Earthquake Repairs - Cracked Walls

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1008-DR
ApplicantLos Angeles County Internal Services Department
Appeal TypeSecond
PA ID#037-91036
PW ID#53934
Date Signed1999-10-05T04:00:00
Citation: FEMA-1008-DR-CA, P.A. 037-91036, Los Angeles County Internal Services Department, DSR 53934

Cross-reference: Legal Responsibility, Leased Facility, Insurance

Summary: The Los Angeles County Internal Services Department (County) leased a distribution center/warehouse from Arthur Gilbert (Lessor). As a result of the January 17, 1994, Northridge Earthquake, interior walls in the facility were cracked. A Damage Survey Report (DSR) was prepared for $8,693 to fund repairs, but obligated for $0 on May 5, 1995, because the County was not legally responsible for the repairs. The County submitted its first appeal on November 18, 1997, claiming that a clause in its lease clearly stated that it was legally responsible for paying for earthquake-related repairs. It agreed, however, that the lease held the Lessor responsible for the performance of the repair work. FEMA denied the appeal on December 15, 1998. It cited 44 CFR 206.223(a)(3), which says that the applicant must be legally responsible for disaster-related repair work. In this case, the lease agreement showed that the Lessor was responsible for repair and restoration work, and the County was responsible for insuring the building, including paying the deductible. The building was insured through the County's Joint Power Authority (JPA) policy. However, the County was not legally responsible for the repair work. In its second appeal, submitted on April 12, 1999, the County argues that "virtually all costs under the lease are the responsibility of the County." It states that the aim of 44 CFR is to reimburse the costs of work, and therefore, FEMA should determine who is legally responsible to pay for the scope of work included in DSR 53934.

Issues: 1) Is the County legally responsible for the work performed? 2) Does a requirement to obtain insurance constitute legal responsibility for repair and restoration work?

Findings: 1) No, the lease clearly states that the Lessor is responsible for earthquake-related repair and restoration. 2) No.

Rationale: 44 CFR 206.223(a)(3)

Appeal Letter

October 5, 1999

Mr. D.A. Christian
Governor's Authorized Representative
Governor's Office of Emergency Services
74 North Pasadena Avenue, West Annex, Second Floor
Pasadena, California 91103-3673

Re: Second Appeal - Los Angeles County Internal Services Department, Department of Public Social Services Distribution Center Warehouse, FEMA-1008-DR-CA, DSR 53934

Dear Mr. Christian:

This is in response to the referenced second appeal submitted by your office on April 23, 1999. The Los Angeles County Internal Services Department (County) leased a building from Arthur Gilbert (Lessor), which was damaged by the Northridge Earthquake on January 17, 1994. Damage Survey Report (DSR) 53934 was prepared for $8,693 to fund repairs to wall cracks. The DSR was obligated for $0 on May 5, 1995, after it was determined that the County was not legally responsible for the repair work.

As explained in the enclosed analysis, an item of work must be the legal responsibility of an eligible applicant in order to receive financial assistance, according to 44 CFR 206.223(a)(3). In this case, the County has not shown that it was legally responsible for the repair work included in DSR 53934. Therefore, the appeal is denied.

Please inform the applicant of my determination. In accordance with 44 CFR 206.206, my determination constitutes the final decision on this matter. The current appeal procedure was published as a final rule in the Federal Register on April 8, 1998, and governs appeal decisions made on or after May 8, 1998.

Sincerely,
/S/
Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate

cc: David Fukutomi
Federal Coordinating Officer
Northridge Long-Term Recovery Area Office

Appeal Analysis

BACKGROUND
The Northridge Earthquake struck the Los Angeles area on January 17, 1994. As a result, interior walls of a distribution center/warehouse were cracked and the cracks were evident from an exterior wall. The Los Angeles County Internal Services Department (County) leased the building from Arthur Gilbert (Lessor). The building was inspected on June 6, 1994, and a Damage Survey Report (DSR) was prepared for $8,693 to fund repairs. The DSR was obligated for $0 on May 5, 1995, once it was determined that the building owner was legally responsible for the repair work.

The County submitted its first appeal on November 18, 1997. It cited Paragraph 17 of its lease agreement, which requires the County to insure the Lessor against loss due to earthquake damage. The building was insured through the County's Joint Power Authority (JPA) policy. The County claimed that the clause clearly stated that it was legally responsible for paying for earthquake-related repairs. The County reasoned that, "even though the Lessor is responsible for repairs to damaged (sic) caused by the earthquake, the funding for these repairs up to the `full insurable replacement value' is the County's legal responsibility."

FEMA denied the appeal by letter dated December 15, 1998. FEMA cited 44 CFR 206.223(a)(3), which says that the applicant must be legally responsible for disaster-related repairs. It said that generally the lease is sufficient to determine responsibility. In this case, the lease agreement showed that the Lessor was responsible for repair and restoration work, and the County was responsible for insuring the building. However, this does not constitute legal responsibility for repair work on the part of the County.

SECOND APPEAL
In its second appeal, submitted April 12, 1999, the County provides no new information. It argues that "virtually all costs under the lease are the responsibility of the County, including the cost to repair earthquake damage." It agrees that the Lessor is responsible for making earthquake-related repairs, but contends that it is legally obligated to provide funds for these repairs. It states that the aim of 44 CFR is to reimburse the costs of work, and therefore, FEMA should determine who is legally responsible to pay for items of work. In addition, the County assumes that FEMA is assigning the Lessor with the responsibility for paying the insurance deductible and states that this is contrary to the purpose of the lease or insurance.

DISCUSSION
To be eligible, an item of work must be the legal responsibility of an eligible applicant, according to 44 CFR 206.223(a)(3). Therefore, the County must show that it was legally responsible for the work.

In cases where property is leased, legal responsibility is generally established by the lease agreement. The County states that items 7 and 9B of the lease agreement "obligate the Lessor to repair earthquake damage subject to Paragraph 17." However, Paragraph 7 deals with damage or destruction of the facility and does not refer to Paragraph 17. Instead, it states that if an earthquake renders the premises unfit, the County may terminate the lease. In the event of lesser damage (i.e., less than 25 percent), it states that the Lessor "shall commence the repair and restoration of the premises." It goes on to say that the commencement of repair and restoration will require the Lessor to obtain a work order or contract to obtain labor and materials needed for repair or restoration. In the even that more than 25 percent is damaged, the Lessee may surrender the property, or "cause the Lessor to commence the repair and restoration of the premises with 15 business days."

Paragraph 9 of the lease agreement deals with repair, maintenance or replacement of the facility. Paragraph 9B states that in terms of the roof and basic structure, the County's responsibility is limited to routine repair and maintenance. If the roof or basic structure "wear out or fail beyond repair as a result of .damage by earthquake . the Lessor shall replace said items at its own expense subject to the provisions of Paragraph 7 and 17." According to the DSR, the building did not sustain any major structural damage. Instead, walls were cracked and then repaired. Therefore, this paragraph does not apply to DSR 53934, except to reinforce the Lessor's responsibility for the performance of earthquake-related repairs and restoration.

The County's requirement to obtain insurance for the property is explained in Paragraph 17 of the lease agreement. Paragraph 17 states that the County shall keep the buildings and improvements insured against loss or damage by earthquake in an amount not less than the full insurable replacement value. The obligation to obtain earthquake insurance does not constitute legal responsibility for the repair or replacement of the facility. Responsibility for insurance in a lease in not determinative. Paragraph 7 deals specifically with the type of damage that occurred as a result of the earthquake and clearly indicates that the Lessor will commence with the repair and restoration of the facility.

CONCLUSIONS
In order to be eligible for financial assistance, according to 44 CFR 206.223(a)(3), an item of work must be the legal responsibility of an eligible applicant. The lease agreement between the Lessor and the County states that the Lessor is responsible for the work associated with DSR 53934. The County is not responsible for this work, and therefore, cannot be reimbursed by FEMA. For this reason, the appeal is denied.
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