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Second Appeal Analysis
PA ID# 033-99033-00; King County
PW ID# Project Worksheet 1795; King County Courthouse
On February 28, 2001, the Nisqually Earthquake caused significant damage to the King County Courthouse. Both the interior and exterior of the building sustained damage, including some of the buildings stairwells and the elevator shafts. King County (Applicant) applied to FEMA for Public Assistance funding on March 13, 2001.
Prior to the Earthquake, the Applicant developed a conceptual plan to seismically retrofit its courthouse, with an estimated project cost of $70 million. After the Earthquake, the Applicant decided to simultaneously retrofit the courthouse while repairing disaster related damage. On March 26, 2002, FEMA granted an improved project to the Applicant. FEMA used the Cost Estimating Format (CEF) to estimate the eligible repair costs and set the maximum amount of the PA grant. The initial version of PW 1795 ($2,632,508) included the CEF estimate ($3,078,313) and a hazard mitigation project ($188,903), less the estimated insurance recovery ($634,708).
On May 2, 2005, Region X wrote a letter to the state emphasizing that the Applicant needed to document its expenses and insurance reimbursement for the courthouse repairs. The Region stated that FEMA would adjust the anticipated insurance recovery to reflect the actual insurance recovery received once the Applicant files a claim and received the insurance settlement.
During closeout, FEMA determined that the Applicant received more insurance than originally estimated in the PW. Therefore, FEMA prorated the insurance deductible and prepared Version 2 of PW 1795 to deobligate $1,130,524.First Appeal
The Applicant submitted its first appeal on September 14, 2007. The Applicant made three arguments in support of its first appeal. (1) It was inappropriate for FEMA to pro-rate the Applicants deductible; (2) FEMA misled the Applicant to believe that when expenses exceeded the deductible, FEMA would provide 100 percent reimbursement of the deductible; and (3) FEMA incorrectly calculated the deductible pro-ration and that FEMA should only have de-obligated $208,195 in Version 2 of PW 1795.
On May 20, 2008, the Regional Administrator denied the Applicants first appeal. The Regional Administrator determined that appeal concerned duplication of benefits, rather than prorating insurance deductibles. The Regional Administrator upheld the Version 2 de-obligation ($1,130,524) and also de-obligated an additional $1,106,693 because of a duplication of benefits between the Applicants insurance recovery and the estimated cost of the Applicants improved project.Second Appeal
On May 8, 2008, the Applicant submitted a second appeal to the State contesting the improved project status. The Applicant also disagrees with FEMAs determination that it received a duplication of benefits. The Applicant asks that FEMA rescind its de-obligation of $1,130,524 in Version 2 of PW 1795 and reverse its decision to de-obligate an additional $1,106,693. It states that its insurance deductible is eligible for reimbursement.
The State forwarded the Applicants second appeal to FEMA on June 27, 2008. The State supports the Applicants request that FEMA fund the full amount of the Applicants deductible, and believes that there was no duplication of benefits between the Applicants insurance reimbursement and the funds that FEMA would otherwise provide under PW 1795. Finally, the State contends that because FEMA led the Applicant to believe that its deductible would be eligible for reimbursement, the Applicant truncated its assessment and documentation of the disaster-related damage when FEMA prepared the initial PW. Therefore, the PW did not reflect the total cost to repair all disaster damages to the courthouse. DISCUSSION
The issue in this appeal relates to the eligibility of insurance deductibles for improved projects when (1) the actual cost of disaster-related repairs exceeds the amount FEMA originally estimated in the PW and (2) the Applicant receives more insurance than FEMA originally estimated in the PW.
Title 44 CFR §206.203(d)(1), Federal grant assistance, Funding options
, states (1) Improved Projects.
If a subgrantee desires to make improvements, but still restore the predisaster function of a damaged facility, the Grantees approval must be obtained. Federal funding for such improved projects shall be limited to the Federal share of the approved estimate of eligible costs. FEMA limits Federal funding for improved projects because usually it is not possible for applicants to track separately eligible and ineligible costs. In this case, the improved project consisted of disaster-related repairs and seismic retrofit of the courthouse. FEMA originally estimated that the cost of eligible repairs to be $3,267,216 (including $188,903 for hazard mitigation) with anticipated proceeds of $634,708. The Applicants insurance company estimated the cost to repair disaster-related damages to be $5,315,526 and paid the Applicant $2,871,026 (repair cost minus the deductible of $2,443,600). The Applicant has submitted sufficient information to demonstrate that the original PW did not include the total cost to repair all disaster damages to the courthouse. Therefore, it is appropriate for FEMA to adjust the total eligible cost of the project and increase the Federal contribution to the improved project at closeout. CONCLUSION
The Applicants insurance deductible ($2,443,600) associated with the repair of disaster-related damages to the courthouse is an eligible cost. FEMA payment of the insurance deductible does not duplicate assistance that the Applicant received from its insurance company. Accordingly, the appeal is approved.