Legal Responsibility – Private Entity

Appeal Brief

Appeal Letter

Appeal Analysis

Background

Beginning on April 30, 2010, severe storms, tornadoes, heavy rains, high winds, flooding, and flash flooding affected the City of Clarksville (Applicant).  As a result, the President declared a major disaster (FEMA-1909-DR) on May 4, 2010.  FEMA initially prepared Project Worksheet (PW) 3655 to document damage to the Applicant’s Riverwalk Park (Facility).  During PW development, FEMA met with city officials multiple times regarding the project’s PA eligibility.^[1]  During these meetings, FEMA notified the Applicant that the project was probably not eligible for funding because it was under construction at the time of the disaster and the contractor had not yet issued a Certificate of Substantial Completion.  In addition, FEMA requested additional documentation from the Applicant to support its claim that it was legally responsible for the Facility at the time of the disaster.  Ultimately, FEMA determined the project was ineligible because the project was under construction and control of the general contractor, was not open to the general public and had not been turned over to the Applicant at the time of the declared event; therefore FEMA found that the Facility was not the legal responsibility of the Applicant to protect and maintain.  Moreover, FEMA determined that the Facility was within an United States Army Corps of Engineers (USACE) flowage easement and work done to replace trees and shrubs was not eligible pursuant to DAP Policy 9524.5, Trees, Shrubs, and Other Plantings Associated with Facilities.[2] 

First Appeal

In an October 18, 2011 first appeal letter, the Applicant appealed FEMA’s determination that the project was ineligible because the Facility was within an USACE flowage easement.  The Applicant argued that the USACE easement did not include a hold harmless provision.  In addition, the Applicant asserted that Stafford Act claims are unrelated to any contractual provisions regarding liability or flood rights.

In a letter dated October 30, 2014, the Region IV Regional Administrator (RA) addressed the matter on appeal, USACE easement, as well as two other reasons for denying eligibility (i.e. legal responsibility and trees and shrubs).  While the RA concluded that the Facility was misidentified as located within an USACE flowage easement, he determined that a change order to the construction contract specifying June 16, 2010 as the substantial completion date indicated that the construction project was not complete at the time of the disaster’s declaration date (May 4, 2010).  In addition, the RA noted that a provision in the Applicant’s construction contract required the contractor to maintain builder’s risk insurance covering the entire duration of the project.  As such, the RA determined that, pursuant to 44 C.F.R. § 206.223(a)(3), the Applicant was not legally responsible for the Facility at the time of the disaster.  Finally, the RA concluded that $14,559.84 in funding to replace grass, trees, and shrubs was ineligible based on FEMA policy. 

Second Appeal

In a second appeal, dated January 23, 2015, the Applicant claims that the first time FEMA raised the issue of legal responsibility was in the October 30, 2014 first appeal determination, and consequently, the Applicant was not afforded its full appeal rights regarding the new basis for denying eligibility.  In addition, the Applicant contends that the construction contract clearly states, “[u]nless otherwise provided, the Owner shall purchase and maintain … property insurance written on a builder’s risk “all-risk” or equivalent policy form in the amount of the initial Contract Sum ….”[3]  The Applicant argues that this clause clearly demonstrates that it had legal responsibility of the Facility at the time of the disaster, regardless of what other provisions in the contract state.  The Applicant acknowledges it did not obtain property insurance for the Facility.  Finally, the Applicant argues that it was legally responsible for repair work to the Facility at all times because it is the owner.  The Applicant does not contest the RA’s denial of $14,559.84 in funding to replace grass, trees, and shrubs.

On July 27, 2015, FEMA sent a Request for Information (RFI) to the Applicant requesting any and all contractual documentation, including the primary signed, dated contract between the City of Clarksville and the Contractor, that provide a detailed scope of work that reflects work representative of that which was solicited by the Applicant and bid on by and offered to the Contractor and any documents that purported to waive/transfer/assign builder’s risk insurance or coverage.  The Applicant responded on August 27, 2015 by providing the Contractor’s Certification for Payment and a signed and dated addendum to the AIA Document.[4]  In its response, the Applicant acknowledges that it was unable to locate a scope or summary of work document.[5] 

Discussion

Appeal Rights

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) § 423[6] and Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.206[7] allow an eligible applicant to appeal any decision regarding eligibility for, from, or amount of public assistance within 60 days of notification of such decision.  In this appeal, the Applicant claims that FEMA did not notify it that its project was ineligible for PA funding pursuant to 44 C.F.R. § 206.223(a)(3) until the first appeal decision.  Therefore, it had not received its full appeal rights regarding this determination.  However, during the initial eligibility assessment of the project, FEMA informed the Applicant repeatedly that, without additional documentation demonstrating legal responsibility, the project would likely be denied funding.[8]  Prior to the first appeal, FEMA sent the official notification regarding the project’s eligibility to the Grantee, Tennessee Emergency Management Agency (TEMA), through its grants management system, stating, “(1) Facility under contract pre-disaster; still contractor’s responsibility. (2) Per Disaster [A]ssistance Policy 9524.5, ‘Trees, shrubs, and other plantings are not eligible for replacement under Section 406 of the Stafford Act….’”[9]  It is the Grantee’s responsibility to inform applicants about the status of their applications, including notification of FEMA’s approval or denial of PWs.[10]

Even if, setting aside the facts of multiple meetings between FEMA and the Applicant and the official notice provided through TEMA that stated legal responsibility is an issue, there is no harm because the Applicant was afforded multiple opportunities to submit additional documentation in support of its claim with its second appeal and in response to the July 2015 RFI.  The Assistant Administrator for Recovery considers appeals of the Regional Administrator’s decision on any first appeal.[11]  Because the RA determined the Applicant was not legally responsible for the Facility on first appeal, the issue of legal responsibility is ripe for a determination on second appeal pursuant to 44 C.F.R. § 206.206(b)(2).

Legal Responsibility

The Stafford Act authorizes FEMA to provide Federal assistance to a local government for the repair, restoration, or replacement of a facility damaged by a declared disaster.[12]  Pursuant to 44 C.F.R. § 206.223(a)(3), an eligible item of work must be the legal responsibility of the Applicant.  Generally, legal responsibility to repair a facility resides with the owner of the facility, unless the owner has transferred that responsibility to another party by lease or other legal instrument.  Facilities under construction at the time of the disaster are generally not eligible for Public Assistance (PA) because they are the responsibility of the contractor[13] until the owner has accepted the work as complete.^[14]  However, repairs may be eligible if the contract places responsibility on the Applicant during the construction period or the Applicant accepted the work as complete prior to the disaster.^[15] 

The fact that the Facility was under construction at the time of the disaster is not at issue in this appeal.  Rather, the Applicant argues that, at all times, it was legally responsible for the Facility per the terms of the contract.  When facilities are under construction at the time of a disaster, FEMA may provide PA funding if the Applicant accepted the work as complete prior to the disaster or the contract stipulates that the Applicant was legally responsible for the Facility during the duration of the contract.  As explained below, the Applicant failed to provide documentation to demonstrate that either of these exceptions apply. 

The President declared the disaster on May 4, 2010.  Upon review of the documentation, FEMA determined that the date of substantial completion was June 16, 2010, as evidenced by Change Order #5, dated July 27, 2010.  Previous change orders stipulated that the delays in completion of the project were due to circumstances that predated and were unrelated to the disaster.[16]  As the documentation demonstrates, the contractor was still liable for the Facility at the time of the disaster, and the Applicant had not accepted the work as complete at the time of the disaster.  As such, the Applicant has not established that it, not the contractor, was legally responsible for the Facility.

With its second appeal, the Applicant submitted an unsigned, undated template[17] with provisions placing the legal onus on the Owner for the duration of the project.[18]  However, in response to FEMA’s RFI, the Applicant provided a signed and dated contract that incorporates by reference and modifies the provisions of the unsigned document.[19]  The Applicant also submitted a Certificate of Liability Insurance, an electronic mail attachment that lists the types of insurance obtained by the contractor[20] and bid documents that include insurance and bonding requirements for city contractors.[21]  These documents clearly state that the contractor is responsible for obtaining Builders Risk insurance, not the Applicant.[22]  The requirements further stipulate that the coverage must include earth movement, flood including surface water backup, water damage, and debris removal, among other perils.[23]  The signed, modified contract and bid documents place the responsibility to obtain Builders Risk insurance on the contractor.  As such, the contractual terms and supporting documentation did not place responsibility for damage on the Applicant during the construction period, and the project is not eligible for PA funding under Stafford Act § 406(e)(4). 

Conclusion

At the time of the disaster, the Facility at issue was under construction.  The Applicant had not yet received a Certificate of Substantial Completion from the contractor.  In addition, the documents proffered by the Applicant to demonstrate legal responsibility for the Facility throughout the duration of the North Riverwalk Extension project do not demonstrate that it was legally responsible for the Facility at the time of a disaster.  As such, the project is not eligible for PA funding.