alert - warning

This page has not been translated into العربية. Visit the العربية page for resources in that language.

Granada Hills Medical Office Building

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1008-DR
ApplicantKaiser Foundation Health Plan, Inc.
Appeal TypeSecond
PA ID#037-90621
PW ID#85445
Date Signed2000-07-18T04:00:00
Citation: Replacement of Equipment and Furnishings, Granada Hills Medical Office Building; Kaiser Foundation Health Plan, Inc.; FEMA-1008-DR-CA, P.A.I.D. # 037-90621, DSR 85445

Cross-Reference:
Subject: Documentation of loss, insurance recovery. Comparable replacement items. FEMA Record: DSR #85445.

Summary: The Granada Hills Medical Office Building collapsed during the earthquake, and none of its contents could be recovered before demolition. Here-to-for FEMA had rejected the Subgrantee's claim because of the Subgrantee's failure to provide documentation of the lost items. Kaiser had appealed stating that the documentation required did not exist, and there was no opportunity to create an inventory because the building was dangerous after the earthquake.

Issues: (1) What constitutes sufficient documentation of the actual items lost in order for FEMA to justify eligibility? (2) If such documentation does not exist, and a building is destroyed such that an inventory is impossible, can a substitution be made? (3) Can a determination be made of what constitutes "comparable replacement items" in the absence of specific information as to age and use of the lost items?

Findings: (1&2) In the absence of detailed documentation, FEMA can exercise its discretion to waive its documentation requirements and may accept an inventory of items in a comparable facility provided by the Subgrantee. (3) FEMA determined the cost of comparable replacement items in accordance with documentation and settlement proposals submitted by the applicant and the judgement of its reviewers. FEMA has determined that $653,983 is eligible for reimbursement

Rationale: Stafford Act, Sec. 301; 44 CFR 206.223(a)(1); 44 CFR 206.202(d); 44 CFR. 206.226(f)

Appeal Letter

July 18, 2000

Mr. D.A. Christian
Governor's Authorized Representative
Governor's Office of Emergency Services
Post Office Box 419023
Rancho Cordova, California 95741-9023

RE: Replacement of Equipment and Furnishings, Granada Hills Medical Office Building; Kaiser Foundation Health Plan, Inc.; FEMA-1008-DR-CA, P.A.I.D. # 037-90621, DSR 85445

Dear Mr. Christian:

This letter is in response to your letter of December 8, 1999 forwarding the Second Appeal of Damage Survey Report (DSR) # 37770 submitted by the Kaiser Foundation Health Plan to OES on October 20, 1999. The applicant has requested $3,667,465, less $2,682,004 already provided by insurance, for a net total of $985,460 to replace equipment and furnishings lost when the Granada Hills Medical Office Building was destroyed in the Earthquake. As explained in the enclosed analysis, FEMA has determined that $653,983 is eligible for reimbursement. Accordingly, the applicant's appeal is partially approved. Since the Granada Hills project has, at the subgrantee's request, been designated as an Alternate Project, the Federal grant will be based on 90% of the approved Federal Share.

By copy of this letter, I am requesting the Disaster Recovery Manager at the Northridge Long-Term Recovery Area Office to process a DSR for the approved amount. This amount constitutes a fixed actual cost amount for the sum stated herein.

Please inform the applicant of this determination. My decision constitutes the final decision on this matter as set forth in 44 CFR 206.206.

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

Enclosure

cc: David Fukutomi
Disaster Recovery Manager
Northridge Long-Term Recovery Area Office

Appeal Analysis

BACKGROUND
Kaiser Foundation Health Plan, Inc. (Kaiser)(Subgrantee), a private non-profit organization, owned and operated the Granada Hills Medical Office Building (MOB)(Facility). The Facility was a five-story, 61,392 square-foot, reinforced concrete structure located at 10401 Balboa Boulevard, Granada Hills, approximately 6 miles from the epicenter of the Northridge Earthquake. The facility collapsed at the 2nd floor level and the ruins were eventually demolished with little opportunity for salvage of its contents. None of equipment and furniture could be retrieved from the ruined building. Consequently, all the equipment and furniture was destroyed when the building was demolished.

THE DAMAGE
The Granada Hills MOB was a five-story building before the earthquake, and a four-story building after. The second story columns supporting the third floor level of the reinforced concrete structure failed causing that floor level to collapse onto the second floor. The other floor levels of the building remained upright, but the building was destroyed.

Since the building was in a state of partial collapse and was red tagged, none of the equipment and furnishings was retrieved. Consequently all of it was destroyed when the building was demolished. Only the medical records, which were accessible after the fa?ade was removed, were saved. They were retrieved onto a mobile platform on a crane from a room on what had been the third floor.

DSRs WRITTEN
The Facility was inspected on March 29, 1994, and Damage Survey Report (DSR) 68921 was prepared for $3,250 for an Architectural and Engineering (A&E) evaluation. DSR 68921 was obligated on October 14, 1994, for $681 due to a $2,569 insurance recovery deduction. DSR 82431 obligated $457,440 on October 3, 1994, for the demolition of the Facility.

DSR 85445 was prepared to provide $8,104,989 for the construction of a replacement building, and $494,404 for Engineering and Design (E&D) services, for total of $8,599,393; however, the DSR was obligated for $0 on April 28, 1997, after a deduction for insurance recovery. Kaiser demolished the building, sold the property, and planned to build a replacement facility at another location (Palmdale). Based on the new location of the replacement building, FEMA considered it to be an alternate project. Thus, 90% of the amount determined to be eligible in DSR 85445 would be available for the replacement facility. Kaiser has raised no objection to these determinations.

However, the Subgrantee also requested that DSR 85445 include $3,667,465 to replace equipment and furnishings lost in the demolition, with the requested amount based on a list entitled "Typical equipment ordered to set up a new facility, GRANADA HILLS, Loss - January 17, 1994." The list was also used by the Subgrantee to settle a claim with its insurance company. Since the Subgrantee did not submit documentation specific to the equipment and furnishings actually in the building at the time of the earthquake, FEMA did not provide funding for its replacement in the scope of work for DSR 85445. Instead, the Subgrantee was directed to provide additional documentation to support its request. Documentation subsequently submitted by the Subgrantee was found to not adequately support the claimed costs.

Kaiser disagreed with the DSR in this respect and submitted a non-concurrence letter dated November 25, 1996, stating that they had provided a list of "typical equipment" as would be used in a MOB of this size and type. The Subgrantee's position was that "FEMA's position that Kaiser has failed to show actual loss and therefore the entire equipment and furniture claim is ineligible is not reasonable." In a letter dated July 31, 1996, Kaiser stated that an inventory of the furniture in the building does not exist.

Prior to preparation of DSR 85445, Kaiser submitted a letter dated June 17, 1996, to the Governor's Office of Emergency Services (OES) that included manufacturer's quotes for the major radiology and laboratory equipment. Kaiser also provided letters, internal memoranda and records as verification that the equipment listed in the attached spreadsheets was in the Facility at the time of the Northridge earthquake. An internal memorandum attached to the June 17, 1996, letter states that the laboratory equipment was in the Facility at the time of the earthquake. Attached to a letter dated 1/23/97, Kaiser provided a list of the major x-ray equipment, including the manufacturer and date-of-purchase. This also provides vendor quotes on replacement costs.

In a letter dated July 30, 1996, Kaiser once again listed the major medical equipment and provided the following attachments:
  • An internal memorandum dated July 18, 1996, that listed the x-ray equipment in the Facility, including the five items above;
  • A copy of four 1993 survey reports submitted to verify the radiology equipment listed above; and,
  • Copies of computer inventory records to verify the laboratory equipment listed above.
In a letter dated January 23, 1997, to OES, Kaiser submitted a cost summary table for the radiology and laboratory equipment that totaled $1,617,206. Apparently the difference of $16,495 between the amount requested via the June 1996 letter and the January 23, 1997 request is due to the film processor. In the January 23, 1997 letter, the film processor was included in the $264,995 price for the chest x- ray equipment. The list of Typical Equipment used by Kaiser for its insurance settlement is the only documentation submitted to support this claim. This list is included as backup to DSR 85445.

Request for a Supplemental DSR: In a letter dated August 22, 1997, OES submitted three letters from Kaiser to FEMA that provided information concerning the medical equipment. OES requested a supplemental DSR be prepared. FEMA responded via a letter dated October 21, 1997, stating that adequate information had not been submitted, and that, therefore, the request for additional funding could not be approved.

FIRST APPEAL (DSR 85445)
In a letter dated February 19, 1998, the Subgrantee submitted to OES another request for a supplement to DSR 85445. Since the issue had been previously addressed, FEMA treated the request as the Subgrantee's first appeal. A review of the available information was again found to not adequately support the Subgrantee's claims regarding the price, type, condition and quantity of equipment and furnishings in the Facility at the time of the earthquake. Based on the lack of adequate supporting documentation, Kaiser's appeal of DSR 85445 was denied on July 12, 1999.

SECOND APPEAL REQUEST
In an October 20, 1999, letter to the OES, the Subgrantee submitted a second appeal of the DSR 85445. The second appeal was forwarded to the Northridge Long-Term Recovery Area Office (NLTRAO) by OES on December 8, 1999.

In the second appeal of DSR 85445, the Subgrantee does not offer a materially different argument in support of its claim, nor has it submitted new documentation. The appeal reiterates the Subgrantee's previous position, i.e., demolition of the Facility precludes provision of the detailed documentation that FEMA continues to state is necessary. The Subgrantee also writes that the documentation that has been submitted to FEMA "provides reasonable certainty regarding the types and numbers of equipment and furniture" and that "there is nothing in the federal regulations which requires an eligible applicant to provide the exact purchase amount and the purchase date of each item in a claim." Kaiser also states in its appeal letter that recognizing the equipment and furniture was "s either OES nor the applicant could locate the July 6th letter, however FEMA contacted OES and the applicant to get a copy of the said letter and Kaiser faxed a copy of a letter dated July 31, 1996, wherein they proposed a settlement of 80% of the replacement value of the furniture.

OES, in its transmittal letter, supports the Subgrantee's appeal, citing "extenuating circumstances beyond the Hospital's control due to inaccessibility of the damaged facility to retrieve records and perform an inventory." Additionally, OES argues that FEMA established the precedent of accepting "typical inventory lists" by allowing certain school districts in DR-1008 to be reimbursed based on the types of books and equipment normally found in classrooms and libraries, as opposed to an actual inventory.

DISCUSSION
This appeal presents several issues. First we must determine whether the documentation submitted by Kaiser is sufficient to enable FEMA to determine which contents were in the MOB at the time of the earthquake and the value of the contents. Assuming that the documentation is sufficient to form this conclusion we next must determine the cost of comparable replacement contents in accordance with FEMA regulations. Since Kaiser maintained insurance on the contents of the MOB we must determine how much of the value of comparable replacement contents is eligible for reimbursement consistent with statutory and regulatory bars on the duplication of benefits. It is noted again that Kaiser elected not to rebuild the MOB but instead proposed an alternate project. For this reason, any reimbursement due to Kaiser for loss of contents must be further reduced by ten (10) percent.

  1. Has Kaiser Submitted Sufficient Documentation to Support its Loss?


  2. The primary issue in this appeal is the adequacy of the submitted documentation to establish the type of equipment and furniture in the building at the time of the earthquake and the basis for its estimated replacement cost. 44 CFR 206.223(a)(1), states that to be eligible for financial assistance, an item of work must be required as a result of the major disaster event. Documentation is a fundamental requirement for the allocation and subsequent approval of eligible costs. Without appropriate supporting documentation, evaluation of costs in relation to basic eligibility criteria is not possible. 44 CFR 206.202(d) establishes that the Subgrantee is responsible for ensuring that all-eligible work is identified to FEMA.

    FEMA has reviewed the furniture and equipment list dated November 2, 1995 used to settle the insurance claim as the primary document for the FEMA claim. This list does provide details as to the furniture and equipment likely to have been in each of the rooms, and it was sufficient to satisfy the insurance company. As discussed above, Kaiser submitted copies of service records and internal memoranda to establish the major medical equipment in the Facility at the time of the earthquake. In a letter dated July 31, 1996, Kaiser states that items costing less than $500 are not tracked by the "Fixed Asset Accounting System" (FAAS). As mentioned above, Kaiser provided a list of the major x-ray equipment, including the manufacturer and date-of-purchase attached to a letter dated January 23, 1997. A second copy of this list was submitted in March 31, 2000 in response to a FEMA request during this appeal. This new copy was marked to show estimates for replacement costs for reconditioned equipment. For all but one item, these costs were substantially less than those for the new equipment.

    The only documentation submitted to document the other miscellaneous equipment and furnishings in the Facility is the November 2, 1995 list used by Kaiser's insurance company to determine the settlement. Kaiser asserts that this is the only information available with respect to this miscellaneous equipment and furnishings. The list provides an estimate of the total price of the items per room, including the manufacturer, model number, and price for each item that may have been in each room, or office. The equipment includes computers, examination tables, refrigerators, fax machines, copy machines, freezers, microscopes, etc. Kaiser has stated that information on the date purchased could not provided, except for the radiology equipment and some laboratory equipment.

    Kaiser's claim hinges on a finding of what records are necessary for a determination of eligibility by FEMA. To date, FEMA's position has been that (1) records showing date of purchase, type, and condition are necessary for verification of the loss, and that (2) a subgrantee such as Kaiser, with its business offices located away from the destroyed building should have been able to find records of what was actually in the destroyed building. Kaiser has all along represented that such records for the large part do not exist.

    Section 301 of the Stafford Act provides "Any Federal Agency charged with the administration of a Federal assistance program may, if so requested by the applicant State or local authorities, modify or waive, for a major disaster, such administrative conditions for assistance as would otherwise prevent the giving of assistance under such programs if the inability to meet such conditions is a result of a major disaster."

    OES has requested that FEMA consider such a waiver. We find that Kaiser has submitted sufficient documentation with respect to the radiology and laboratory equipment. Furthermore, FEMA is satisfied that a reasonable conclusion as to the presence of the remaining contents can be drawn from the November 2, 1995 list of contents typically situated in similar Kaiser facilities. Kaiser's insurers accepted this list as the basis for adjusting the contents loss.

    Notwithstanding this determination, we continue to take exception to Kaiser's repeated assertions that their inability to provide FEMA with the information required by our regulations was the result of the disaster. To the contrary, since Kaiser's records were maintained off-site, its inability to provide FEMA with necessary information resulted directly from its pre-disaster record-keeping decisions. FEMA encourages prospective applicants for federal disaster assistance to familiarize themselves with FEMA's documentation requirements as an integral part of their internal disaster recovery planning processes and assure that their record-keeping policies are sufficient to meet FEMA's requirements. FEMA's decision to waive its documentation requirements in this case does not establish a precedent for future cases involving Kaiser or any other applicant.

  3. The Value of Kaiser's Contents Loss.


  4. 44 CFR 206.226(f) establish the basis upon which FEMA reimburses eligible applicants for lost contents. It provides as follows:
    Equipment and furnishings. If equipment and furnishings are damaged beyond repair, comparable items are eligible as replacement items.
    It is FEMA's policy that a "comparable item" is a similar item of approximately the same age and condition, if such can reasonably be acquired on the used equipment market at the time of the facility is replaced. Therefore, the type and condition of equipment and furniture that were in the Facility at the time of the earthquake must be established. The value of the equipment and furniture as of January 17, 1994 is based on its age and condition at that time. This is not the same as providing assistance on the basis of depreciated value, as with some insurance policies. "Comparable items" may mean used equipment if that that can be obtained. In the event that used items are not reasonably available, it may mean that new items are eligible.

    1. Radiology and Laboratory Equipment.
      < 2 ahat the cost of comparable reconditioned items is $496,000 as reported on a submitted spreadsheet dated March 31, 2000.

    2. X-Ray Ultrasound System

      FEMA will accept Kaiser's representation that this item cannot be obtained on the used equipment market at a known value, but will include it together with the general furnishings and equipment at the across-the-board 80% value, as shown in (4) below.

    3. Pharmaceuticals

      It is FEMA's policy after such a loss to pay for a 1-month supply, rather than replace the whole stock. FEMA has accepted Kaiser's estimate of the value of a 1-month supply of the pharmaceuticals that were likely present in the MOB at the time of the disaster of $150,000.

    4. Miscellaneous Equipment (including computers, printers, fax machines, etc.), Furnishing and Contents

      With respect to miscellaneous equipment, furnishings and contents not otherwise discussed above, FEMA accepts Kaiser's assertion that the cost of comparable items is 80% of the cost of new items. The value of Kaiser's loss for these items is shown in the spreadsheets that are appended to this appeal analysis.


  5. Kaiser's Insurance Recovery.


  6. Sections 311 and 312 of the Stafford Act prohibit FEMA from duplicating benefits available from other sources to applicants for federal disaster assistance. Kaiser maintained insurance on the contents of the MOB. Any assistance that FEMA provides to Kaiser must be reduced by the amount of insurance available to the applicant.

    We have analyzed Kaiser's claim and the applicable insurance documents. Kaiser's earthquake insurance program contained a $3,000,000 deductible. Moreover, at the time of the disaster Kaiser was uninsured for certain dollar value losses due to the withdrawal of certain underwriters from participation in Kaiser's earthquake insurance program prior to the disaster. Accordingly, we have determined that Kaiser's FEMA allowable loss for contents should be reduced by 73.13% (73.12966% to be exact) to prevent a duplication of benefit.

CONCLUSIONS
Based on the above adjustments, as shown on the attached spreadsheet, FEMA has determined that an amount of $653,983 is eligible. This figure represents the total contents loss determined in accordance with FEMA's regulations less 73.13% for insurance recovery. The Federal Share for the Northridge Earthquake disaster is set at 90% of the eligible amount. As an "alternate project," the FEMA grant will be reduced to 90% of that Federal Share amount.