Insurance

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1791-DR-TX
ApplicantGalveston Center for Transportation and Commerce
Appeal TypeSecond
PA ID#167-U7MAQ-00
PW ID#12407, 8521, and 9103
Date Signed2014-12-16T00:00:00

Conclusion:  NFIP reductions for PW 12407 are not appropriate because insurance proceeds were not available to the Applicant.  Mold-related NFIP reductions for PWs 8521 and 9103 are appropriate because NFIP covers mold remediation when mold abatement activities are performed following flood-related damages.

Summary Paragraph

The Galveston Center for Transportation and Commerce (Applicant) is responsible for operating and maintaining the Galveston Railroad Depot Museum.  Hurricane Ike damaged several museum buildings including the Depot Building, the Theater, and the West Ticket Office.  FEMA prepared PWs 12407, 8521, and 9103 for the repairs to the three buildings for $87,329.00, $62,647.00, and $115,749.00, respectively.  FEMA applied mandatory National Flood Insurance Program (NFIP) reductions to all three PWs and deducted the maximum proceeds available under the NFIP from the approved cost estimates.  The Applicant submitted a first appeal requesting FEMA reconsider the insurance reductions and the requirement to obtain and maintain insurance for each PW.  The FEMA Regional Administrator partially approved the Applicant’s first appeal.  The Applicant submitted a second appeal of FEMA’s determination regarding the mandatory NFIP reductions for PWs 12407, 8521, and 9103.  For PW 12407, the Applicant states that NFIP insurance coverage for the Railroad Depot Building was not available because the owner of the building had already purchased the maximum amount of insurance allowed for one structure.  The Applicant also asserts that the insurance reductions taken by FEMA on PWs 8521 and 9103 were excessive because the NFIP would not have covered mold remediation.

Authorities and Second Appeals

  • Stafford Act § 406(d), 42 U.S.C § 5172.
  • SFIP § V(D)(4).

Headnotes

  • Stafford Act § 406(d) states that any facility located in a special flood hazard area, identified more than  year by the Director, that is damaged by flooding in a major disaster and is not covered by flood insurance on the date the flooding occurred will have any federal assistance available reduced by the maximum amount of insurance proceeds which would have been payable through the National Flood Insurance Act of 1968.
    • None of the Applicant’s facilities included in the second appeal were covered on the date the flooding occurred.
  • Standard Flood Insurance Policy (SFIP) § V(D)(4) states that mold damage resulting from “failure to inspect and maintain the property after a flood recedes” is not covered by NFIP.

The Applicant performed mold remediation approximately one year after the flooding; however, initial mold abatement activities were conducted to include the application of mildewcide and fungicide to prevent further contamination.

Appeal Letter

December 16, 2014

W. Nim Kidd, CEM
Chief
Texas Division of Emergency Management
PO Box 4087
Austin, TX 78773-0220

Re: Second Appeal-Galveston Center for Transportation and Commerce, PA ID 167-U7MAQ-00 FEMA-1791-DR-TX; Project Worksheets (PW) 12407, 8521, and 9103 - Insurance

Dear Chief Kidd:

This is in response to a letter from your office dated October 9, 2012, which transmitted the referenced second appeal on behalf of the Galveston Center for Transportation and Commerce (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) mandatory National Flood Insurance Program (NFIP) reductions for PW 12407 in the amount of $194,241.90, and mold-related NFIP reductions for PWs 8521 and 9103 in the amounts $169,945.00 and $103,512.00, respectively.

As explained in the enclosed analysis, I have reviewed the information submitted with the appeal and have determined that the NFIP reductions of the eligible funding provided by PW 12407 are not appropriate.  Accordingly, I am granting this portion of the appeal.  However, the mold-related NFIP reductions of the eligible funding provided by PWs 8521 and 9103 are appropriate; therefore, this portion of the appeal is denied.  By copy of this letter, I am requesting the Regional Administrator take appropriate action to implement this determination. 

Please inform the Applicant of my decision.  This determination constitutes the final Agency action on this matter pursuant to 44 C.F.R. § 206.206, Appeals.

Sincerely,

/s/

William W. Roche
Director
Public Assistance Division

Enclosure

cc:  George A. Robinson
       Regional Administrator
       FEMA Region VI

Appeal Analysis

Background

The Galveston Center for Transportation and Commerce (Applicant) is a private non-profit organization legally responsible for the facilities identified in PWs 12407,  8521, and 9103. The Applicant operates the Galveston Railroad Museum.  Hurricane Ike, which struck Galveston County on September 13, 2008, damaged several museum buildings including the Railroad Depot, the Theater, and the West Ticket Office.  FEMA prepared Project Worksheets (PWs) 12407 (Railroad Depot), 8521 (Theater), and 9103 (West Ticket Office) for the repairs to the three buildings for $87,329.00, $62,647.00, and $115,749.00, respectively.  FEMA applied mandatory National Flood Insurance Program (NFIP) reductions to all three PWs and deducted the maximum proceeds available under the NFIP from the approved cost estimates.

First Appeal

The Applicant submitted their first appeal of nine PWs, including PWs 12407, 8521, and 9103, on March 1, 2012, requesting FEMA reconsider the insurance reductions and the requirement to obtain and maintain (O&M) insurance.  In response to the first appeal, FEMA performed a comprehensive insurance review on all nine PWs.  On June 8, 2012, the FEMA Region VI Regional Administrator (RA) partially approved the Applicant’s first appeal.  The RA’s determinations relative to PWs 12407, 8521, and 9103 are summarized below.

  • PW 12407 (Railroad Depot) – The mandatory NFIP reduction of $194,241.90 was appropriate; however, FEMA removed the O&M requirement, because the Moody Foundation, the owner of the building,  previously purchased the maximum NFIP coverage.  No additional coverage was available.
  • PW 8521 (Theater) – FEMA reduced the mandatory NFIP reduction of $260,822.00 to $259,575.00, increasing funding to $63,894.00.  The O&M requirement was appropriate.
  • PW 9103 (West Ticket Office) – The mandatory NFIP reduction of $154,867.00 was appropriate as was the O&M requirement.

Second Appeal

On August 28, 2012, the Applicant submitted its second appeal of FEMA’s determination regarding the mandatory NFIP reductions for PWs 12407, 8521, and 9103.  For PW 12407, the Applicant states that NFIP insurance coverage for the Railroad Depot, which occupies a portion of the first floor of an eleven story building, was not available because the owner of the building purchased the maximum amount of insurance allowed for one structure.  Furthermore, the policy holder received the maximum NFIP insurance proceeds of $500,000.00--which did not cover damages incurred by the museum portion of the building.  Therefore, the Applicant asserts that FEMA should not have applied an NFIP reduction to PW 12407.  The Applicant also asserts that the insurance reductions taken by FEMA on PWs 8521 and 9103 were excessive because the NFIP would not have covered mold remediation.  Further, the Applicant states that the cost estimates approved under PWs 8521 and 9103 are low due to building upgrades required by codes and standards.  The Applicant is preparing to submit a claim to FEMA for the costs associated with the code and standard upgrades and asserts that FEMA should not apply an NFIP reduction to those costs because code and standard upgrades are not covered under the NFIP.  The Applicant is requesting that the FEMA Recovery Directorate Assistant Administrator advise the Region VI closeout staff that no NFIP reduction should be applied to costs associated with code and standard upgrades.  The Texas Division of Emergency Management (Grantee) transmitted the appeal to FEMA on October 9, 2012, supporting the Applicant’s request.

Discussion

If a facility located in a special flood hazard area identified for more than one year is damaged by flooding and the facility is not covered by flood insurance, the federal assistance for the repair of the facility will be reduced by the lesser of the value of the facility or the maximum amount of insurance proceeds which would have been payable if the facility had been covered by flood insurance under the National Flood Insurance Act of 1968.[1]  The three facilities at issue are located in a special flood hazard area and were not covered by flood insurance when Hurricane Ike struck. 

PW 12407 – Railroad Depot Building

FEMA applied a mandatory NFIP reduction of $194,241.90 to PW 12407.  The Applicant asserts that the mandatory insurance deduction was inappropriate because the depot is not an insurable building.  The applicant explains that the Railroad Depot is not a stand-alone building rather it occupies approximately 5,340 square feet of the first floor in the Shearn Moody Plaza Building.  At the time of the event the owner of the building had obtained the maximum coverage available under the NFIP for that building, $500,000.00, and pursuant to the terms of the insurance, the area occupied by the Railroad Depot was excluded from coverage.[2]  In short the Applicant concludes that the NFIP reductions were inappropriate because they were effectively precluded from obtaining insurance, and therefore the NFIP reduction of $194,241.90 should be restored.

PWs 8521 and 9103

FEMA applied mandatory NFIP reductions of $259,575.00 and $154,867.00 to PWs 8521 and 9103, respectively.  The cost estimates approved under both PWs include costs for mold remediation, $169,945.00 and $103,512.00, respectively, and FEMA applied the NFIP reduction to those costs as well as to the disaster damage repair costs.  The Applicant asserts that NFIP coverage for mold remediation is extremely limited citing the Standard Flood Insurance Policy (SFIP) § V(D)(4) which states, “We do not insure for direct physical loss caused directly or indirectly by … water, moisture, mildew, or mold damage that results primarily from any condition … that is within your control including but not limited to… failure to inspect and maintain the property after a flood recedes.”[3]  The Applicant includes an affidavit with its appeal from a retired Director of Claims for the NFIP who states:

  • “The likelihood that the NFIP would have paid any significant portion of the mold remediation costs is remote;”[4]
  • “The unlikely payment of insurance proceeds under the SFIP is the result of the extended time between emergency abatement and final restoration, the significant uncovered expenses incurred for monitoring and testing and assessment and reporting of mold and asbestos remediation, the presence of asbestos, the impact of that asbestos on remediation costs, and the limited coverage for mold and asbestos provided by the SFIP.”[5]

Further, the Applicant argues that the SFIP limits any coverage involving asbestos to $10,000.00.  The Applicant cites the SFIP § III(C)(3), which provides that the coverage for damage caused by pollutants is limited to $10,000.00 and does not include testing for or the monitoring of pollutants.[6]

While the SFIP does not specifically state whether the mold remediation funded under PWs 8521 and 9103 would be covered in the Applicant’s case, FEMA’s NFIP Adjuster Claims Manual provides examples of coverage related to mold remediation.  For instance, if after the insured has taken mitigation measures, mold reappears and causes damage to the upper portions of walls, ceilings, etc., the NFIP will honor such claims if the insured can show that mitigation attempts were made.[7]  In this case, the Applicant took prudent mitigation measures by hiring a contractor to perform emergency mold abatement and to apply mildewcide shortly after Hurricane Ike.  Therefore, it is likely that the mold remediation work funded under PWs 8521 and 9103 would have been covered.  Further, the section of the SFIP cited by the Applicant regarding pollutants does not apply to the work at issue under PWs 8521 and 9103.  That section refers to damage caused by pollutants.  The asbestos contained in the building materials did not cause any damage.

Based on the documentation submitted by the Applicant with its appeal, had the Theater and the West Ticket Office been insured under the NFIP, the Applicant likely would have received insurance proceeds to cover the mold remediation work included in the scopes of work of PWs 8521 and 9103 and the coverage for the removal and replacement of asbestos containing materials would not have been limited to $10,000.00.  Accordingly, applying the mandatory NFIP reduction to the costs associated with mold remediation is appropriate.

In its appeal, the Applicant provides its actual, incurred mold and asbestos remediation costs which include costs for mold consulting and testing, microbial inspection, and asbestos surveys ($8,489.00 for PW 8521 and $2,377.00 for PW 9103).  The Applicant states that the NFIP does not cover costs for the assessment and monitoring of mold.  While this is the case, the estimates approved for mold remediation under PWs 8521 and 9103 do not include costs for consulting, inspection, and surveys performed prior to the remediation work.  Therefore, no adjustment to the NFIP reductions under PWs 8521 and 9103 to account for the lack of coverage for such activity is necessary.

Regarding the Applicant’s request that the FEMA Recovery Directorate Assistant Administrator advise the Region VI closeout staff on the applicability of NFIP reductions to costs associated with code and standard upgrades, it would not be appropriate to address this request as part of a second appeal response because the FEMA Regional Administrator has not made a prior determination on the issue.

Conclusion

The Railroad Depot is a portion of an insured building located in a Special Flood Hazard Area.  However, because the maximum proceeds available under the existing policy were distributed to the policy holder and did not include any flood-related damages specific to the museum, no NFIP proceeds were available to the Applicant. Therefore, any NFIP-related reductions to PW 12407 should not apply.  The mandatory NFIP reductions applicable to mold-related damages for PW 8521 and PW 9103 are appropriate given the emergency mold abatement activities conducted, and funded by FEMA, following Hurricane Ike.


[1] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 406(d)(1) and (2), 42 U.S.C. § 5172(d) (2007); see also 44 C.F.R. §§ 206.250(d) and 206.252(a) (2008). 

[2] See Moody Foundation insurance declarations; see also letter from President, Shearn Moody Plaza Corporation, to Executive Director, Galveston Railroad Museum (Mar. 17, 2014) (stating no insurance proceeds were payable to the Applicant) [hereinafter Letter from President].

[3] National Flood Insurance Program (NFIP) General Property Form: Standard Flood Insurance Policy (SFIP) § V(D)(4)(b)(3) (2007) (codified at 44 C.F.R. Pt. 61, App. A(2)).

[4] Affidavit  from James Shortley, (September 29, 2012) [hereinafter Affidavit 2]. 

[5] Affidavit 2, supra note 4.

[6] 44 C.F.R. Pt. 61, App. (A)(2) at § III(C)(3)

[7] National Flood Insurance Policy (NFIP) Adjuster Claims Manual § VIII(C)(2) at VIII11 (2004) [hereinafter NFIP Adjuster Claims Manual].

 

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