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Second Appeal Letter
PA ID# 000-U7S4M-00; Florida Inland Navigation District
PW ID# 851; Legal Responsibility
September 11, 2012
Florida Division of Emergency Management
2555 Shumard Oak Boulevard
Tallahassee, Florida 32399
Re: Second Appeal–Florida Inland Navigation District, PA ID 000-U7S4M-00, Legal Responsibility, FEMA-1785-DR-FL, Project Worksheet (PW) 851
Dear Mr. Koon:
This letter is in response to a letter from your office dated December 30, 2011, on behalf of the Florida Inland Navigation District (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) decision to deny funding of repair costs for damage to the BV-NASA Dredged Material Management Area (DMMA) which was under construction at the time of the disaster. The Applicant seeks reimbursement totaling $168,358.
The Applicant is authorized by Congress to maintain the Intracoastal Waterways of Central Florida to a depth of 12 feet for commercial navigational shipping. On January 14, 2008, C&D Construction, Inc. (Contractor) began construction of a basin that was intended to be used as a depository for shoal material dredged from the Intracoastal Waterway in Brevard County. On August 19, 2008, heavy rain and flooding caused by Tropical Storm Fay caused the BV-NASA Dredged Material Management Area (DMMA) to fill to a depth of 12 feet over an area of 32 acres interrupting the completion of the construction project which was approximately 90% complete. The flooding caused 30 percent of the compacted sand berm containment walls and adjacent road to collapse, causing wash out and erosion in numerous areas around the perimeter of the DMMA. The Applicant hired the Contractor to rebuild the berm walls and the road for the DMMA project. Engineering estimates to repair the damages to the facility total 1,505 cubic yards of material and associated engineering and labor costs.
FEMA prepared PW 851 in the amount of $168,358 to document the scope of work and estimated cost to repair the facility. However, upon review of the construction contract, FEMA determined that the repairs were the responsibility of the contractor, and the PW was obligated for zero dollars.
The Applicant submitted its first appeal on October 15, 2009, which was forwarded by the Florida Division of Emergency Management (FDEM) to FEMA on December 14, 2009, requesting that FEMA obligate funds for PW 851 in the amount of $168,358. FDEM, in support of the first appeal, maintained that although facilities under construction are typically considered to be the responsibility of the contractor until the owner has accepted the work as complete, there are situations where repairs would be eligible for post-disaster reimbursement under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). Citing the FEMA Public Assistance Digest (FEMA 321 January 2008), FDEM stated that repairs are eligible if “the contract under which the work is being performed places responsibility for damage on the applicant during the construction period.”
In a letter dated March 25, 2010, the Regional Administrator denied the first appeal for $168,358 stating that the Applicant was requesting reimbursement for repair costs because the insurance policy obtained by the Contractor, required as part of the contractual agreement for the construction of the berm, did not include coverage for damage in certain flood zones. The appeal issue was one of legal responsibility for the repair of the damaged facility.
The Regional Administrator explained that Section 406(e) (4) Repair, Restoration, and Replacement of Damaged Facilities, Eligible Costs, Special rule of the Stafford Act outlines specific guidance to account for facilities under construction at the time of a disaster. This section states that:
In any case in which the facility being repaired, restored, reconstructed, or replaced under this section was under construction on the date of the major disaster, the cost of repairing, restoring, reconstructing, or replacing the facility shall include, for the purpose of this section, only those costs that, under the contract for the construction, are the owner's responsibility and not the contractor's responsibility.
The Regional Administrator also stated that FEMA did not find any language in the contract to support the Applicant's assertion that the Contractor was not responsible for damage to the facility under construction at the time of the event. The contractual requirement to purchase “all risk” insurance coverage places responsibility on the Contractor for the facility and not the eligible Applicant.
FDEM submitted a second appeal on the Applicant’s behalf in a letter dated December 30, 2011. As explained in the second appeal, FDEM sought a clarifying opinion from the State Insurance Commissioner’s Office of Insurance Regulation (OIR) on whether it would have been possible for an entity (Contractor or Applicant) to have reasonably obtained “all risk” coverage for the subject project. FDEM states that the OIR passed on the question stating that the Applicant did not have proper legal standing necessary to request a ruling.
FDEM reiterates the arguments from the first appeal that the repairs are eligible if “the contract under which the work is being performed places responsibility for damage on the applicant during the construction period.” Second appeal documentation includes a copy of the Contractor’s insurance certificate for the referenced work and a map showing the relative location of the project site to the Flood Insurance Rate Map zones. FDEM contends that the insurance certificate specifically names the Applicant as an additional insured for the construction project that was underway at the time of the disaster. In addition, FDEM states that the project was excluded from coverage and consequently that places responsibility for the repairs on the Applicant. FDEM further argues that the Contractor did get the insurance as required by the terms of the contract and since it was not possible to insure the subject area that the Applicant indeed has legal responsibility for the repairs.
Pursuant to Section 406(e)(4) of the Stafford Act, eligible costs to repair a damaged facility that is under construction at the time of the disaster include only those costs that, according to the construction contract, are the owner’s responsibility and not the contractor’s. Further, FEMA’s Public Assistance Guide, dated June 2007, states, “Typically, a facility under construction is the responsibility of the contractor until the owner has accepted the work as complete.”
Article 8(a) General Conditions of the construction contract states the following:
Unless otherwise provided in the Supplementary Conditions, the Contractor shall purchase and maintain property insurance upon the work at the site in the amount of the full replacement cost thereof. This insurance shall include the interests of the District, the Contractor, Subcontractors, and the Engineer, all of whom shall be listed as insured or additional insured parties, shall insure against the perils of fire and extended coverage and shall include “all risk” insurance for physical loss and damage including theft, vandalism and malicious mischief, collapse, explosion, hail, lightning, wind, riot, aircraft, smoke and water damage, and shall include damages, losses and expenses arising out or resulting from any insured loss or incurred in the repair or replacement of any insured property ...
It was the responsibility of the Contractor to insure against “all risks”. The Supplementary Conditions section of the contract regarding property insurance does not alter this responsibility. The only property damage reference in that section is a cap limiting the amount eligible per event.
Repair costs to a damaged facility that is under construction can be eligible, if the construction contract places responsibility for the damage on the Applicant during construction. The contract does not place responsibility for BV-NASA DMMA damage on the Applicant during construction. Instead, the contract required the contractor to obtain “all risk” property insurance to cover the site during construction. The fact that the insurance policy the contractor obtained did not cover flood loss does not affect the contractor’s responsibility for the loss.
I have reviewed all of the information submitted with the appeal and determined that the Regional Administrator’s decision in the first appeal is consistent with Public Assistance regulations and policy. Accordingly, I am denying the second appeal.
Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 CFR §206.206, Appeals.
cc: Major P. May
FEMA Region IV