Many homeowners don't understand their insuranceNewspapers and television stations in New York and New Jersey are still covering the sad stories of those who thought that they were insured from the damage done by Superstorm Sandy -- until they learned that they weren't.

One such story appeared in The Star-Ledger of Newark, N.J. about a retiring couple who insured their beachfront cottage and its contents for $225,000. The house was torn apart, but their insurer gave them only little more than $6,000.

That's because the majority of Sandy's damage was caused by flooding, so if you didn't buy federally sponsored flood insurance, you weren't covered.

Like hundreds and perhaps thousands of others, this couple is taking their case to court, according to the newspaper, but probably won't win. The insurance contract that they have with their private carrier is crystal clear: It doesn't cover flood damage.

Hard line softens

Insurance companies have long taken a hard line on this, refusing to pay for flood damage in previous hurricanes such as Katrina and Irene. "If you didn't read the contract and realize you weren't covered, that's your tough luck," is one insurance agent's argument.

But in a recent rare moment of self-reflection at their recent annual conference in New York City, insurers' admitted that maybe -- just maybe -- they hadn't explained themselves very well and that it wasn't always the customer's fault.

"We need to do a better job of educating our customers that flood is not a covered peril," said The Hartford's CEO Liam McGee.

According to one estimate at the meeting, less than half of those who buy a homeowners policy actually understand what their coverage includes. As insurers tighten the grip on what they will pay for, with higher deductibles and with fewer disasters such as earthquakes covered, the situation will only get worse, most admitted.

Convenient scapegoat

The insurance companies found a convenient scapegoat: Agents who sell their policies weren't conveying crucial details to the customer when they sold the policy.

That's because of a "disconnect," said Texas Insurance Commissioner Eleanor Kitzman. The agent is interested in selling a policy; the insurer is interested in paying only claims that are covered.

"The last thing [agents] want to do is tell you everything that the policy doesn't cover," said Brian Sullivan of the Property Insurance Report. "That's not a conversation anyone wants to have."

And that appears to be true whether it's an independent agent or an insurer's captive agent. Neither will carry the story to the customer, conference participants said.

Deduct the deductible

But avoiding the conversation doesn't solve the problem, because the customer's perception can become reality, whether or not it's in the contract.

Insurance companies are well aware that they are easy targets when they appear to be stingy. Both the governors of New York and New Jersey, Andrew Cuomo and Chris Christie, saw their popularity rise when they threw out insurers' "hurricane deductibles" requiring homeowners to pay up to 5 percent of the wind damage before they could collect from their insurer. Cuomo and Christie argued that while Sandy may have been a hurricane at sea, it wasn't when it hit their shores.

'Continuous battles'

And local judges, also sympathetic to residents, are likely to rule in their favor if it's a question of whether wind or water damaged their homes. So the bottom line for insurers: They can write any contract they want. But policyholders who don't understand their contracts won't accept its limitations when the time comes to collect on a claim.

"We have to do a better job of educating people," said one insurance executive, "or we'll have continuous battles."