Duplication of Benefits

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4020
Applicant	New York / Environmental Protection, Department of
Appeal Type	Second
PA ID#	061-51000-26
PW ID#	PW 7349
Date Signed	2020-07-21T04:00:00

Summary Paragraph

In 2011, Hurricane Irene damaged the Gilboa Dam, owned by the New York City Department of Environmental Protection (Applicant).  At the time of the disaster, the dam was under construction by Barnard-D.A. Collins JV (Contractor).  Ordinarily, the Applicant is self-insured, but at the time of the disaster, the Contractor was insured as part of this ongoing project.  The Applicant executed contract change orders to repair the dam.  FEMA issued a Large Project Final Accounting (LPFA) Request for Information (RFI) seeking additional documentation, including copies of the Contractor’s insurance policies.  The LPFA RFI response included certificates of insurance, but not complete copies of the policies.  FEMA denied funding due to an inability to validate eligible work and costs based on the provided information.  The Applicant appealed and submitted additional documentation, including the Contractor’s builder’s risk insurance policy, the underlying contract’s insurance clause, and a proposed statement of loss.  FEMA issued a first appeal RFI seeking additional documentation.  The Applicant’s first appeal RFI response contended that no proof of loss statements or claim submissions were applicable and information from the insurance company was not available.  The FEMA Region II Regional Administrator denied the appeal, finding that the Applicant failed to provide documentation for FEMA to determine whether Public Assistance (PA) funding would duplicate benefits.  On second appeal, the Applicant reiterated its previous arguments.  The New York State Division of Homeland Security and Emergency Services supported the appeal and stated that change order items covered by insurance were removed prior to FEMA writing the Project Worksheet (PW).

Authorities and Second Appeals

• Stafford Act § 312(a).
• 44 C.F.R. §§ 206.206(a), 206.250(c).
• Chevra Hatzalah, FEMA-4085-DR-NY, at 6; Dep’t of Transp., FEMA-4068-DR-FL, at 5.
• DAP9525.3, Duplication of Benefits, Non-Government Funds, at 2.
• Disaster Assistance Fact Sheet DAP 9580.3, Insurance Considerations for Applicants, at 2.
• Public Assistance Applicant Handbook, FEMA P-323, at B-2.

Headnotes

• Pursuant to Stafford Act § 312(a) and 44 C.F.R. § 206.250(c), FEMA may not provide funding that duplicates benefits available to applicants from another source, including insurance.  Per FEMA policy, an applicant must notify FEMA of all benefits that it receives or anticipates from other sources for the same purpose, and must seek all such available benefits.
  • The Applicant failed to provide documentation for FEMA to determine whether any Contractor insurance proceeds covered the work on PW 7349.  As such, FEMA cannot verify that PA funding would not duplicate benefits available from insurance.

Conclusion

The Applicant did not provide documentation for FEMA to determine that PA funding would not duplicate benefits available from the Contractor’s insurance policies, or that the Applicant pursued the maximum insurance recovery available.  Therefore, the appeal is denied.

Appeal Letter

Appeal Analysis

Background

                           

From August 26 to September 5, 2011, heavy rainfall from Hurricane Irene significantly increased water levels and damaged the Gilboa Dam (Dam), which is located in Schoharie County and owned by the New York City Department of Environmental Protection (Applicant).  At the time of the disaster, the Dam was under construction by Barnard-D.A. Collins JV (Contractor) as part of a multi-year restoration and upgrade project (Contract).

The Contract required the Contractor to obtain a builder’s risk insurance policy that named both the Applicant and the Contractor as insured parties and loss payees.  The policy covered an amount equal to the total value of the work under the Contract.[1]  Ordinarily, the Applicant is a self-insured municipality and does not have any additional insurance coverage for losses or liabilities.

In May 2012, the Applicant executed a change order (Change Order 7) to the Contract[2] to restore the site to predisaster condition.  FEMA prepared Project Worksheet (PW) 7349, which covered line items 7.02-7.13 of Change Order 7.  In its Final Inspection Report, the New York State Division of Homeland Security and Emergency Services (Grantee) submitted a total project cost of $2,889,492.03.

FEMA issued a Large Project Final Accounting (LPFA) Request for Information (RFI) seeking additional documentation, including a copy of the Contractor’s builder’s risk and standard insurance policies for the Contract.  In its LPFA RFI response letter, the Grantee provided certificates of insurance for the Contractor, but not full copies of the policies.  FEMA issued a November 2, 2018 LPFA denial letter deobligating all funding for PW 7349 due to FEMA being unable to validate eligible work and costs based on the information provided by the Applicant.[3]  FEMA identified multiple issues in the Grantee’s LPFA RFI response, including the inability to determine if a duplication of benefits existed without full copies of the Contractor’s insurance policies for the Contract.

 

First Appeal

The Applicant appealed FEMA’s denial of costs through a January 4, 2019 letter, seeking approval of $2,889,492.03.  In support of its appeal, the Applicant submitted a copy of the Contractor’s builder’s risk insurance policy, highlighted insurance requirements within the Contract, provided the Contractor’s proposed statement of loss which identified an insurance claim of $3,890,414.00, and included the Contractor’s May 10, 2012 documentation of delays and recoverable costs associated with the disaster.  In a letter dated March 1, 2019, the Grantee expressed support for the appeal.

FEMA issued a May 8, 2019 first appeal RFI advising the Applicant that documentation provided in its first appeal was insufficient to demonstrate that the Applicant was responsible for disaster-related repair costs and that the costs claimed did not duplicate potential funding received from insurance.  As such, FEMA requested additional documentation, including: (1) a signed copy of the complete, executed Contract; (2) proof of loss statements, including final claim submissions, arising from a claim made by the Contractor or the Applicant; (3) documentation received from the Contractor’s insurance company(ies) regarding any claim for damage to the Dam as a result of the disaster, including all denial letters, settlement agreements, and releases with itemized damages claimed and amounts paid; and (4) clarification of whether damage to the Dam as a result of the disaster was covered under the Contractor’s insurance policies, including but not limited to builder’s risk insurance policy, with an explanation and supporting documentation for any damage not covered under these policies.

The Applicant’s July 9, 2019 first appeal RFI response letter included a signed copy of the executed Contract and a statement that it had reached out to the Contractor’s insurance company and was unable to provide additional information on damages.  Furthermore, because it owned the site and contended the damages covered under PW 7349 were beyond the Contract’s obligations of the Contractor, the Applicant stated that no additional proof of loss statements or claim submissions were applicable.

The FEMA Region II Regional Administrator denied the first appeal on September 26, 2019.  FEMA found that the Applicant was legally responsible for the damage to the Dam, but the Applicant did not provide documentation for FEMA to determine whether PA funding would duplicate benefits available from insurance.  Specifically, FEMA was unable to determine whether the Applicant pursued or maximized benefits available under the Contractor’s insurance policies and could not determine the extent to which an award of PA funding would duplicate benefits received from the Contractor’s insurance.

 

Second Appeal

The Applicant submitted its second appeal by letter dated November 25, 2019, requesting reimbursement of $2,889,492.03 for damages it states were not claimable from other sources.  The Applicant reiterates that, as a self-insured entity, it does not have additional insurance coverage for losses or liabilities.  Therefore, it argues, any losses incurred during the disaster were not covered by any other funds and were not reimbursable except through PA.  The Applicant also states that the work being performed under Change Order 7 was not part of the Contract and was added through the change order process.  In turn, the Applicant contends that the new work being added would not have been included in the builder’s risk insurance policy for the Contract and therefore should not be considered as part of any claims being submitted by the Contractor.

The Grantee expressed support for the appeal for $2,889,492.03 in a transmittal letter dated January 21, 2020.  The Grantee submits that, as noted when the PW was written, the Applicant and the Contractor went through each line item of the damage on the change orders and removed any items covered by the Contractor’s insurance before FEMA wrote PW 7349.  Those damages that were incurred by the Contractor on work in the affected areas due to the disaster, the Grantee adds, were submitted to the Contractor’s builder’s risk insurance instead.  The Grantee contends that, because the work being performed under Change Order 7 addressed damages not covered under the Contract and the damages were the result of the disaster and not caused by the Contractor, the Contractor’s builder’s risk policy should have no bearing on PW 7349.  Because the Applicant did not file a claim with nor receive payments from the Contractor’s insurance carrier and the insurance funds paid to the Contractor purportedly did not apply to items on PW 7349, the Grantee argues that there is no documentation to submit indicating a filed insurance claim by the Applicant or payments received from the Contractor’s insurance.

 

Discussion

FEMA may not provide funding that duplicates benefits available to applicants from another source, such as insurance.[4]  Consequently, FEMA is required to reduce otherwise eligible costs by the amount of insurance proceeds applicants anticipate or receive for the insured facility.[5]  Applicants are responsible for providing all pertinent insurance information, including policies, declarations, and statements of loss.[6]  In addition, applicants must provide “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.[7]  Furthermore, applicants should pursue payment under applicable insurance policies to maximize potential benefits, as PA is intended to supplement financial assistance from other sources.[8]  Finally, the burden to fully substantiate appeals with documented justification falls exclusively to the applicant and hinges upon the applicant’s ability to produce not only its own records but to clearly explain how those records should be interpreted as relevant to support the appeal.[9]

FEMA provided the Applicant with multiple opportunities to produce documentation pertaining to the Contractor’s insurance policies after raising concerns of a potential duplication of benefits.  However, the Applicant failed to provide documentation substantiating its assertion that PA funding would not create a duplication of benefits.  As FEMA cannot review what payments were made to whom for specific applicable damages, FEMA cannot determine the Contractor’s insurer did not already issue payment for the requested costs on appeal.

In addition, the Grantee’s assertion that the Applicant and the Contractor conducted a line item review to remove items from PW 7349 that were covered by insurance indicates that project costs overlapped between the Contract and Change Order 7.  The Applicant, however, has not provided documentation substantiating the veracity of this line item review and illustrating the removal of any line items otherwise covered by the Contractor’s insurance policies.

The Contractor’s proposed statement of loss identifies line items of its claim amounting to a loss determination of $4,140,414.00 and a $3,890,414.00 claim on insurance,[10] but it is not clear based on the information provided whether any of this claim overlaps with work performed under PW 7349.  Additionally, the Contractor explained to the Applicant, though the proposed statement of loss covered costs through January 21, 2012, that costs incurred thereafter were still under review.[11]  The proposed statement of loss reflects that there is a possibility of additional information, so a final statement of loss is required for FEMA to ensure PA funding is not a duplication of benefits.

Finally, despite being a named insured and loss payee on the Contractor’s builder’s risk insurance policy, the Applicant has not demonstrated it ever pursued payment through the Contractor’s insurer.  Even if the Applicant is not permitted to file a direct claim under the Contractor’s builder’s risk policy, it should have recourse available if the Contractor failed to consider and protect the Applicant’s financial interests under the policy.  Without such documentation, the Applicant has not established it maximized the potential benefits available from insurance, and as such, FEMA cannot verify insurance coverage was not available.[12]

The Applicant has neither demonstrated it pursued payment to maximize benefits available from every applicable insurance policy, nor provided documentation that would enable FEMA to determine awarding the requested costs would not duplicate benefits available from another source.

 

Conclusion

The Applicant did not provide documentation for FEMA to determine that PA funding would not duplicate benefits available from the Contractor’s insurance policies, or that the Applicant pursued the maximum insurance recovery available.  Therefore, the appeal is denied.

 

[1] The Contractor’s builder’s risk insurance policy covered a total value of $123,485,500.00 for the Contract (CAT-212B).

[2] CAT-212B was one in a series of contracts for long-term restoration and upgrade work at the Gilboa Dam that began in 2008.  Additional contracts were issued for emergency repair work (CAT-275), site preparation (CAT-212A), intake improvements (CAT-212C) and site restoration (CAT-212D).

[3] FEMA implemented this determination on November 20, 2018, when it approved Version 1 of Project Worksheet 7349, deobligating all funding.

[4] Robert T. Stafford Disaster Relief and Emergency Assistance Act, as amended, § 312(a), 42 U.S.C. § 5155(a) (2006); Title 44 Code of Federal Regulations (44 C.F.R.) § 206.250(c) (2010); Disaster Assistance Policy (DAP) 9525.3, Duplication of Benefits, Non-Government Funds, at 2 (July 24, 2007).

[5] 44 C.F.R. § 206.250(c); Public Assistance Guide, FEMA 322, at 41 (June 2007).

[6] Disaster Assistance Fact Sheet DAP 9580.3, Insurance Considerations for Applicants, at 2 (May 29, 2008).

[7] Public Assistance Applicant Handbook, FEMA P-323, at B-2 (Mar. 2010).

[8] DAP 9580.3, at 1-2.

[9] 44 C.F.R. § 206.206(a); FEMA Second Appeal Analysis, Dep’t of Transp., FEMA-4068-DR-FL, at 5 (Aug. 5, 2016).

[10] Barnard-DA Collins JV, Proposed Statement of Loss.

[11] Letter from Barnard-D.A. Collins JV, to Resident Engineer, HAKS/D&B/WGI, at 3 (May 10, 2012).

[12] See FEMA Second Appeal Analysis, Chevra Hatzalah, FEMA-4085-DR-NY, at 6 (Mar. 15, 2017).