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Second Appeal Analysis
PA ID# 011-107C0-00; Broward County School Board of Florida
PW ID# Project Worksheet 3671 ; Insurance – 705(c)
From October 23 to November 18, 2005, Hurricane Wilma caused damage to Broward County School Board of Florida’s (Applicant) schools. FEMA obligated Project Worksheet (PW) 3671 on May 19, 2006, in the amount of $683,418.83 to address damage at Nova Middle School and Nova High School, which both share a combined campus (Facility). However, FEMA later reduced that amount to $266,146.57 in PW 3671, Version 4 on September 4, 2008, as a result of deobligating $417,272.26 in costs that were captured in a separate PW. During the project’s closeout process, FEMA approved a $41,387.74 cost overrun, but disallowed $35,354.19 in costs that fell outside the eligible scope of work. FEMA also reduced the project’s eligible amount by: (1) $205,089.77 in actual insurance proceeds received, and (2) a prior loss reduction of $10,162.33 pursuant to Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.253 because the Applicant used blanket insurance coverage to meet its insurance requirement for prior damage the Facility sustained in FEMA-955-DR-FL (Hurricane Andrew). Accordingly, FEMA obligated PW 3671, Version 5 on September 7, 2016, reflecting a net eligible amount of $56,928.02. The Florida Division of Emergency Management (Grantee) notified the Applicant of FEMA’s determination in Version 5 on November 1, 2016.
On December 8, 2016, the Applicant appealed FEMA’s decision to apply the $10,162.33 prior loss reduction in PW 3671, Version 5. The Applicant argued that the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) § 705(c) prohibits FEMA from recovering the funding at issue because payment was authorized in an approved agreement specifying the costs, the costs were reasonable, and the purpose of the grant was accomplished. The Applicant also asserted that any issues related to the Applicant’s compliance with insurance requirements should have been addressed when FEMA obligated the first four versions of PW 3671 from May 2006 to September 2008. Furthermore, the Applicant contended that eligible costs within its insurance deductible were reduced in error according to the February 8, 2013 memorandum rescinding Disaster Assistance Fact Sheet DAP9580.3, Insurance Considerations for Applicants (DAP9580.3), which states that FEMA will not reduce eligible costs by an insurance deductible. Lastly, the Applicant insisted that the restrictions on reimbursement of insurance deductibles described in FEMA policies issued in 2008 and 2015 do not apply retroactively to this disaster.
FEMA issued a Final Request for Information (Final RFI) on November 27, 2017, explaining that the appeal would likely be denied because the administrative record lacked support for the Applicant’s claim that FEMA erred in applying the prior loss reduction pursuant to 44 C.F.R. § 206.253(b)(2). The Final RFI also provided the Applicant a final opportunity to submit documentation in support of its appeal. The Applicant responded on December 19, 2017, with a letter reiterating its previous arguments. On January 23, 2018, the FEMA Region IV Regional Administrator (RA) denied the appeal. The RA found that the prior loss reduction was properly applied in accordance 44 C.F.R. § 206.253(b)(2) because the Applicant used blanket coverage to meet its insurance requirement from Hurricane Andrew. The RA also concluded that Stafford Act § 705(c) does not bar FEMA from recovering funds for prior loss reductions because FEMA Recovery Policy FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures (FEMA Recovery Policy FP 205-081-2) specifically states that insurance reductions are taken prior to determining whether Stafford Act § 705(c) applies.
On second appeal, the Applicant reiterates its previous arguments, and requests that FEMA reinstate the $10,162.33 prior loss reduction and any eligible administrative expenses. The Applicant contends the RA incorrectly assumed that FEMA Recovery Policy FP 205-081-2 excludes all insurance-related cost adjustments from the protections of Stafford Act § 705(c). The Applicant also argues that the only type of insurance-related cost adjustments this exclusion actually applies to are insurance reductions to prevent duplicated benefits. The Grantee submitted the appeal to FEMA with a recommendation letter dated May 4, 2018, emphasizing that the rulemaking history of 44 C.F.R. § 206.253 contains no evidence that prior loss reductions would include insurance deductibles.
According to Public Assistance (PA) policy in effect at the time of the disaster, eligible costs for insurable facilities may include deductibles. However, if a facility insured under a blanket insurance policy, insurance pool arrangement, or some combination thereof, is damaged in a future similar other than flood disaster, eligible costs will be reduced by the amount of eligible damage sustained in the previous disaster. Thus, when an applicant uses one or a combination of the aforementioned insurance policies, reimbursement of eligible costs is reduced by the amount of eligible damage sustained to the same facility in a prior disaster, regardless of whether any of the costs are used to pay an insurance deductible. The International Risk Management Institute defines a blanket policy as “[a] single insurance policy that covers several different properties, shipments, or locations.” FEMA expands this definition by explaining that an insurance policy is a blanket policy when it covers multiple properties to a level less than their full value.
FEMA previously placed an insurance requirement on the Facility for $10,162.33 in damage sustained in Hurricane Andrew, and the Applicant does not dispute that it met this insurance requirement with blanket coverage that insured multiple properties under shared coverage limits set below those properties’ total insured value. Accordingly, the RA correctly determined that FEMA was required to reduce eligible costs by $10,162.33 pursuant to 44 C.F.R. § 206.253(b)(2) for prior eligible damage sustained at the Facility in Hurricane Andrew because the Applicant used blanket insurance coverage to meet its previous insurance requirement.
Stafford Act § 705(c)
Stafford Act § 705(c) bars FEMA from recovering any payment to a State or local government if: (1) the payment was authorized by an approved agreement specifying the costs; (2) the costs were reasonable; and (3) the purpose of the grant was accomplished. FEMA Recovery Policy FP 205-081-2 establishes guidelines used to determine whether Stafford Act § 705 prohibits recovery of payments made under the PA program. If all three conditions of Stafford Act § 705(c) are met, FEMA is precluded from recovering the funding at issue, even if FEMA later discovers that it made an error in determining eligibility. However, prior to determining whether Stafford Act § 705(c) applies, FEMA will adjust and correct project funding based on properly supported costs (e.g., insurance reductions related to duplicate benefits).
In the first appeal decision, the RA concluded that the prior loss reduction at issue is considered an insurance reduction, and thus falls within the category of cost adjustments that FEMA Recovery Policy FP 205-081-2 specifically excludes from the application of Stafford Act § 705(c). The Applicant challenges that interpretation, arguing that the policy mentions insurance reductions only to provide an example of a cost adjustment the policy would allow to prevent duplicate benefits, which is not the basis for the prior loss reduction applied in PW 3671. On second appeal, FEMA agrees with the Applicant, and finds that FEMA Recovery Policy FP 205-081-2 does not exclude the prior loss reduction applied in Version 5 from the protections of Stafford Act § 705(c) because the policy exclusion only applies to insurance reductions that are taken for the purpose of preventing duplicate benefits. Accordingly, FEMA must perform a substantive analysis to determine if all three conditions of Stafford Act § 705(c) have been met.
Regarding the first condition requiring payment authorized by an approved agreement specifying the costs, the Applicant correctly points out that FEMA initially approved $683,418.83 in Version 0 on May 19, 2006, and then adjusted that amount to $266,146.57 in Version 4 on September 4, 2008. As a result, the Grantee drew down the Federal funds at issue, which were paid to the Applicant from January 2007 to September 2009. Therefore, payment was made pursuant to an approved agreement specifying the costs, which satisfies the first condition of Stafford Act § 705(c). With respect to the second condition, FEMA previously found that the costs were reasonable during the closeout process, and does not question this finding. Thus, the second condition of Stafford Act § 705(c) is satisfied. As for the third condition requiring that the purpose of the grant was accomplished, FEMA conducted a site visit on May 15, 2014, verifying the completion of the project’s eligible scope of work, and does not question this finding. Furthermore, nothing in the record indicates that the Applicant has failed to comply with any post-award term or condition of the Federal award. Therefore, the third condition of Stafford Act § 705(c) has been met.
While FEMA erred in initially approving the $10,162.33 in costs without implementing the required regulatory prior loss reduction, Stafford Act § 705(c) prohibits FEMA from recovering the costs at issue because all three conditions of the subsection are satisfied. Accordingly, $10,162.33 in previously awarded costs will be reinstated.
The RA correctly determined that FEMA was required to reduce eligible costs by the amount of prior eligible damage sustained at the Facility in Hurricane Andrew pursuant to 44 C.F.R. § 206.253(b)(2) because the Applicant used blanket insurance coverage to meet its previous insurance requirement. However, Stafford Act § 705(c) prohibits FEMA from recovering the costs at issue. Accordingly, the appeal is granted, and $10,162.33 in funding will be reinstated in PW 3671.
 FEMA obligated Version 1 on August 7, 2006, to add to project’s scope of work, but did not obligate additional funding. On January 18, 2007, FEMA increased the Federal cost share to 90 percent in Version 2, and then increased the Federal cost share to 100 percent in Version 3 on June 17, 2007.
 Letter from Dir., Sch. Bd. of Broward Cty. Fla., to Adm’r, FEMA Region IV, at 4 (Dec. 8, 2016) (citing Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988 § 705(c), 42 U.S.C. § 5205(c) (2003)).
 See id. at 6–7 (citing Disaster Assistance Fact Sheet DAP9580.3, Insurance Considerations for Applicants (May 29, 2008), and FEMA Recovery Policy FP-206-086-1, Public Assistance Policy on Insurance (June 29, 2015)).
 FEMA First Appeal Analysis, Broward Cty. Sch. Bd. of Fla., FEMA-1609-DR-FL, at 3 (Jan. 23, 2018) (citing FEMA Recovery Policy FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 2 (Mar. 31, 2016)).
 Pursuant to Stafford Act § 406(f)(1) and 44 C.F.R. § 206.228(a)(2)(ii), FEMA provides applicants with a statutory administrative allowance to defray the necessary costs of administering Public Assistance (PA) subgrants. When an applicant’s subgrants are processed, FEMA automatically adjusts funding for the administrative allowance based on a sliding scale percentage of the total PA program funds the applicant receives for that given disaster. See 44 C.F.R. § 206.228(a)(2)(ii) (2005) (describing the sliding scale percentages as: 3 percent for the first $100,000.00, 2 percent for the next $900,000.00, 1 percent for the next $4,000,000.00, and ½ percent for funds exceeding $5,000,000.00). Thus, the Applicant will receive an administrative allowance limited to the percentage of total PA program funding it receives for 1609-DR-FL in accordance with the sliding scale described in 44 C.F.R. § 206.228(a)(2)(ii).
 Public Assistance Guide, FEMA 322, at 97 (1999).
 44 C.F.R. § 206.253(b)(2) (2005); see also 56 Fed. Reg. 64560 (explaining that blanket insurance coverage may be accepted for other than flood damages, “but if the same facility is damaged in a similar future disaster, eligible costs will be reduced by the amount of eligible damage sustained in the previous disaster since that amount should have been covered by insurance.”).
 See FEMA Second Appeal Analysis, Broward Cty. Sch. Bd. of Fla., FEMA-1609-DR-FL, at 6–7 (Nov. 28, 2018); FEMA Second Appeal Analysis, Terrebonne Par. Consol. Gov’t, FEMA-1786-DR-LA, at 3–4 (Sept. 26, 2014).
 Terrebonne Par. Consol. Gov’t, FEMA-1786-DR-LA, at 3.
 The Applicant does not dispute that the Facility sustained $10,162.33 in eligible damage in a prior similar other than flood disaster.
 Moreover, the Applicant’s insurance policy did not separately itemize or break down the coverages and premiums for each of the insured properties.
 In order to satisfy the third condition Stafford Act § 705(c), FEMA Recovery Policy FP 205-081-2 explains that an applicant must demonstrate compliance with the post-award terms and conditions of the award. See FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 5.
 According to the project ledger and payment records available on FloridaPA.org, the funds at issue were paid to the Applicant from January 2007 to September 2009.
 See id. (stating “[p]ayment has occurred when the [Grantee] draws down funds obligated for the completion of the approved scope of work”).
 This finding was based on FEMA’s completion of: (1) 100 percent validation of contract costs, and (2) an inspection of the supporting documentation that substantiated a net eligible amount of $67,090.35 (before applying the $10,162.33 prior loss reduction and after applying $205,089.77 in reductions for actual insurance proceeds).
 FEMA conducted an insurance review for Version 0 in 2006 and conducted another insurance review for Version 4 in 2008, but none mention a pending prior loss review or address the Applicant’s prior losses.
 See FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 4.