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; Insurance Deductible

Appeal Brief Appeal Letter

Appeal Brief

DisasterFEMA-1044/10
Applicant25th District Agricultural Association, Division of Fairs and Expo
Appeal TypeSecond
PA ID#000-92263
PW ID#Multiple
Date Signed1997-10-06T04:00:00
B>Citation: Appeal Brief; Second Appeal; 25th District Agricultural Association, Division of Fairs and Expo; FEMA-1044/1046-DR-CA; PA ID-000-92263

Cross-Reference: DSR 15503 and 11 others; Insurance Deductible; National Flood Insurance Program (NFIP); Special Flood Hazard Area (SFHA); Standard Flood Insurance Policy (SFIP)

Summary: Following the heavy rains of January and February 1995, the 25th District Agricultural Association, Division of Fairs and Expo in Napa, California suffered property damage to facilities located within a SFHA. FEMA prepared DSR 15503 and 11 others to restore these facilities. The subgrantee had flood insurance from a non-NFIP source with a lower premium and larger deductible. Upon review, FEMA reduced the funding of the DSRs to the $750 standard deductible for an NFIP issued policy. The State submitted the first appeal on January 31, 1996, contending that the NFIP reduction of coverage for depreciation would not allow for mandated American Disability Act facility upgrades, and was not cost effective. On January 31,1997, the Regional Director denied the first appeal because the Stafford Act contains a mandatory, unequivocal requirement of a funding reduction for facilities within a SFHA. The reduction is the lesser of either the value of the facility on the date of the flood damage, or the maximum amount of insurance proceeds available with an NFIP issued policy. The State submitted the second appeal on May 7, 1997. The basis of the second appeal is that an NFIP policy is overly restrictive. The applicant also requested FEMA to re-evaluate NFIP issued policies to allow for a more useful and attractive policy. The subgrantee presented no new information with its second appeal.

Issue: Is the full deductible for non-NFIP issued policies in a SHFA considered an allowable expense?

Finding: No. The subgrantee elected to purchase a non-NFIP issued insurance policy with a large deductible that exceeded the allowable deductible.

Rationale: Section 406 (d) of the Stafford Act contains a mandatory, unequivocal requirement of a funding reduction for facilities within a SFHA. The reduction is the lesser of either the value of the facility on the date of the flood damage or the maximum amount of insurance proceeds with an NFIP issued policy.

Appeal Letter

October 6, 1997

Ms. Nancy Ward
Governor's Authorized Representative
Governor's Office of Emergency Services
Post Office Box 239013
Sacramento, California 95823

Dear Ms. Ward:

This is in response to your May 7, 1997, letter to the Federal Emergency Management Agency (FEMA). With that letter, you forwarded a second appeal of damage survey report (DSR) 15503 and 11 others on behalf of the 25th District Agricultural Association, requesting that FEMA fund the insurance deductible of their non-National Flood Insurance Program (NFIP) issued policies. Further, the subgrantee is requesting that FEMA re-evaluate its standard flood insurance policy (SFIP).

Following the heavy rains of January and February 1995, the district suffered property damage to facilities located within a special flood hazard area (SFHA). FEMA prepared DSR 15503 and 11 others to restore these facilities. The subgrantee has flood insurance from a non-NFIP source with a lower premium and larger deductible. Upon review of the DSRs, FEMA reduced the eligible funding to $750, the standard deductible for an NFIP issued SFIP. The State submitted the first appeal on January 31, 1996, contending that the depreciation reduction associated with coverage under the NFIP would not allow for mandated American Disability Act facility upgrades, and would not be cost effective. On January 3, 1997, the Regional Director denied the first appeal because the Stafford Act contains a mandatory, unequivocal requirement of a funding reduction for facilities located in a SFHA. The reduction is the lesser of either the value of the facility on the date of the flood damage or the maximum amount of insurance proceeds from an NFIP issued policy.

The primary issue in the appeal is the eligibility of insurance deductibles for flood insurance policies that are not issued by the NFIP. In response to the first appeal, the Regional Director appropriately cited section 406 (d) of the Stafford Act and 44 CFR 206.252 (a) as the relevant parts of the statute and regulations that pertain to flood insurance deductibles. You opined, and I agree, that the Regional Director's response adequately addressed this issue. Secondarily, the applicant asked FEMA to re-evaluate its SFIP to allow for a less restrictive policy. The Administrator of the National Flood Insurance Program advised us that the attractiveness of the SFIP is the lower premium for the insurance. The lower premium, which results in financial benefits to the insured, is due in part to the use of depreciated values in lieu of replacement values. The maximum coverage presently available for nonresidential structures is $500,000. Congress raised the maximum to this level in 1994. Congress, not FEMA, has the authority to increase the maximum coverage under the program. Currently, there are no plans to propose changes to the National Flood Insurance Program.

Based on the above discussion, I am denying the second appeal. Please inform the applicant of my decision. The applicant may submit a third appeal to the Director of FEMA. The appeal must be submitted through your office and the Regional Director within 60 days of receipt of this decision.

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