Insurance

Appeal Brief

Summary Paragraph

From December 23, 2015 through January 9, 2016, Missouri experienced severe storms, tornadoes, straight-line winds, and flooding.  Floodwaters inundated the Applicant’s underground sewer lift station and damaged the compressor, compressor motor, control panel electronics, and dehumidifier.  The Applicant filed a Property Loss Notice with its insurance carrier.  FEMA wrote Project Worksheet (PW) 359 to capture $31,601.59 in costs for permanent repairs, and $6,000 for an approved hazard mitigation proposal (HMP).  FEMA’s Insurance Specialist advised that the Applicant’s policy provided limited coverage for flood damages to unscheduled locations andapplied $26,540.71 in anticipated insurance reductions.  FEMA obligated $11,060.88 (including the HMP) for PW 359 on August 9, 2016.  The Applicant received a letter from its insurance carrier dated April 12, 2016, which indicated that the Applicant’s policy covered up to $18,000 for fencing and personal property, but among other items did not cover underground pipes, flues, and drains.  On February 1, 2018, the Applicant received a second letter from its insurance carrier denying coverage for the lift station.  In a letter dated February 7, 2018, the State of Missouri Emergency Management Agency (Grantee) transmitted the Applicant’s request for a change to the Scope of Work to remove the anticipated proceeds reduction in light of the coverage denials.  FEMA determined that 1) the Applicant’s carrier improperly denied the lift station claim, and 2) the Applicant did not take reasonable steps to recover its insurance proceeds after the denial.  The Applicant appealed, explaining that the lift station was equipment not covered by its policy, and that it believed it had reasonably pursued its claim by requesting clarification from its carrier after the denial.  FEMA’s first appeal decision upheld its initial determination.  The Applicant’s second appeal reiterates the reasoning presented in its first appeal. 

Authorities and Second Appeals 

• Stafford Act § 312.
• 44 C.F.R. § 206.250(c).
• PAPPG, at 39.
• RP 206-086-1, Public Assistance Policy on Insurance, at 9.
   

Headnotes

• Section 312 of the Stafford Act prohibits FEMA from duplicating benefits from other sources, including insurance proceeds.  Under 44 C.F.R. § 206.250(c), FEMA deducts actual and anticipated insurance proceeds from other eligible costs.  
  • Since the Applicant did not have insurance coverage for the lift station and did not receive proceeds, providing Public Assistance (PA) funding will not duplicate insurance benefits.
• FEMA’s PA Program and Policy Guide  and its PA Policy on Insurance require applicants to take reasonable efforts to recover insurance proceeds.
  • The Applicant provided email exchanges with its insurance carrier showing that it made reasonable efforts to recover potential proceeds.  

Conclusion

The Applicant demonstrated it made reasonable efforts to recover potential proceeds.  Since the Applicant did not have insurance coverage for the lift station and did not receive proceeds, providing PA funding will not duplicate benefits from another source. 

Appeal Letter

Appeal Analysis

Background

From December 23, 2015 through January 9, 2016, the City of Crane, Missouri (Applicant) experienced severe storms, tornadoes, straight-line winds, and flooding.  Floodwaters inundated the Applicant’s underground sewer lift station and damaged the compressor, compressor motor, control panel electronics, and dehumidifier.   

The Applicant filed a Property Loss Notice with its insurance carrier that included damages to the lift station and its electronics.  The Applicant received a letter from its insurance carrier dated April 12, 2016, which indicated that the Applicant’s policy covered up to $18,000 for fencing and personal property, but among other items did not cover underground pipes, flues, and drains.

On July 25, 2016, FEMA wrote Project Worksheet (PW) 359 to capture $31,601.59 in costs for permanent repairs to the lift station and $6,000 for an approved hazard mitigation proposal (HMP).  On July 29, 2016, FEMA’s Insurance Specialist advised that the Applicant’s policy provided limited coverage for flood damages to unscheduled locations and applied $26,540.71 in anticipated insurance reductions for the lift station.  FEMA obligated $11,060.88 (including the HMP) for PW 359. 

On February 1, 2018, the Applicant received a second letter from its insurance carrier explaining that its property schedule on the date of loss did not include the lift station.  The carrier clarified that the lift station is equipment rather than a building, and therefore was not covered by the Applicant’s unnamed locations coverage.

In a letter dated February 7, 2018, the State of Missouri Emergency Management Agency (Grantee) transmitted the Applicant’s request for a change to the Scope of Work to remove the anticipated proceeds deduction in light of the coverage denial.  FEMA’s Insurance Specialist held a conference call with the Applicant’s insurance carrier on April 10, 2018 to clarify the carrier’s reasons for denying coverage.  Following the call, FEMA determined that: 1) the Applicant’s carrier improperly denied the Applicant’s lift station claim; 2) the Applicant did not take reasonable steps to recover its insurance proceeds after the denial; and 3) removing the anticipated proceeds reduction would conflict with Section 311 of the Stafford Act, unless the Applicant demonstrated that it had obtained insurance coverage for the lift station to guard against future loss.  The Applicant received notice of FEMA’s determination on July 23, 2018.

First Appeal

The Grantee transmitted the Applicant’s first appeal with its approval recommendation in a letter dated September 20, 2018.  The Applicant’s first appeal explained that the lift station was equipment not covered by the Applicant’s policy, and the Applicant believed it had reasonably pursued its claim by requesting clarification from its carrier.  The Applicant represented that its carrier had consistently confirmed that the lift station was not covered by the Applicant’s policy.  The Applicant also provided documentation that it had satisfied the obtain and maintain insurance requirements in Section 311 of the Stafford Act by obtaining coverage for the lift station after the disaster.

FEMA issued a Final Request for Information (RFI) on December 13, 2018, requesting additional documentation regarding the Applicant’s lift station insurance claim.  The Applicant responded by letter dated December 31, 2018.  The Applicant noted it had not filed a formal appeal of the lift station coverage denial with its insurance carrier, but provided documentation of communications with its insurance carrier.  The Applicant also explained that under its insurance policy, lift stations could be included under either the location schedule or equipment schedule. 

The FEMA Region VII Regional Administrator (RA) denied the appeal.  The RA determined that: 1) the lack of clarity and inconsistencies in the Applicant’s insurance policy led to an improper denial of the Applicant’s lift station claim; 2) the Applicant did not provide documentation showing that it made reasonable efforts to pursue its lift station claim; and 3) the Applicant demonstrated that it complied with Section 311’s obtain and maintain requirements.  The Applicant received notice of the determination on April 25, 2019. 

Second Appeal

The Grantee transmitted the Applicant’s second appeal with its approval recommendation via letter dated June 18, 2019.  The Applicant explains that photographs of the lift station show that it is obviously equipment and not a building, and its insurance carrier has therefore consistently denied coverage under its unnamed locations coverage.  The Applicant also clarifies that the working portion of the lift station is entirely underground, and that its policy does not include underground pipes, drains, and wells, as stated in the April 12, 2016 denial letter. 

Discussion

Section 312 of the Stafford Act prohibits FEMA from duplicating benefits from other sources, and FEMA consequently cannot provide funding that duplicates insurance proceeds.[1]  FEMA therefore reduces otherwise eligible costs by actual and anticipated insurance proceeds, and requires applicants to make reasonable efforts to recover insurance proceeds that they are entitled to receive.[2]

The Applicant’s insurance policy did not explicitly or implicitly cover the lift station at the time of the disaster.  As the Applicant’s insurance carrier confirmed, the lift station was not listed on any of the Applicant’s property schedules, and was not eligible for coverage as an unnamed location.  The Applicant later obtained coverage for the lift station by scheduling it under its property policy.  Since the Applicant did not receive insurance proceeds for the lift station, Public Assistance (PA) funding will not duplicate insurance benefits.

Conclusion

The Applicant’s policy did not explicitly or implicitly include coverage for the lift station. As such, once the insurer denied assistance for the lift station, there was no reasonable basis for the Applicant to take additional efforts to recover potential insurance proceeds.  Since the Applicant did not receive proceeds for the lift station, PA funding will not duplicate insurance proceeds.  Therefore, the second appeal is granted.