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Duplication of Benefits

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster4020-DR-NY
ApplicantRoman Catholic Diocese of Brooklyn
Appeal TypeSecond
PA ID#047-UGYND-00
PW ID#Multiple PWs
Date Signed2015-03-31T00:00:00

Conclusion:  Pursuant to the Stafford Act § 312, FEMA funding to repair the Roman Catholic Diocese of Brooklyn’s facilities is prohibited as it constitutes a duplication of benefits due to the Applicant’s secondary insurance policy.    

Summary Paragraph

Hurricane Irene caused flooding throughout Queens and Kings Counties, New York.  Several of the Applicant’s facilities were impacted by the disaster.  FEMA prepared PWs 5098, 5357, 5411, 5419, 5439, 5657, 5662, 5944, 6212, 6218, 6477, 6483, 7117, 7816 and 7889 to address repairs necessary to restore the facilities to pre-disaster condition.  A FEMA Insurance Specialist reviewed the PWs and made cost reductions based on anticipated and actual insurance proceeds.  The Applicant had two insurance policies in place at the time of the disaster.  The primary insurance policy was in the amount of $70 million with a deductible of $250,000.  The secondary policy was with Peter Turner Insurance Company (PTIC).  The PTIC policy provided $250,000 of coverage with a $750 deductible.  All, but one, of the PWs were obligated for a zero-dollar amount based on the duplication of benefits—PTIC policy payout and Public Assistance funding—that would result if the PWs were obligated. The PTIC deductible—$750.00 per occurrence—was funded in PW 5419.  In the first appeal, the Applicant asserted that the PTIC policy provided self-insurance retention coverage, and thus, not a duplication of benefits.  The Region II Acting Regional Administrator (RA) denied the first appeal because she determined that PTIC was licensed and regulated by the New York State Insurance Department.  As such, PTIC issued a policy covering the facilities listed for damage caused by Hurricane Irene.  The total amount of damage was under the $250,000 coverage amount; therefore, under the Stafford Act § 312, Duplication of Benefits, was not eligible for PA funding.  In the second appeal, the Applicant argues that its contract with PTIC does not constitute insurance because there is no risk shifting or risk distribution involved.  Accordingly, the Applicant contends that there is no duplication of benefits.

Authorities and Second Appeals

  • City of Chicago v. FEMA, 2013 U.S. Dist. LEXIS 41633 (2013).
  • Stafford Act § 312, 42 U.S.C. § 5155.
  • 44 C.F.R. § 206.250(c).
  • Catholic Bishop of Chicago, FEMA-1800-DR-IL, 18 PWs
  • PA Guide, at 41.

Headnotes

  • Stafford Act § 312 prohibits FEMA from providing assistance to any entity for any loss for which financial assistance has already been received from any other program, from insurance, or from any other source.
    • The Stafford Act does not define “insurance.”  However, based on the ordinary meaning of “insurance,” the Applicant’s subsidiary policy with PTIC constitutes insurance.
  • According to the PA Guide and City of Chicago v. FEMA, the Stafford Act § 312 applies to a duplicative benefit for the same item of work from “any other source,” including a private contract where consideration was given for a benefit incurred.

Here, even if FEMA determined that the PTIC policy was not insurance, it would still constitutes a duplication of benefits because PTIC is obligated to compensate the Applicant for losses incurred with respect to the facilities in the PWs listed.  

Appeal Letter

March 31, 2015


Mr. Andrew X. Feeney
Alternate Governor’s Authorized Representative
New York State Office of Emergency Management
1220 Washington Avenue, Building 7A, Suite 710
Albany, New York 12242  

Re: Second Appeal – Roman Catholic Diocese of Brooklyn, PA ID 047-UGYND-00, FEMA-4020-DR-NY, Project Worksheets (PWs) 5098, 5357, 5411, 5419, 5439, 5657, 5662, 5944, 6212, 6218, 6477, 6483, 7117, 7816 and 7889  – Duplication of Benefits

Dear Mr. Feeney:

This is in response to a letter from your office dated March 21, 2014, which transmitted the referenced second appeal on behalf of the Roman Catholic Diocese of Brooklyn (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $228,630.16 in Public Assistance (PA) funding.

As explained in the enclosed analysis, I have determined that, pursuant to the Stafford Act § 312, PA funding to repair the Applicant’s facilities is prohibited as it constitutes a duplication of benefits due to the Applicant’s insurance policy with Peter Turner Insurance Company.  Therefore, I am denying the appeal. 

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

Sincerely,

/s/

Alex Amparo
Assistant Administrator
Recovery Directorate

Enclosure

cc: Jerome Hatfield

      Regional Administrator

      FEMA Region II

Appeal Analysis

Background

From August 26, 2011 thru September 5, 2011, Hurricane Irene caused flooding throughout Queens and Kings Counties, New York.  Several of the Roman Catholic Diocese of Brooklyn’s (Applicant) facilities were impacted by the disaster.  At the time of the disaster, the Applicant either owned or leased each of the facilities.  The leased facilities were subject to a lease agreement that stipulated that the Applicant was responsible for all repairs excluding the structure exteriors.

FEMA prepared PWs 5098, 5357, 5411, 5419, 5439, 5657, 5662, 5944, 6212, 6218, 6477, 6483, 7117, 7816 and 7889 for an aggregate amount of $228,630.16 to address repairs necessary to restore the facilities to pre-disaster condition.  A FEMA Insurance Specialist reviewed the PWs and made cost reductions based on anticipated and actual insurance proceeds.  The Applicant had two insurance policies in place at the time of the disaster.  The primary insurance policy was with Lexington Insurance Company in the amount of $70 million with a deductible of $250,000.  The secondary policy was with Peter Turner Insurance Company (PTIC).  This policy was designed as a deductible buy-down policy, which is a supplemental policy established by the insured to cover part or all of the primary insurance policy’s deductible per occurrence.  The PTIC policy provided $250,000 of coverage with a $750 deductible.  FEMA obligated the PWs for a zero-dollar amount based on the duplication of benefits—PTIC policy payout and Public Assistance funding—that would result if the PWs were obligated.  However, the PTIC deductible—$750.00 per occurrence—was funded in PW 5419.

First Appeal

In its first appeal, dated January 28, 2013, the Applicant asserted that it had a property policy with Lexington Insurance Company.  However, the PTIC policy provided self-insurance retention coverage.  The Applicant stated, “it [the PTIC policy] is a funding mechanism for the deductible of $250,000.”  The Applicant also stated that PTIC was a captive insurer formed and wholly owned by the Applicant to provide insurance programs for its parishes, schools, and affiliated agencies.  Finally, the Applicant asserted that because it was self-insured for the first $250,000, the projects in the PWs should be obligated for the full amounts. 

In a letter, dated October 21, 2013, the Region II Acting Regional Administrator (RA) denied the first appeal because she determined that PTIC was licensed and regulated by the New York State Insurance Department.  As such, PTIC issued a policy covering the facilities listed for damage caused by Hurricane Irene.  The total amount of damage in the PWs was $228,630.16—under the $250,000 coverage amount; therefore, under the Stafford Act § 312, Duplication of Benefits, funding to repair the Applicant’s facilities was not eligible for FEMA assistance.  

Second Appeal

In the second appeal, dated January 27, 2014, the Applicant argues that its contract with PTIC does not constitute insurance; accordingly, the Applicant concludes that there is no duplication of benefits.  The Applicant asserts the contract is an alternative risk management tool meant to “manage claims and specifically fund the Lexington deductible.”  The Applicant contends that, because the Stafford Act does not define “insurance” and FEMA policy guidance does not provide guidance regarding the use of alternative risk management tools, FEMA must follow the Supreme Court ruling in Helvering v. LeGierse.[1]  The Applicant argues that, under LeGierse, both risk shifting and risk distribution must be present for an arrangement to constitute insurance for federal income tax purposes.  

Discussion

Duplication of Benefits

Pursuant to the Stafford Act § 312, “… no such person, business concern, or other entity will receive such assistance with respect to any part of such loss as to which he has received financial assistance under any other program or from insurance or any other source.”[2] (emphasis added).  FEMA analyzes each clause of Section 312 of the Stafford Act separately when determining whether a duplication of benefits exists.     

  1. Insurance

The Stafford Act § 312 prohibits FEMA funding for items of work covered by insurance.  In addition, Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.250 states “actual and anticipated insurance recoveries shall be deducted from otherwise eligible costs.”[3]  The Applicant argues that, because “insurance” is not defined by the Stafford Act or any FEMA regulations or policy, FEMA should use the definition provided in LeGierse.  However, the definition of insurance used in LeGierse is specific to federal income tax collected by the Internal Revenue Service (IRS).  It is important to note that the LeGierse decision is limited to interpreting the Revenue Act of 1926 and not explicitly applicable to other statutory authority.

The Applicant is correct in asserting that the Stafford Act does not define “insurance.”  However, when a term goes undefined in a statute, courts give the term its ordinary meaning.[4]  Black’s Law Dictionary defines “insurance” as “a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils.”[5]  The Merriam-Webster dictionary defines “insurance” as “coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril.”[6]

At the time of the disaster, the Applicant’s policy with PTIC, entitled Contractual Indemnification Policy Declarations, stated that PTIC would indemnify the Applicant for all losses attributable to its obligations under deductibles and self-insured retentions with respect to primary commercial property.[7]  Based on the ordinary meaning of “insurance,” the policy between the Applicant and PTIC does constitute insurance because it is a contract whereby PTIC agreed to indemnify and compensate the Applicant for losses incurred if certain conditions were met. 

In addition, the Applicant’s assertion that the PTIC policy is equivalent to self-insurance or a “rainy day fund” because PTIC is wholly owned by the Applicant is not supported by the facts.[8]  PTIC was incorporated on August 31, 2004 under the laws of the State of New York as a stock company.[9]  As such, PTIC issues 100,000 shares of $1 par value per share common stock.[10]  PTIC was formed to insure the Applicant (the parent) and its affiliates for various risks as a means to fund such potential losses.[11]  PTIC was formed under Articles of Incorporation and must comply with set by-laws.[12]  PTIC’s net income is drawn from, both, net premiums earned and investment income.[13]  Finally, although the Applicant argues PTIC is not an insurance company, it is subject to the insurance laws of New York State.  For example, in 2012, PTIC was examined by a New York State Senior Insurance Examiner who issued a Report of Examination.[14]  It must be noted that throughout the Report, the examiner refers to PTIC’s operations as “insurance.”[15]  Accordingly, the Acting RA correctly concluded that PTIC is an insurance company that provided an insurance policy to the Applicant. 

  1. Any Other Source

Even if, arguendo, FEMA did not determine that the policy between the Applicant and PTIC is “insurance,” Section 312 of the Stafford Act still applies because it clearly states financial assistance from “any other source” is a duplication of benefits if it is used for the same project funded by FEMA funds.[16]  “Any other source” includes any source from which a financial benefit covering the same purpose would derive, including a private contract, such as the one at issue in this appeal.[17]  Here, the Applicant paid premiums to PTIC for coverage that indemnified against property losses if certain conditions were met.  Hurricane Irene triggered such conditions.  Accordingly, the Applicant—through its policy with PTIC—incurred a benefit that addressed the same work outlined in the PWs at issue in this appeal.  Thus, a duplication of benefits would occur if FEMA funding was obligated.    

Conclusion

The subsidiary policy between the Applicant and PTIC meets the ordinary meaning of “insurance.”  Accordingly, FEMA funding towards payment of the deductible of the primary insurance policy constitutes a duplication of benefits pursuant to the Stafford Act § 312.  Therefore, the appeal is denied.   


[1] Helvering v. LeGierse, 312 U.S. 531 (1941). 

[2] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 312, 42 U.S.C. § 5155 (2007).  

[3] 44 C.F.R. § 206.250(c) (2010).

[4] See Taniguchi v. Kan Pacific Saipan, Ltd., 132 S. Ct. 1997, 2002 (2012) (citing Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995)).

[5] Black’s Law Dictionary 802 (6th ed. 1990).

[6] Merriam-Webster (May 27, 2014, 9:50 AM), //www.merriam-webster.com/dictionary/insurance.

[7] See Peter Turner Insurance Company Contractual Indemnification Policy Declarations at 3, signed June 20, 2011.

[8] This appeal can be distinguished from a previous FEMA appeal determination where a self-insurance retention fund was not deemed a duplication of benefits; see FEMA Second Appeal Analysis, Catholic Bishop of Chicago, FEMA-1800-DR-IL, at 2 (Dec. 20, 2010) (finding that the Applicant’s self-insured retention fund was not a duplication of benefits because the Applicant utilized its own money, and a third-party merely acted as an administrator, debiting the Applicant’s bank account as necessary to pay claims).

[9] See Second Appeal Letter, Roman Catholic Diocese of Brooklyn, FEMA-4020-DR-NY, at 2 (Jan. 27, 2014).

[10] See Report from Wei Cao, Senior Insurance Examiner, Report of Examination of the Peter Turner Insurance Company as of December 31, 2010 (Aug. 14, 2012).

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] See Public Assistance Guide, FEMA 322 at 41 (June 2007) (stating “An applicant may not receive funding from two sources for the same item of work”; see also, City of Chicago v. FEMA, No. 08 CV 4234, 2013 U.S. Dist. LEXIS 41633, at *17-19 (N.D. Ill. Mar. 21, 2013)(holding that FEMA’s determination that a contract for snow removal services constituted duplicate benefits was a reasonable interpretation of the Stafford Act).

[17] City of Chicago, 2013 U.S. Dist. LEXIS at *21.