Appeal Procedures – Insurance – 705(a) – 705(c)

Appeal Brief

Appeal Letter

Appeal Analysis

Background

Hurricane Charley caused significant damage throughout Charlotte County, Florida (Applicant) in August 2004.  Overall, FEMA prepared 360 Project Worksheets (PWs) for the Applicant and this appeal relates to 9 of those 360 PWs.  The Applicant’s insurance policy covered not only the Applicant, but also the Charlotte County Airport Authority (CCAA).[1]  The policy limit was $50,000,000.00, with a $1,000,000.00 deductible, shared such that the Applicant would receive a maximum prorated amount of $40,301,600.00 and the CCAA would receive $9,698,400.00.

In January 2009, the Applicant entered into an apportionment agreement with the CCAA, to divide the settlement amount of $46,400,000.00.[2]  The Applicant and CCAA agreed to divide the proceeds such that the Applicant received $37,400,000.00 (80.6 percent) and CCAA received $9 million dollars (19.4 percent). 

The Florida Division of Emergency Management (Grantee) submitted closeout requests to FEMA in March 2015, July 2016, and February 2017 for the nine PWs at issue in this appeal.[3]  Between January and June 2017, FEMA reduced all 360 of the Applicant’s PWs by insurance proceeds, so as not to result in a duplication of benefits.  For some PWs, this led to a reduction of the total award, including the nine PWs in this appeal.   The Grantee notified the Applicant of these reductions by sending cover letters that attached FEMA Project Summaries (P2s) or the EMMIE[4] notification emails explaining the basis for the reductions.  In those notifications, FEMA explained the reductions were made to avoid a duplication of benefits due to actual insurance proceeds.

First Appeal

The Applicant submitted timely first appeals for the nine PWs.  The Applicant stated it was handicapped in forming its appeal because FEMA had not provided proper notice per FEMA’s Recovery Directorate Manual, Public Assistance Program Appeal Procedures (Manual) by:

• failing to give the Applicant an opportunity to participate in a facilitated discussion;
• not recording the insurance reductions in a determination memorandum; and
• not sharing information about the appeals with the Applicant. 

The Applicant stated that FEMA had reduced awards even where there was no duplication of benefits because the Applicant had not put all insurance proceeds toward the FEMA-eligible projects.  The Applicant also stated that section 705(c) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) prohibited deobligating the funding, as the payments were authorized by FEMA in an approved agreement, the costs were reasonable, and the purpose of the grant was accomplished.  Finally, the Applicant submitted an appeal addendum, explaining that its decision not to seek the additional $2.6 million dollars under its policy was reasonable because it spent years negotiating a settlement and the insurance company had threatened additional delays in litigation. 

On November 20, 2017, the Applicant and FEMA participated in a conference call to discuss the appeals.  Both before and after the call, FEMA emailed the Grantee, outlining the reductions for all 360 PWs.[5]  In a separate email, FEMA notified the Applicant that it was delaying the 90-day appeal timeframe for 60 days so that they could continue to discuss the insurance reductions and clarify all issues on appeal.[6]   

FEMA issued a Request for Information (RFI) on February 26, 2018, requesting an accounting of the Applicant’s insurance settlement and distribution.  The Applicant responded to the RFI on April 17, 2018, stating it had already provided FEMA with the policy.  The Applicant also included the following table showing the eligible amounts, the actual insurance proceeds received, and the amount at issue for each PW. 

The Applicant explained that out of the $37,400,000.00 of insurance proceeds that it received, it allocated $32,387,742.53 of the proceeds to “many of the 360 PWs” that FEMA had found eligible.[7]  Of the actual insurance proceeds that it received, the Applicant apportioned $3,624,585.25 to costs that were ineligible for FEMA funding:

The FEMA Region IV Regional Administrator (RA) denied the Applicant’s first appeals on June 14, 2018.  The RA found that the insurance reductions were required to prevent a duplication of benefits.  Also, the Applicant had not explained how damages for ineligible projects were covered under the policy, and therefore, had not demonstrated how proceeds could cover those damages. 

The RA acknowledged that the method of notice for PW 3241 was unclear, but the Grantee had notified the Applicant via letter for the other eight PWs, and the conference call and emails detailing the reductions served as adequate notice.

Finally, the RA found that section 705(c) of the Stafford Act did not prohibit the insurance reductions because FEMA may adjust funding post-award to account for insurance proceeds and avoid duplicated benefits.       

Second Appeal

The Applicant submitted its second appeal in a letter dated August 13, 2018, renewing its argument of inadequate notice only for PWs 4779 and 3241.  The Applicant also renews its argument that section 705(c) prohibits the total amount of insurance reductions, $5,401,793.13.  In the alternative, the Applicant argues FEMA should have only deobligated the amount of insurance proceeds that the Applicant allocated to the nine PWs ($3,830,558.28), and not the total amount of eligible costs ($5,401,793.13). 

In a supplement dated October 8, 2018, the Applicant argues that the statute of limitations in sections 1216(b)(1)[8] and 1216(c) of the Disaster Recovery Reform Act (DRRA) prohibits FEMA from recovering funds.   

Discussion

Appeal Procedures

The Stafford Act provides that an applicant may appeal any eligibility decision for assistance within 60 days after the date the applicant receives notice of the approval or denial of an award.[9]  For each PW on appeal, the Grantee notified the Applicant of the deobligation in a letter that contained either a P2, a copy of FEMA’s emailed EMMIE notification to the Grantee, or the most-recent version of the PW.  These notifications stated the reason for the deobligation: avoiding a duplication of benefits due to actual insurance proceeds.[10]    

The issue is moot given the phone conference and the follow-up emails explaining the insurance reductions.  While the Manual does not require a facilitated discussion, the Applicant had an opportunity to discuss insurance issues in the November 2017 conference call.  Finally, FEMA did not find the appeals untimely.[11] 

Section 705(c)

Section 705(c) of the Stafford Act bars FEMA from deobligating previously awarded funding 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.  Typically, FEMA determines if the applicant accomplished the grant’s purpose during the closeout process.[12]  Prior to determining whether section 705(c) applies, FEMA adjusts project awards based on actual costs, including appropriate reductions based on actual insurance proceeds.[13]  FEMA is required to make reductions based on a duplication of benefits and may do so post-award, provided that FEMA did not represent that its decision regarding anticipated benefits was final.[14] 

Consistent with FEMA policy, and reading section 705(c) in concert with section 312’s prohibition against duplication of benefits, the Stafford Act does not bar FEMA from recovering funds in this case.  FEMA adjusts project awards based on actual insurance proceeds prior to determining section 705(c)’s applicability.  Moreover, FEMA did not represent that the estimated award based on anticipated benefits was a final decision.  FEMA’s insurance reductions were appropriate to prevent a duplication of benefits and 705(c) does not prohibit them.   

Section 705(a)

In October 2018, section 1216(c) of the DRRA amended Stafford Act section 705(a) to broaden the applicability of the section’s three-year statute of limitations.  Now, section 705(a) bars FEMA from taking administrative action to recover funding from an applicant if more than three years have passed since “the date of transmission of the final expenditure report for project completion as certified by the grantee.”[15] 

The Applicant argues that section 705(a) applies in this case because each PW at issue was completed between 2005 and 2010, making the 2017 deobligations outside the three-year statute of limitations.  However, the Applicant is basing the start of the statute of limitations on the projects’ completion dates, rather than the date of transmission of the final expenditure report that certifies project completion. 

The Grantee transmitted its closeout requests to FEMA in March 2015, July of 2016, and February 2017.[16]  Section 705(a) does not bar the reductions in this case because FEMA made the deobligations in 2017, within the three-year statute of limitations.  

Insurance

Under section 312 of the Stafford Act, FEMA may not provide funding to applicants if they have received assistance for the same purpose from another source, such as insurance.[17]  Applicants are responsible for providing “all pertinent insurance information (policies, declarations, and [the insurer’s] ‘Statements of Loss’).”[18]  In addition, applicants are responsible for providing not only the insurance policy, but “all data, declarations, endorsements, exclusions, schedules, and other attachments or amendments” as well as any other documentation describing the coverage, covered items, and proof of loss.[19]

The Applicant argues that FEMA only should have deobligated the total amount of proceeds that the Applicant apportioned to FEMA eligible projects, instead of deobligating the entire amount of funding for all nine PWs.  However, the Applicant has not demonstrated that its insurance policy covered the losses in the ineligible projects.  In addition, the Applicant has not provided the full insurance policy or statement of loss from its insurer, preventing FEMA from determining which losses were covered or how proceeds should be distributed. 

FEMA requested this information in its RFI in February 2018.  The Applicant referred FEMA to information that was already in the record: the 2009 apportionment agreement with the CCAA, the statement of loss spreadsheet the Applicant created with some data from the insurance provider, and incomplete insurance policy documents.  However, this information still did not demonstrate how the insurance proceeds covered all claimed damages or how the Applicant apportioned the proceeds.  For example, the Applicant stated that it allocated $91,637.25 of its insurance proceeds to PWs that FEMA deemed ineligible.  The Applicant did not specify the PWs, leaving FEMA without information about the type of work or facility involved or how the insurance policy covered the claimed costs.  Likewise, the Applicant stated that it allocated $3,150,000.00 to Ashbritt for emergency protective measures that FEMA did not fund.  The Applicant submitted multiple invoices related to Ashbritt as well as spreadsheets showing Ashbritt invoices totaling $57,519,409.01.  However, the Applicant did not explain what work correlated to the $3,150,000.00, nor how its insurance policy covered the work.  Without that information, it was not possible for FEMA to determine how the policy covered the FEMA-ineligible work.  

While FEMA will make proportional reductions based on the proceeds put toward eligible versus ineligible projects,[20] the Applicant still must demonstrate that the policy covers all claimed losses.  Without the complete information, FEMA correctly reduced assistance based on actual insurance proceeds received to avoid a duplication of benefits. 

Conclusion

The Applicant received proper notice of the insurance reductions and FEMA appropriately reduced the awards to avoid a duplication of benefits.  In addition, sections 705(a) and 705(c) do not bar recovery because the reductions fell within the three-year statute of limitations and FEMA may make post-award reductions to account for insurance proceeds and avoid duplicated benefits.  Therefore, FEMA is denying the second appeal.