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King County Courthouse

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1361-DR
ApplicantKing County
Appeal TypeSecond
PA ID#033-99033-00
PW ID#Project Worksheet 1795
Date Signed2009-04-29T04:00:00
Citation: Insurance; and Pre-Disaster Condition

Summary: After the Nisqually Earthquake, FEMA granted an improved project to King County (Applicant). The Applicant planned to repair the building to pre-disaster condition and make seismic improvements to the courthouse. Project Worksheet (PW) 1795, calculated the eligible expenses, including the estimated insurance recovery payment. At the conclusion of the insurance reimbursement process, the disaster obligation amount was re-calculated in order to incorporate the actual insurance recovery payment values. The State proposed to de-obligate $1,130,524 from PW 1795 based upon FEMA guidance. The Applicant appealed the de-obligation. FEMA then learned that the Applicant received $2,871,926 from its insurance carrier that covered eligible costs. The Regional Administrator denied the Applicant’s first appeal and, based on a duplication of benefits determination, decided that an additional $1,106,699 should be de-obligated. The Applicant filed a second appeal challenging both the initial de-obligation and the additional proposed de-obligation. The Applicant also contests the improved project status stating that the project should be a hazard mitigation project. The state disagreed with the Applicant stating that the cost is substantially more than the cost to repair the disaster–related damage.

Issues: . Would the Applicant receive a duplication of benefits between its insurance reimbursement and what FEMA has been asked to approve in PW 1795?

Finding No.

Rationale: Sections 312 and 406 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act; 44 CFR §§206.203,206.206; and
206.253; Response and Recovery Fact Sheet 9580.3, Insurance Considerations for Applicants; Response and Recovery Policy 9526.1, Hazard Mitigation Funding Under Section 406; Response and Recovery Policy 9525.3, Duplication of Benefits-Non-Government Funds

Appeal Letter

April 29, 2009

Gary Urbas
Deputy State Coordinating Officer
State of Washington
Military Department
Emergency Management Division
MS: TA-20, Building 20
Camp Murray, Washington 98430-5122

Re: Second Appeal–King County, PA ID 033-99033-00, King County Courthouse
FEMA-1361-DR-WA, Project Worksheet 1795

Dear Mr. Urbas:

This letter is in response to your letter dated June 27, 2008, which transmitted the referenced second appeal on behalf of King County (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA)
de-obligation of funds for repairs to the King County Courthouse.

As explained in the enclosed analysis, I determined that the insurance deductible ($2,443,600) is an eligible cost. FEMA funding of the insurance deductibles does not duplicate funding that the Applicant received from other sources. Therefore, I am granting the appeal. By copy of this letter, I am requesting that the Acting Regional Administrator take appropriate action to implement this determination.

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

Sincerely,

/s/

James A. Walke
Acting Assistant Administrator
Disaster Assistance Directorate

Enclosure

cc: Dennis Hunsinger
Acting Regional Administrator
FEMA Region X

Appeal Analysis

Background

On February 28, 2001, the Nisqually Earthquake caused significant damage to the King County Courthouse. Both the interior and exterior of the building sustained damage, including some of the building’s stairwells and the elevator shafts. King County (Applicant) applied to FEMA for Public Assistance funding on March 13, 2001.

Prior to the Earthquake, the Applicant developed a conceptual plan to seismically retrofit its courthouse, with an estimated project cost of $70 million. After the Earthquake, the Applicant decided to simultaneously retrofit the courthouse while repairing disaster related damage. On March 26, 2002, FEMA granted an improved project to the Applicant. FEMA used the Cost Estimating Format (CEF) to estimate the eligible repair costs and set the maximum amount of the PA grant. The initial version of PW 1795 ($2,632,508) included the CEF estimate ($3,078,313) and a hazard mitigation project ($188,903), less the estimated insurance recovery ($634,708).

On May 2, 2005, Region X wrote a letter to the state emphasizing that the Applicant needed to document its expenses and insurance reimbursement for the courthouse repairs. The Region stated that FEMA would adjust the anticipated insurance recovery to reflect the actual insurance recovery received once the Applicant files a claim and received the insurance settlement.

During closeout, FEMA determined that the Applicant received more insurance than originally estimated in the PW. Therefore, FEMA prorated the insurance deductible and prepared Version 2 of PW 1795 to deobligate $1,130,524.

First Appeal

The Applicant submitted its first appeal on September 14, 2007. The Applicant made three arguments in support of its first appeal. (1) It was inappropriate for FEMA to pro-rate the Applicant’s deductible; (2) FEMA misled the Applicant to believe that when expenses exceeded the deductible, FEMA would provide 100 percent reimbursement of the deductible; and (3) FEMA incorrectly calculated the deductible pro-ration and that FEMA should only have de-obligated $208,195 in Version 2 of PW 1795.

On May 20, 2008, the Regional Administrator denied the Applicant’s first appeal. The Regional Administrator determined that appeal concerned duplication of benefits, rather than prorating insurance deductibles. The Regional Administrator upheld the Version 2 de-obligation ($1,130,524) and also de-obligated an additional $1,106,693 because of a duplication of benefits between the Applicant’s insurance recovery and the estimated cost of the Applicant’s improved project.
Second Appeal

On May 8, 2008, the Applicant submitted a second appeal to the State contesting the improved project status. The Applicant also disagrees with FEMA’s determination that it received a duplication of benefits. The Applicant asks that FEMA rescind its de-obligation of $1,130,524 in Version 2 of PW 1795 and reverse its decision to de-obligate an additional $1,106,693. It states that its insurance deductible is eligible for reimbursement.

The State forwarded the Applicant’s second appeal to FEMA on June 27, 2008. The State supports the Applicant’s request that FEMA fund the full amount of the Applicant’s deductible, and believes that there was no duplication of benefits between the Applicant’s insurance reimbursement and the funds that FEMA would otherwise provide under PW 1795. Finally, the State contends that because FEMA led the Applicant to believe that its deductible would be eligible for reimbursement, the Applicant “truncated” its assessment and documentation of the disaster-related damage when FEMA prepared the initial PW. Therefore, the PW did not reflect the total cost to repair all disaster damages to the courthouse.

DISCUSSION

The issue in this appeal relates to the eligibility of insurance deductibles for improved projects when (1) the actual cost of disaster-related repairs exceeds the amount FEMA originally estimated in the PW and (2) the Applicant receives more insurance than FEMA originally estimated in the PW.

Title 44 CFR §206.203(d)(1), Federal grant assistance, Funding options, states “(1) Improved Projects. If a subgrantee desires to make improvements, but still restore the predisaster function of a damaged facility, the Grantee’s approval must be obtained. Federal funding for such improved projects shall be limited to the Federal share of the approved estimate of eligible costs.” FEMA limits Federal funding for improved projects because usually it is not possible for applicants to track separately eligible and ineligible costs. In this case, the improved project consisted of disaster-related repairs and seismic retrofit of the courthouse. FEMA originally estimated that the cost of eligible repairs to be $3,267,216 (including $188,903 for hazard mitigation) with anticipated proceeds of $634,708. The Applicant’s insurance company estimated the cost to repair disaster-related damages to be $5,315,526 and paid the Applicant $2,871,026 (repair cost minus the deductible of $2,443,600). The Applicant has submitted sufficient information to demonstrate that the original PW did not include the total cost to repair all disaster damages to the courthouse. Therefore, it is appropriate for FEMA to adjust the total eligible cost of the project and increase the Federal contribution to the improved project at closeout.

CONCLUSION

The Applicant’s insurance deductible ($2,443,600) associated with the repair of disaster-related damages to the courthouse is an eligible cost. FEMA payment of the insurance deductible does not duplicate assistance that the Applicant received from its insurance company. Accordingly, the appeal is approved.