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Second Appeal Analysis
PA ID# 011-107C0-00; Broward County School Board District
PW ID# Project Worksheet 1139 ; Insurance, 705(c)
From August 24 through September 6, 2005, Hurricane Katrina caused damage to 18 of the Broward County School Board District’s (Applicant) schools (Facilities). On January 29, 2006, FEMA obligated Version 0 of Project Worksheet (PW) 1139, approving total project costs in the amount of $399,835.49. FEMA later obligated Version 1, which increased the federal share allocation percentage to 100 percent, but kept the total project costs the same. During the closeout process, the State of Florida Division of Emergency Management (Grantee) confirmed through a final reconciliation report, that there was a project underrun in the amount of $43,670.15.  FEMA conducted a final insurance review, which resulted in FEMA noting that in addition to the deobligation of $43,670.15 in underrun costs identified in the closeout documentation, it was also deobligating $35,364.16 based on two prior windstorm disasters that resulted in prior assistance being awarded to 12 of the 18 Facilities funded in PW 1139. FEMA formalized this determination on January 26, 2016, when it approved PW 1139 (Version 2), deobligating a total of $79,034.31 in funding. On March 17, 2016, the Grantee transmitted FEMA’s Project Application Grant Report for Version 2 to the Applicant and included a letter dated March 11, 2016, which advised the Applicant of its appeal rights and appeal procedural requirements concerning the determinations contained therein.
The Applicant submitted its first appeal on May 16, 2016, requesting that FEMA reinstate the $35,364.16 in prior loss reductions. The Applicant argued that the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) § 705(c) prohibits FEMA from recovering the funds at issue because all three prongs of the subsection were satisfied, and that any issues related to the Applicant’s compliance with insurance requirements should have been addressed 10 years ago when FEMA prepared Version 0. The Applicant also emphasized that it received no insurance proceeds for PW 1139 because the project costs did not reach the insurance deductible amount, and that the restrictions on reimbursement of insurance deductibles described in FEMA policies issued in 2008 and 2015 do not apply retroactively to this disaster. Finally, the Applicant contended its insurance policy was not a blanket insurance policy subject to the prior loss provision of Title 44 Code of Federal Regulations (44 C.F.R.) § 206.253(b)(2) because the policy separately scheduled each structure; the plan established a three percent windstorm deductible per individual insured location with a $1,000,000.00 minimum threshold. In support, the Applicant submitted a letter from its risk management company confirming the proffered insurance information, and a summary of insurance and special provisions that outlined the various insurance carriers who insured the Applicant, as well as the amount of coverage per occurrence.
FEMA issued a Final Request for Information (RFI) on February 20, 2018, 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). FEMA also provided the Applicant a final opportunity to submit documentation in support of its appeal. The Applicant responded in a March 2, 2018 letter, reiterating its previous arguments. On May 15, 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 prior similar other than flood disasters. 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 $35,364.16 prior loss reduction as well as any eligible administrative expenses. The Applicant contends the RA incorrectly interpreted FEMA Recovery Policy FP 205-081-2 to exclude all insurance-related cost adjustments from the protections of Stafford Act § 705(c). The Applicant 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 September 10, 2018.
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 that is 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 on the previous disaster. Thus, when an applicant uses one of, or a combination of, the aforementioned insurance policies, reimbursement of eligible costs, that may include deductibles, 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 insurance requirements on the Facilities totaling $35,364.16 for damage sustained in prior disasters, and the Applicant does not dispute that it met this insurance requirement with 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 $35,364.16 pursuant to 44 C.F.R. § 206.253(b)(2) for prior eligible damage sustained at the Facility in prior similar other than flood disasters, because the Applicant used blanket insurance coverage to meet its previous insurance requirement.
Stafford Act § 705(c)
Section 705(c) of the Stafford Act 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 1139. 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 2 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 $399,835.49 in total costs for the project (which included the $35,364.16 in costs at issue in this appeal) through Version 0 of PW 1139 on January 29, 2006. FEMA reaffirmed the eligibility of the total project costs through Version 1, approved on June 15, 2007. As a result, the Grantee had drawn down all the project’s funds as of November 17, 2009. Therefore, the payment of the $35,364.16 was made pursuant to an approved agreement, satisfying the first condition. 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 site visits to the Facilities from September 16-19, 2014, verifying the completion of the project’s eligible scope of work, and FEMA 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 $35,364.16 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, $35,364.16 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 Facilities in prior similar other than flood disasters pursuant to 44 C.F.R. § 206.253(b)(2) because the Applicant used blanket insurance coverage to meet its previous insurance requirements. However, Stafford Act § 705(c) prohibits FEMA from recovering the costs at issue. Accordingly, the appeal is granted, and $35,364.16 in costs will be reinstated in PW 1139.
 Project Worksheet (PW) 1139, Broward Cty. Sch. Bd. Dist., FEMA-1602-DR-FL, Version 0, at 44 (Jan. 29, 2006) (containing a note under the heading “Insurance Considerations,” dated January 27, 2006, confirming that: (1) the Applicant had insurance, but because the damages were less than the deductible, there were no insurance proceeds to be deducted; (2) the Applicant was required to obtain and maintain a wind insurance policy; and (3) per Title 44 Code of Federal Regulations (44 C.F.R.) § 206.253(b)(2) (2004), if the same facility was damaged in a similar future disaster, eligible cost would be reduced by the amount of eligible damage sustained on the previous disaster.).
 See Letter from Dir., State of Fla. Div. of Emergency Mgmt., to Acting Region IV Reg’l Adm’r, FEMA (Dec. 2, 2014), found at https://floridapa.org/app/#29830?t=documents--relateddocuments&o=createddatetime+desc (uploaded Dec. 4, 2014) (last visited Oct. 10, 2018); see also Closeout Final Reconciliation Report package (Oct. 29, 2014), found at https://floridapa.org/app/#29830?t=documents--relateddocuments&o=created... (uploaded Oct. 30, 2014) (last visited Oct. 10, 2018).
 See generally PW 1139, Broward Cty. Sch. Bd. Dist., FEMA-1602-DR-FL, Version 2, at 49 (Jan. 26, 2016) (noting that the hazard that caused the damage documented in this project was wind, which is similar to the two prior other than flood disasters).
 However, if not for the prior loss insurance reduction, FEMA noted that: (1) it had completed 100 percent validation of contract costs; (2) it had conducted a site visit to all facilities from September 16-19, 2014, and all work was verified as being complete and within the project’s scope of work; and (3) inspection of the supporting documentation had substantiated the total eligible amount of $356,165.34, confirming the closeout net underrun of $43,670.15. PW 1139, Broward Cty. Sch. Dist., FEMA-1602-DR-FL, Version 2, at 5-7 (Jan. 26, 2016).
 Letter from Dir. Risk Mgmt., Sch. Bd. of Broward Cty. Fla., to Reg’l Adm’r, FEMA Region IV, at 3-5 (Mar. 16, 2016) [hereinafter Applicant’s First Appeal Letter] (citing Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) of 1988 § 705(c), 42 U.S.C. § 5205(c) (2003)). Although the Applicant’s first appeal letter is dated March 16, 2016, the Applicant has provided documentation that it electronically submitted its appeal to the Grantee on May 16, 2016.
 FEMA First Appeal Analysis, Broward Cty. Sch. Bd. of Fla., FEMA-1602-DR-FL, at 4 (May 15, 2018) (citing FEMA Recovery Policy FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 4 (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) (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 FEMA-1602-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).
 See 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 Facilities sustained $35,364.16 in eligible damage in prior similar other than flood disasters.
 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.
 See FP 205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 4 (“Payment has occurred when the [Grantee] draws down funds obligated for the completion of the approved scope of work. . . .”).
 This finding was based on FEMA completing: (1) 100 percent validation of contract costs, and (2) an inspection of the supporting documentation that substantiated a net eligible amount of $356,165.34. See PW 1139, Broward Cty. Sch. Bd. Dist., at 5, 7 (Version 2) (agreeing with the Grantee’s closeout documentation, that underrun costs for the project totaled $43,670.15).
 FEMA conducted an insurance review for PW 1139 (Version 0) in 2006, but the PW did not include a reference to 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.