Insurance. 
Lawmakers have made clear attempts to insulate insurance companies from liability as it relates to this new requirement.  For starters, the law expressly states that the coverage summary shall not be considered a replacement for the terms outlined in the policy, that it will not alter coverage and that it will not confer new or additional rights beyond those contained in the policy. In addition, the summary will specifically state that it is provided as “guidance” only.  Essentially, the summary will be akin to a Certificate of Insurance, which provides policyholders and/or certificate holders with policy data which they expect to be able to rely upon (what’s the purpose of having them if you aren’t supposed to rely upon the information contained in them) but which is provided for “information only” and is not a substitute for the policy language itself.  
Despite the lawmakers’ best efforts, the summary will likely spawn litigation nonetheless. First and foremost, there will undoubtably be debate over the use of the term “notable.”  It is impossible to predict what portions of a policy may or may not become important following a particular loss. What may not appear “notable” today may become central to a loss next week. “Notable” is a subjective term, open to interpretation, and that’s what insurance coverage litigation is all about. Policyholders with uncovered losses that involve exclusions that were not identified in the summary as "notable” may argue that they were mislead, etc. This will surely be an issue that will arise, however, since the Commissioner will have the final say on what is or is not “notable” it is unclear at this stage how much responsibility and/or liability the carriers will have for the contents of the notification.
Secondly, there are bound to be disputes over semantics.  Despite the “guidance” only disclaimer, there will likely be situations where a Court could determine that reasonable minds could disagree over how the wording used to describe the coverage in the summary can or should be interpreted. In New Jersey, policy ambiguities have traditionally been decided in favor of the insured. Although the summary will not be part of the policy, it is intended to provide guidance and if the wording used can be viewed as  misleading, litigation will follow. 
Third, it is unclear what will happen in the event of policy endorsements.  The law requires the notification to be given “annually at the time of renewal, or as otherwise ordered by the Commissioner.” As it stands now, the law is silent as to whether a revised summary will be issued if mid-term changes are made to a “notable” coverage provision in the policy.  Unless the Commissioner later decides to address this issue, there will undoubtably be disputes if a loss occurs and the policy and the summary are at odds. 
Overall, providing policyholders with more information is a step in the right direction, so long as it explains often confusing insurance policy terms and coverages in plain, simple wording, without muddying the already hard to navigate waters of insurance policy interpretation. Hopefully regulations will be promulgated which clarify some of these issues.  Otherwise litigation will be inevitable. 
It should be noted that the effective date for the change has yet to be determined. The law requires that the Department of Banking and Insurance create a time line for implementation.  Whether it will be required in policies issued before this year’s hurricane season remains to be seen. 

Sandy Insurance Claims: Commonly Encountered Issues

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According to the New Jersey Department of Banking and Insurance, as of March 1, 2013, approximately 40% of flood-related Sandy claims are still unresolved. Many claims involve legal issues associated with the following circumstances, many of which we have seen in cases we are currently handling on behalf of insured policy – holders in the tri-state area: 

  1. Reconstructing the cause of loss – whether the damages were caused by wind (typically covered under homeowners policies) or flood (covered under Federal flood policies); 
  2. Whether there were concurrent causes of the loss (for example, caused partially by wind driven rain and partially by flood waters) requiring an analysis of insurance policies which may have clauses barring or supporting coverage under those circumstances;
  3. Whether the damages to a building occurred below the lowest elevated floor in designated flood zones, or in a basement. Under Federal flood policies, coverage for damage in these areas is significantly more limited than when damages occur above the lowest elevated floor; 
  4. Whether adequate steps were taken by the insured to prevent mold from forming (impacted significantly by whether the insured had access to the structure – given widespread governmental restrictions on access for weeks following the storm); 
  5. Reconstructing damages in those instances where homes were completely washed away and the cause of the loss is debatable or difficult to re-create, requiring the involvement of engineering professionals or other forensic analysis;
  6. Disputes over the rates of labor and materials utilized in adjuster appraisals, given the wide variation in experience levels of adjusters brought in from all parts of the country, and fluctuation in labor and material rates by location and in relation to when the loss was adjusted;
  7. Practical concerns regarding obtaining good faith estimates and contractors available to provide required services to rebuild structures to avoid further damage;
  8. The interplay of flood policies issued to individual condominium unit owners, vs. the coverage available to Condominium Associations for damages to the common elements of the condominium buildings;
  9. Issues concerning extensive debris removal costs where the debris comes from neighboring properties and ends up on the insured property, but not on or in an insured building; and
  10. Practical decisions concerning whether or when to rebuild, given uncertainty surrounding finalizing the Federal Flood maps and inconsistent municipal actions regarding property rights, dune reconstruction, access for contractors, permits, height restrictions and other considerations.

This represents a sampling of issues we are encountering, as we assist policyholders in these matters, although there are numerous additional issues faced by insureds as they seek to rebuild their lives and property. Policyholders are encouraged to seek legal advice, given that policy language can vary significantly from one policy to another and the rights defined in the policies can vary widely. While some of the areas in question have been the subject of opinions by reviewing courts, some of the issues arising out of Sandy are novel, and are likely to spawn both litigation against insurance carriers and, eventually, legal opinions defining the rights of policyholders under these unique circumstances.

Thomas J. Pryor works in Stark & Stark's Lawrenceville, New Jersey office concentrating his practice in Insurance Coverage & Liability issues. For questions, or additional information, please contact Mr. Pryor.

10 Ways Landlords Can Cut Costs and Increase Income Now

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The bad news is that costs increased when taxes rose in January.  Interest rates may also rise.  The good news is that for savvy landlords, there are some proactive strategies to improve the bottom line now with the help of sound legal counsel.  Following are Stark & Stark’s top 10 tips for landlords to consider:

1.    RefinanceWith interest rates low, now is the time to act to refinance and cut costs before interest rates rise.  Have you reviewed your properties with counsel to ascertain what you need to refinance?  Are your estoppel certificates in order?  Any outstanding litigation cases that need to be resolved, in case your lender asks?  Stark & Stark’s Real Estate Group can manage these issues.  

2.   Reduce Taxes.  Have you considered filing a real estate tax appeal before the deadline?  April 1st is almost here.  Have you considered 1031 exchanges to provide tax benefits?  Stark & Stark’s Business & Corporate Group can help guide you through these tax issues.

3.   Plan.  Have you consulted with counsel lately to discuss and update your plans and options, including estate planning and business succession planning?  An experienced trusts and estates counsel can ensure that the maximum amount of your money stays where you want it, instead of going to Uncle Sam.  Stark & Stark’s Trusts & Estates Group can assist in planning for your future.

4.  Reduce Responsibilities.  Have you updated all your documents and procedures to reduce your responsibilities?  Have you minimized your repair and construction costs?  Have you reduced your utility and compliance costs?  Stark & Stark’s Real Estate and Construction Groups have the expertise you need.

5.   Improve Insurance.  When was the last time you reviewed and updated your insurance coverage?  Have you looked at your coverage in the wake of Hurricane Sandy?  Do you know what risks are not covered?  Are you relying on certificates of insurance that may not protect you?  Stark & Stark’s Insurance Group is here for you.

6.   Manage Risks.  Have you updated your compliance procedures, employee handbooks, and other documents and procedures to prevent problems?  Have you considered all available dispute resolution options?  Stark & Stark’s Employment Group can provide you with solutions to these issues.

7.   Improve Properties.  Have you recently developed or remodeled your real estate to attract and retain the best tenants and increase rents?  Stark & Stark’s Land Use Group can help you assess the legal issues with your property improvements.

8.  Increase Collections.  Are you collecting your unpaid debts while complying with the Fair Debt Collection Practices Act and other applicable laws?  Will your strategies and procedures reduce future debt collection problems?  Are you enforcing all your bankruptcy and other rights?  Stark & Stark’s Bankruptcy & Creditor’s Rights Group is here for you.

9.   Improve Your Deals.Do your documents maximize recovery of operating expenses and unpaid rent?  Have you included all the language you need in different jurisdictions, such as "additional rent" language to capture all rent in New Jersey evictions and Confession of Judgment language to expedite rent recovery in Pennsylvania?  Stark & Stark is a regional firm with offices in New Jersey, New York, and Pennsylvania.

10.   Get Deals Done Faster.  Do your negotiations take too long?  Are you expediting the negotiation and drafting of letters of intent, leases, amendments, contracts, and other documents? Stark & Stark’s Real Estate Group understands the immediacy of “now” and can help you with your needs.

These are just a few examples of how landlords can, with the help of good legal counsel, improve the bottom line now.  Evaluating these questions requires careful review on an individual basis with experienced counsel.  Having an attorney familiar with these issues is critical.  The attorneys at Stark & Stark understand the real estate community and can provide you the insight you need to address these and other questions for your real estate and business needs.

Insurers with Unresolved Sandy Claims will be Subject to State Mandated Mediation

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While the State of New Jersey is reporting some impressive statistics regarding the number of  non-flood related Sandy claims which have been closed (87% overall),  the statistics likely provide little comfort for the unfortunate 13% with open Sandy claims who are still battling with their insurance companies. However, a new State mediation program may provide policy holders (“insureds”)  with an expedited and cost efficient way to settle their disputes with their insurance companies.
The program, established through the New Jersey Department of Banking and Insurance, will be open to insureds who have a disputed claim greater than $1,000.00. To be eligible, no fraud on the insured’s part can be suspected. The program will be voluntary for insureds but standard insurance companies will be required to participate if their insureds elect to avail themselves of the mediation.   Surplus lines carriers (insurers who typically insure high risk properties or items) will not be required to participate but can elect to do so on a case by case basis. The insurers  will be required to notify their insureds of the availability of the mediation program and will be required to pay the mediation fee if their insureds choose to participate. Mediations are expected to begin sometime in April.

This is a step in the right direction for aggrieved insureds because a neutral third party will be available, at no cost to them, to encourage their insurers to settle their claims fairly.  If nothing else, this process should at least make strides in keeping the insurance companies honest. Nonetheless, it is advisable that insureds consult counsel and have them available at the mediation.  Although participating in mediation is more informal than filing a lawsuit, many, if not most, of the insurance companies will likely have an attorney present on their behalf at mediation.  To stay on equal footing, it would be wise for the insured to do the same.  Ideally, the legal costs associated with this will still be far less than if the insured has to resort to filing a lawsuit against their carrier.

It is important to note that the State’s mediation program, for the time being, will expressly exclude flood claims.  Since the National Flood Insurance Program issues most flood insurance policies, those claims are outside of State jurisdiction.  Although the individual NFIP policies are serviced by private insurance companies, the program is run by the federal government and is subject to federal regulations to which the private insurance companies are bound.  The State has indicated that it is in talks with the NFIP to possibly include flood claims in the program in the future. This would be a welcome development for insured with unresolved flood claims.

Tara A. Speer  works in Stark & Stark's Lawrenceville, New Jersey office concentrating her practice in Insurance Coverage & Liability issues. For questions, or additional information, please contact Ms. Speer.