Duplication of Benefits, Insurance

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4435
Applicant	Nishnabotna Drainage District
Appeal Type	Second
PA ID#	005-USFZ0-00
PW ID#	GMP 127211, 122868
Date Signed	2021-11-03T16:00:00

Summary Paragraph

From March 11 to April 16, 2019, severe storms, straight-line winds, and flooding caused damage to two pumping stations owned and maintained by the Applicant.  FEMA prepared Grants Manager Project (GMP) 127221 to document permanent work for repairs, but found that the Applicant did not provide critical insurance information for the pumping stations.  FEMA reduced the full amount of the assistance requested by anticipated insurance proceeds.  The Applicant appealed, asserting that it previously provided the full insurance policy and there was no duplication of benefits from any source.  FEMA denied the appeal, finding that the Applicant did not establish that there was no duplication of benefits, nor did it demonstrate it obtained and maintained flood insurance following the disaster.  FEMA made a similar determination for a different project (GMP 122868) after notifying the Applicant of its concerns when it sent a Request for Information.  The Applicant submitted a second appeal providing new documentation confirming that flood insurance was not excluded under the Applicant’s policy. 

Authorities and Second Appeals

• Stafford Act §§ 311(a)(1), 312, 406(d).
• 44 C.F.R. §§ 206.251(b), 206.252(a),(c),(d).
• PAPPG, at 40, 86-87, 105.
• FP 206-086-1, Public Assistance Policy on Insurance, at 1-2.

Headnotes

• For insurable facilities or property (buildings, contents, equipment, and vehicles) damaged by flood, the applicant is required to obtain and maintain flood insurance in the amount of eligible disaster assistance. 

• The pumping stations do not meet the definitions of building or equipment under FEMA policy.  Therefore, the obtain and maintain insurance requirement does not apply.

• FEMA cannot provide assistance for disaster-related losses that would duplicate benefits available from another source, including insurance.  FEMA reduces eligible costs by actual or anticipated insurance proceeds.
  • The Applicant provided documentation confirming that a settlement for the claim will be paid in the amount of $31,750.00.  FEMA will adjust eligible costs based on the amount of actual insurance proceeds.

Conclusion

Under FEMA policy, the obtain and maintain insurance requirement does not apply to the pumping stations.  In addition, we received documentation from the Applicant confirming that a settlement for the claim will be paid in the amount of $31,750.00.  Therefore, this appeal is granted in the amount of $297,223.00 (after reducing $31,750.00 for anticipated insurance proceeds).  The matter regarding GMP 122868 is remanded to Region VII to issue a new determination to afford the Applicant with an opportunity to appeal in accordance with 44 C.F.R. § 206.206.

Appeal Letter

Appeal Analysis

Background

From March 11 to April 16, 2019, severe storms, straight-line winds, and flooding caused damage to two pumping stations owned and maintained by Nishnabotna Drainage District (Applicant).  During the incident period, water covered the pumps, clogging them with sand and silt and rendering the pumps inoperative.  FEMA prepared Grants Manager Project (GMP) 127221 for work and costs totaling $328,973.00 to restore the pumping stations.  In a site inspection report (SIR) prepared for the project, FEMA stated that the damaged pumps are located within a floodplain area.[1]  Photographs from the site inspection showed that the pumps are contained within pier-like structures located over water.

On September 3, 2020, FEMA issued a Determination Memorandum denying Public Assistance (PA) funding in the amount of $328,973.00.  FEMA determined that the Applicant did not provide critical insurance information requested in four previous requests for information (RFI).  FEMA reduced the full amount of the assistance requested by anticipated insurance proceeds.

First Appeal

On October 23, 2020, the Applicant appealed FEMA’s determination.[2]  The Applicant stated that the monetary figure in dispute was $445,816.00, that it previously provided the insurance policy, and that there was no duplication of benefits from any source.  The Applicant expressed confusion that FEMA approved funding for its GMP 122868 under similar circumstances.[3]  In support, the Applicant submitted the inland marine page from its insurance policy.  On December 21, 2020, the Missouri State Emergency Management Agency (Grantee) transmitted the first appeal on behalf of the Applicant.  The Grantee supported the Applicant’s appeal.  

On March 22, 2021, FEMA issued an RFI advising the Applicant of concerns regarding GMP 122868[4] (and potential new determination) and provided the Applicant with the opportunity to respond and submit documentation to supplement the current administrative record.  FEMA requested the following through the RFI: (1) clarification of the amount in dispute for GMP 127221, (2) documentation showing a paid claim or a denial letter for GMP 127221 and GMP 122868,[5] and (3) a copy of the most recent insurance policy demonstrating the Applicant obtained and maintained insurance coverage for the pumping stations claimed in GMP 127221 and GMP 122868.  FEMA outlined the amounts of coverage required for each item.

In a letter dated April 1, 2021, the Applicant responded to the RFI.  In its response, the Applicant: (1) clarified that the correct monetary figure in dispute for GMP 127221 was $328,973.00; (2) enclosed a letter from the insurance agency confirming that no claims had been submitted for the pumping stations in the last 5 years, and (3) submitted documentation for its most recent insurance policy effective October 21, 2020 to October 21, 2021.

FEMA issued its first appeal response on May 13, 2021, denying the appeal.  FEMA found that the Applicant: (1) did not provide documentation establishing that there was no duplication of benefits; and (2) did not demonstrate it obtained and maintained flood insurance for GMP 127221 following the disaster.  FEMA made a similar determination for GMP 122868 and deobligated funding in the full amount of the assistance for that project.[6]  

Second Appeal

In a letter dated July 13, 2021, the Applicant summitted a second appeal.  The Applicant enclosed a May 17, 2021, email communication from its insurer confirming that flood damage “was not excluded” under the inland marine policy.  The insurer recommended the Applicant submit a claim for any covered items that received flood damage.  The Applicant stated that it filed a claim with the insurance company on May 17, 2021, but had not yet received a response.  On July 23, 2021, the Grantee transmitted the second appeal to FEMA.  The Grantee recommends sustaining FEMA’s first appeal determination because it found the appeal was untimely.[7]

On September 28, 2021, after receipt of the second appeal, FEMA received documentation from the Applicant confirming that a settlement for the insurance claim will be paid in the amount of $31,750.00.  The Appliant enclosed a letter from the insurer outlining the amounts on which the settlement was based and requested that the letter be considered as part of the second appeal.

 

Discussion

Insurance

With respect to any facility to be replaced, restored, repaired, or constructed with PA funds, an applicant must obtain and maintain such types and extent of insurance as may be reasonably available, adequate, and necessary to protect against future loss to such property.[8]   For insurable facilities damaged by flood, the applicant is required to obtain and maintain flood insurance in the amount of eligible disaster assistance, as a condition of receiving federal assistance that may be available.[9]  This requirement applies to facilities that FEMA defines in its regulations and policy as “insurable facilities or property” (buildings, contents, equipment, and vehicles).[10]  If the applicant does not comply with the requirement to obtain and maintain insurance, FEMA will deny or deobligate PA funds from the current disaster.[11]

The pumping stations do not fall within the category of “insurable facilities or property” as defined in and in accordance with PA policy.  The SIR and pictures of the site show the pumps surrounded by a fence-like structure and located on pier-like structures over water.  The pumping stations therefore do not meet the definition of a building, which is, “a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, as well as a manufactured home on a permanent foundation.[12]  In addition, the pumping stations do not meet the definition of equipment, which FEMA policy defines in part as personal property or, property other than real property, to include moveable machinery.[13]  The pumping stations are similarly neither contents or vehicles according to FEMA policy.[14]  As such, the obtain and maintain insurance requirement does not apply.

Insurance - Duplication of Benefits

Section 312 of the Stafford Act prevents FEMA from duplicating benefits from any source, including insurance.[15]  FEMA reduces eligible costs by the amount of actual insurance proceeds, if known; or anticipated insurance proceeds based on the Applicant’s insurance policy, if the amount of actual insurance proceeds is unknown.[16]  Applicants must take reasonable efforts to recover insurance proceeds that they are entitled to receive from their insurer(s).[17]

The Applicant’s insurer’s email dated May 17, 2021, stated that flood is not excluded under the inland marine, so if any items that are scheduled under the inland marine were damaged in flood, a claim should be filed.  On September 28, 2021, FEMA received documentation from the Applicant confirming that a settlement for the claim will be paid in the amount of $31,750.00.  The Applicant enclosed a letter from the insurer outlining the amounts on which the settlement was based.  Therefore, FEMA will reduce the eligible costs by the amount of anticipated insurance proceeds.[18] 

 

New Issue – GMP 122868 (Project Worksheet 264)

The Applicant may appeal any FEMA determination related to an application for, or the

provision of, assistance under the PA Program.[19]  FEMA provides the Applicant with two opportunities to appeal an eligibility determination.[20]  The Applicant must submit a written appeal to the Recipient within 60 days of receiving written notification of FEMA’s determination.[21]

FEMA Region VII identified a new eligibility issue for GMP 122868 when reviewing the Applicant’s first appeal for GMP 127221.  On March 22, 2021, FEMA issued an RFI advising the Applicant that an insurance reduction should have been applied for the items scheduled on the Applicant’s inland marine declaration schedule and listed in the project’s scope of work for GMP 122868.  In the RFI, the Applicant was provided with the opportunity to respond and submit documentation within 30 days of receipt.  In the First Appeal response, FEMA found that the Applicant failed to provide documentation to establish there was not a duplication of benefits and did not comply with the requirement of obtaining and maintaining insurance required by 44 C.F.R. § 206.252(d), resulting in a deobligation of $63,690.57.

The insurance reduction applied for GMP 122868 constitutes a new determination and should be afforded two levels of appeal.  For this reason, the matter regarding GMP 122868 is remanded to Region VII to afford the Applicant with an opportunity to submit a first appeal of the determination, according to 44 C.F.R. § 206.206.

 

Conclusion

Under FEMA policy, the obtain and maintain insurance requirement does not apply to the pumping stations.  In addition, FEMA received documentation from the Applicant confirming that a settlement for its insurance claim will be paid in the amount of $31,750.00.  Therefore, this appeal is granted in the amount of $297,223.00 (after reducing $31,750.00 for anticipated insurance proceeds).  The matter regarding GMP 122868 is remanded to Region VII to issue a new determination to afford the Applicant with an opportunity to appeal in accordance with 44 C.F.R. § 206.206.

 

[1] FEMA Region VII, Site Inspection Reports, Nishnabotna Drainage District, Work Order 58835, Damage 362077, 362074 (Apr. 30, 2020).

[2] The Applicant's appeal request letter is dated September 28, 2020, but the letter has a revised date of October 23, 2020.

[3] FEMA prepared GMP 122868 (Project Worksheet 264) in the amount of $63,690.57 to document work and costs to restore a third pumping station owned by the Applicant. 

[4] FEMA found that an insurance reduction should have been applied for the items scheduled on the Applicant’s Inland Marine declaration schedule, and listed in the project’s scope of work. 

[5] The RFI stated that if no claim had been filed the applicant was required to provide an explanation and any applicable documentation, such as the Inland Marine Conditions.

[6] FEMA also reviewed GMP 122868 and discovered an insurance reduction should have been applied in that project as well.  FEMA determined the Applicant did not provide documentation establishing that there was no duplication of benefits for GMP 122868.  Furthermore, FEMA found that the Applicant did not meet the obtain and maintain insurance requirement following the disaster.  FEMA deobligated GMP 122868 in the amount of $63,690.57.

[7] FEMA transmitted its first appeal determination to the Applicant on May 14, 2021, however, FEMA confirmed that the Applicant did not receive notice until May 18, 2021.  The Grantee received the second appeal from the Applicant on July 15, 2021, which was 58 days later, making the appeal timely.

[8] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act § 311(a)(1), 42, U.S.C. § 5154(a)(1) (2018).

[9] Title 44 Code of Federal Regulations (44 C.F.R.) § 206.252(d) (2018).

[10] Public Assistance Program and Policy Guide, FP 104-009-2, at 86 (Apr. 1, 2018) [hereinafter PAPPG]. See also, FEMA Policy, FP 206-086-1, Public Assistance Policy on Insurance (June 29, 2015) and 44 C.F.R. § 206.251(b).

[11] Id. at 87.

[12] 44 C.F.R. § 206.251(b).

[13] PAPPG, at 159 defines equipment as: “Tangible personal property, including information technology systems, having a useful life of more than 1 year and a per-unit acquisition cost that equals or exceeds the lesser of the capitalization level established by the non-Federal entity for financial statement purposes, or $5,000.” PAPPG at 162, defines personal property as: “Property other than real property. It may be tangible, having physical existence, or intangible”; see also PAPPG, at 163, which defines real property as: “Land, including land improvements, structures, and appurtenances thereto, but excludes moveable machinery and equipment.”

[14] FEMA Policy, FP 206-086-1, Public Assistance Policy on Insurance (June 29, 2015), at 1 and 2.

[15] Stafford Act § 312.

[16] PAPPG, at 40.

[17] Id.

[18] For insurable facilities located in a special flood hazard area (SFHA) that meet certain conditions, FEMA must reduce funding by the maximum amount of the insurance proceeds which would have been received had the building and its contents been fully covered by a standard flood insurance policy through the National Flood Insurance Program (NFIP).  Here, the pumping stations were not insurable under the NFIP, therefore the mandatory reduction does not apply.  See Stafford Act § 406(d); 44 C.F.R. § 206.252(a); PAPPG, at 105.

[19] Stafford Act § 423; 44 C.F.R. § 206.206.

[20] PAPPG, at 146.

[21] 44 C.F.R. § 206.206(c)(1).