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Second Appeal Letter
PA ID# 037-UQKMW-00; Nashville Metropolitan Transit Authority
PW ID# 5538; Para-transit Van Replacement
February 21, 2013
James H. Bassham
Tennessee Emergency Management Agency
3041 Sidco Drive, P.O. Box 41502
Nashville, Tennessee 37204
Re: Second Appeal–Nashville Metropolitan Transit Authority, PA ID 037-UQKMW-00, Insurance - Para-transit Van Replacement, FEMA-1909-DR-TN, Project Worksheet (PW) 5538
Dear Mr. Bassham:
This is in response to a letter from your office dated August 13, 2012, which transmitted the referenced second appeal on behalf of Nashville Metropolitan Transit Authority (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) deduction of anticipated insurance proceeds from PW 5538 in the amount of $1,097,196.
As a result of flooding from severe storms during the period of April 30 through May 4, 2010, the Applicant sustained loss to a number of transit vehicles located at the 130 Nestor Street service terminal. FEMA prepared PW 5538 in the amount of $1,097,196 to cover the total cost to replace 41 Para-transit vans (shuttle buses) damaged at the Nestor Street location.
The Applicant’s insurance policy with Fireman’s Fund includes “flood” as a covered peril for all vehicles including public transit buses and vehicles located at 130 Nestor Street. Policy Endorsement 004 Limit of Liability provides $10,000,000 in flood coverage on a per occurrence basis for vehicles specifically listed on the policy. The policy exception to the $10,000,000 per occurrence flood coverage states, “Flood $10,000,000: except 130 Nestor Street, $10,000,000 ‘annual aggregate’ Nashville, TN.”
Following a FEMA insurance review, FEMA determined that the policy exception changes the coverage at the Nestor Street location from $10,000,000 for each and every occurrence to an annual aggregate policy limit amount of $10,000,000 for the Nestor Street location. In addition, FEMA determined that the Applicant did not pursue available insurance proceeds from the insurance company. As a result, FEMA reduced the estimated cost of shuttle bus replacement for PW 5538 to account for anticipated insurance proceeds in the amount of $1,097,196.
In a letter dated January 3, 2012, the Applicant submitted its first appeal to FEMA requesting $1,097,196 for uninsured shuttle buses listed under PW 5538. The Applicant states that FEMA erred in its interpretation of the insurance policy and that damage to vehicles located at 130 Nestor Street was not covered by insurance. Citing policy Endorsement 004 Limit of Liability, the Applicant argues that the endorsement “clearly excludes 130 Nestor Street from damages caused by the peril of flood to items otherwise insured by this policy (i.e. buses).” The Applicant provided a copy of its insurance policy to support its appeal.
Other support documentation provided includes copies of emails and an insurance denial letter from the Applicant’s insurance adjuster, and a copy of a letter dated October 25, 2010, from the Applicant’s insurance broker. The insurance broker’s letter states that the insurance underwriter was “aware that the Nestor Street facility was located in an AE flood zone prior to offering the coverage and endorsed the policy exclusion for flood coverage with a limit of $10,000,000; except 130 Nestor Street, with a $10,000,000 aggregate.” The letter further states that, “this was done to provide the peril of flood for up to $10,000,000 per occurrence for vehicles away from the Nestor Street location.”
Under the first appeal, FEMA reviewed the insurance policy, as well as first appeal support documentation, and determined that the Applicant’s insurance policy covers flood damage to vehicles, including buses, at the 130 Nestor Street location. In a letter dated May 11, 2012, the Regional Administrator denied the appeal stating that the insurance policy shows that the Applicant “can receive $10,000,000 per year for flood at the [Nestor Street] location” and this is “verified in the insurance denial correspondence…which states that the Subgrantee had a $10,000,000 annual aggregate limit at 130 Nestor Street location.”
The Applicant submitted its second appeal on June 21, 2012, which the State transmitted to FEMA on August 13, 2012. The Applicant reiterates its position from the first appeal that flood is a not a covered peril for shuttle buses damaged by flooding at the 130 Nestor Street location. Further, the Applicant states that it filed a lawsuit in the Chancery Court of Davidson County against the insurance company seeking a declaratory judgment as to whether the insurance policy excludes flood damage and proposes that FEMA not take action on the appeal until after the court ruling.
Section 312 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) precludes FEMA from duplicating benefits, including those from insurance. Pursuant to Title 44 Code of Federal Regulations (44 CFR) §206.250(c), General, “Actual and anticipated insurance recoveries shall be deducted from otherwise eligible costs.” FEMA is required to reduce the amount of the grant by any insurance proceeds that the applicant anticipates receiving or does receive from any insurance company. FEMA will estimate the anticipated proceeds and deduct the anticipated amount if the applicant has not completed negotiations with the insurer at the time the PW is developed.
The Applicant has an insurance policy with Fireman’s Fund for coverage of its public transportation vehicles. The amount of insurance coverage is $44,835,000. Endorsement 004 Limit of Liability of the policy provides $10,000,000 in flood coverage on a per occurrence basis for vehicles specifically listed on the policy. The policy exception to the $10,000,000 per occurrence flood coverage states, “Flood $10,000,000: except 130 Nestor Street, $10,000,000 ‘annual aggregate’ Nashville, TN.”
In February 2012, the Applicant filed a declaratory judgment action in the Chancery Court of Davidson County requesting an interpretation of the insurance policy. On October 9, 2012, the Chancery Court of Davidson County granted the Applicant’s motion for summary judgment and found that the Applicant’s insurance policy does not provide flood coverage for any property or contents located at 130 Nestor Street. The Court interprets Policy Endorsement 004 Limit of Liability language to mean that 130 Nestor Street is “excepted from the $10,000,000 in flood coverage granted by the 2009 Policy for any one loss, disaster, or casualty including expenses and charges.”
I have reviewed the information submitted with the appeal and have determined that the Applicant’s insurance policy does not cover flood damage to vehicles at the 130 Nestor Street location. Accordingly, I am granting the second appeal. By copy of this letter, I am requesting the Regional Administrator take appropriate action to implement this determination.
The Applicant should be aware that Section 311 of the Stafford Act requires the Applicant to obtain and maintain adequate and necessary flood insurance as a condition of receiving future Public Assistance at the 130 Nestor Street location.
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