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Citation:     FEMA-17631-DR-IA; City of Cedar Rapids (Applicant), NFIP Deduction,
PW 10502

Cross-

Reference: Insurance

Summary:   In May 2008, severe storms and flooding damaged the Applicant’s business property that was located in a Special Flood Hazard Area (SFHA) and was not covered by flood insurance.  FEMA prepared PW 10502 for $9,521,249 to replace the estimated 225,445 square feet of space in active use at the time of the disaster.  During insurance review, FEMA applied a mandatory National Flood Insurance Program (NFIP) deduction of $11,000,000, based on maximum allowable insurance proceeds of $500,000 for each of the 22 damaged buildings.  In the first appeal, the Applicant disputed FEMA’s assessment of eligible square footage and contended that all of the buildings should be treated as one insurable property for the NFIP deduction.  The Regional Administrator denied the first appeal because the Applicant failed to demonstrate that the entire facility was in active use and based on the documentation submitted calculated only 54,781 square feet of floor space in active use.  The Regional Administrator explained that the NFIP deduction was appropriate as the Applicant had listed the structures as 22 separate buildings on the demolition orders.  In the second appeal, the Applicant concedes that not all of the floor space was in active use, but asserts that the NFIP deduction as applied is incorrect.  The Applicant notes that Section 406(d) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) requires FEMA to reduce the amount of eligible assistance to a facility in a SFHA by the lesser of the value of the facility on the date of the flood damage or the maximum amount of the insurance proceeds which would have been received.  The loss settlement under a general property policy for flood insurance is the least of: the amount of insurance, actual cash value, or the amount it would cost to repair or replace the property. In this case, the assessed value of the property is the least of the three and is, therefore, the appropriate reduction.  However, only 54,781 square feet of space was in active use at the time of the declared event and eligible for replacement.  The eligible funding amount of $1,963,576 is the cost estimate to replace 54,781 square feet of space less the assessed value of the buildings that were in active use at the time of the disaster.

Issue:          Are the maximum flood insurance proceeds the appropriate mandatory NFIP reduction for the Applicant’s buildings?

Finding:      No.

Rationale:  The Stafford Act Section 406(d), Repair, Restoration,and Replacement of Damaged Facilities (42 U.S.C. § 5172)