Insurance

Appeal Brief

Appeal Letter

Appeal Analysis

Background

In 2005, Hurricane Katrina, caused extensive damage to properties owned by Plaquemines Parish (Applicant) and the Federal Emergency Management Agency (FEMA) prepared numerous Project Worksheets (PWs) to address the damage.  FEMA wrote into those PWs the requirement that the Applicant obtain and maintain (O&M) insurance coverage for the damaged sites as a condition of receiving Public Assistance (PA) funding for any future disaster damage.

In response to Hurricane Katrina, beginning in 2007, the Louisiana State Insurance Commissioner (SIC) issued a letter to the President stating that insurance was not reasonably available to applicants in the full amount of their disaster related damage.  In a 2010 letter, the SIC restates the proposal that applicants O&M the maximum amount of insurance possible from the National Flood Insurance Program (NFIP) for flood coverage for building and contents.  The SIC further noted that local government applicants should spend 0.33 percent of their annual operating budget to obtain additional insurance coverage.

Subsequently, between August 26 and September 10, 2012, the Applicant was struck by Hurricane Isaac with high winds, wind driven rain, and flooding.  Many of the sites damaged by Hurricane Katrina were again damaged as a result of Hurricane Isaac.  On May 15, 2013, FEMA prepared PW 1527 Version 0 to address the damage which occurred at 22 sites within the Parish.  On October 12, 2016, FEMA obligated PW 1527 for $650,022.68, which was the value of eligible costs for all sites, less reductions and duplications, which included O&M reductions in the amount of $797,809.92 for the four sites on appeal.  FEMA applied the reductions to the four sites because Hurricane Isaac caused damage to the same sites as Hurricane Katrina years earlier.  FEMA determined these reductions were appropriate because the Applicant had not met the necessary O&M requirements written into the Hurricane Katrina PWs, and as a result, the Applicant was not eligible to receive PA funding for those sites.

First Appeal

On December 20, 2016, the Applicant submitted its first appeal to the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee).  The Applicant argued that FEMA made incorrect reductions at four locations, sites: 1, 6, 13, and 20.  The Applicant identified four reasons for appealing, claiming that FEMA:

1. improperly identified the existing insurance which the Applicant obtained, and which was in place at the time of Hurricane Isaac;
2. failed to consider that the Applicant obtained a SIC certificate for prior disasters;
3. did not require insurance as a condition to the previous assistance at the time of Hurricane Isaac; and,
4. incorrectly interpreted its regulations in determining that the Applicant had not obtained and maintained the required insurance for prior disasters.

The Grantee forwarded the appeal and its support thereof to FEMA while highlighting the same arguments made by the Applicant.

On May 17, 2017, FEMA issued a Request for Information (RFI) seeking to determine whether the Applicant’s sites were insured at the time of the disaster.  The Applicant responded and admitted to not having flood insurance for Sites 1, 6, or 20.

On February 28, 2018, FEMA issued a final RFI stating that that there was a lack of evidence to demonstrate that the Applicant had NFIP coverage or commercial flood insurance for its sites.  The RFI further noted a lack of evidence to demonstrate that the Applicant had valid SIC certifications and that it complied with the SIC certificate requirements.

In response, the Applicant provided copies of the SIC certifications along with copies of its 2009 and 2011 operating budgets, among other items.  The response further argued that FEMA could not require insurance beyond the type and extent certified by the SIC.

On August 21, 2018, the FEMA Regional Administrator (RA) denied the appeal.  The RA determined that the funding for sites 1, 6, and 20 was ineligible because the Applicant did not satisfy the O&M requirements for each site.  The RA further determined that the Applicant had not obtained and maintained sufficient insurance to meet the O&M requirements for site 13.  Additionally, the RA found that the Applicant had not demonstrated that it complied with the SIC requirement that it expend 0.33 percent of its annual operating budget on insurance.  Finally, the Applicant’s appeal for $10,000 in hazard mitigation funding associated with site 13 was denied because the Applicant did not satisfy the site’s O&M requirements.

Second Appeal

In response to the first appeal decision, the Applicant filed its second appeal arguing that FEMA:

1. did not give the Applicant notice of the SIC certification issue at the PW stage, nor during the first appeal process, and thus, it was not afforded an opportunity to address the issue before the first appeal decision;
2. misunderstood the Applicant’s insurance coverage for site 13; and,
3. did not require it to meet O&M requirements in prior disasters as a condition of receiving future PA funding.

On December 19, 2018, the Grantee supported the appeal, furthering the same arguments as the Applicant and forwarded it to FEMA.

Discussion

Obtain and Maintain Requirement

Section 311 of the Stafford Act requires an applicant to obtain and maintain the proper type and extent of insurance as may be reasonably available, adequate, and necessary to protect against future loss to such property.  This requirement applies to any property to be repaired, restored, reconstructed, or replaced with PA funds.[1]  Such types and amounts of insurance must be reasonable and necessary to protect the facility against future damage from a similar disaster.[2]  Specifically, an applicant must obtain and maintain insurance to cover the eligible facility for the

same type of disaster that caused the damage, and coverage must, at a minimum, be in the amount of the estimated eligible damage for the facility.[3]

If an applicant fails to satisfy an insurance requirement for a facility that previously received PA funding, then FEMA will not provide assistance for damage sustained in a future disaster.[4] FEMA may not require greater types and extent of insurance than what the SIC certifies as reasonable.[5]

In this case, the Applicant did not obtain and maintain any insurance for Sites 1, 6, and 20.[6]  The requirement to obtain and maintain insurance was documented in the corresponding PWs for Hurricane Katrina.[7]  Obtaining and maintaining this insurance coverage is a mandatory condition for receiving future PA funding and without meeting this requirement, the Applicant’s Facilities are not eligible for funding.

The Applicant states that site 20 was still under construction when Hurricane Isaac struck and that as such it could not have obtained and maintained insurance coverage.  However, the Applicant had repaired the Facility to the point where it was operational and in use.  This, coupled with the fact that the site was located in a Special Flood Hazard Area, indicates that the Applicant could have obtained coverage through the NFIP. 

The Applicant obtained and maintained an insurance policy for site 13 from the NFIP in the amount of $500,000 for flood with $80,000 in contents coverage; however, this amount did not cover the total amount of the Facility’s O&M requirement of $2,032,826.80.  The SIC certificate states that due to market conditions and premium costs, wind and flood insurance in excess of the NFIP coverage is not reasonably available in the amounts necessary.  If an applicant cannot reasonably obtain the required insurance, the SIC certificate instead required the Applicant to spend 0.33 percent of its annual budget to obtain further insurance coverage.  While the Applicant submitted some annual budget documentation, the Applicant did not demonstrate or support the amount of its annual budget it spent on insurance to satisfy the SIC certificate requirement.  Moreover, there was no documentation to show that the Applicant attempted to find any or additional insurance for the sites in question, nor that it was unable to obtain such insurance.  As such, the Applicant did not meet the O&M requirements for site 13, and it is therefore ineligible for PA funding.

The following table provides a summary of insurance requirements based on Hurricane Katrina damages, as well as the coverage in place at the time of Hurricane Isaac.

Hazard Mitigation

FEMA may provide for cost-effective mitigation measures that reduce or eliminate the risk of future similar damages in PA-eligible facilities.[8] The Applicant also appealed for $10,000 in hazard mitigation funding associated with site 13.  However, because the Applicant did not meet the O&M requirements, the facility is also ineligible for hazard mitigation funding.

Conclusion

The Applicant was required to obtain and maintain insurance coverage as a result of damages sustained during Hurricane Katrina.  When Hurricane Isaac struck, the Applicant either did not have insurance coverage or had insufficient insurance coverage for the sites on appeal.  Therefore, the Facilities in question are ineligible for PA funding.  Accordingly, the appeal is denied.