Duplication of Benefits – Insurance

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From September 4 to October 18, 2017, strong winds and heavy rainfall from Hurricane Irma damaged properties owned by Seminole Community College (Applicant).  FEMA prepared Project Worksheets (PWs) 3573, 4291, and 5045[1] to document permanent work to repair the damages.  However, FEMA reduced Public Assistance (PA) funding for each PW to zero dollars after accounting for anticipated insurance proceeds.  In each case, FEMA found that the Applicant’s insurance policy provided full coverage for the loss, less a one-time $10,000.00 deductible, which FEMA reimbursed under another project (PW 3945) as an uninsured loss.  FEMA notified the Applicant of the funding reductions via Determination Memoranda dated March 14, 2019 (PW 3573) and March 22, 2019 (PWs 4291 and 5045).

First Appeal

Between April 17 and May 7, 2019, the Applicant submitted the first appeals for each PW, requesting FEMA approve PA funding totaling $31,574.73.[2]  The Applicant argued that insurance proceeds were not available to cover all of the losses at issue; what FEMA classified as an insurance policy was in fact a self-insured retention fund maintained by the Florida College System Risk Management Consortium (FCSRMC).  Any payments received from FCSRMC for the damages at issue were “self-funded” from the premiums the Applicant previously paid into the fund. 

Further, the Applicant stated that FCSRMC allows it and twenty-six other participating colleges to combine risk and financial resources in order to purchase commercial insurance through the Westport Insurance Corporation (Westport) at lower costs.  In this case, the insurance deductible under the Westport policy, equal to 3 percent of the total insured value of its properties, had not been met.  The Applicant asserted that the costs at issue thus constituted part of its insurance policy deductible and were eligible for PA funding.  To support the eligibility of its claim, the Applicant cited an example wherein FEMA reimbursed costs for insurance policy deductibles.  In its transmittal letter, the Grantee expressed support for the appeal.

In a letter dated August 31, 2019, the FEMA Region IV Regional Administrator denied the appeal.  FEMA determined that FCSRMC functioned as an insurer “by collecting premiums and paying claims,” and was obligated to reimburse the Applicant for any disaster-related repairs exceeding the $10,000.00 deductible.  Therefore, providing additional PA funding under PWs 3573, 4291, or 5045 would represent a duplication of benefits.  Finally, FEMA determined that the 3 percent deductible referenced in the Applicant’s appeal was associated with FCSRMC’s insurance policy with Westport, not the Applicant’s insurance policy.

Second Appeal

The Applicant submits its second appeal via letter dated October 23, 2019.  The Applicant notes that it is one of twenty-seven member colleges along with FCSRMC listed as the “named insured” on the Westport policy, and thus the Westport policy is the Applicant’s insurance policy.  In contrast, the Applicant argues that the agreement between it and FCSRMC is not an insurance policy, but a means for member colleges to pool funds.  The Applicant asserts that the money it and the other member colleges pay into the FCSRMC fund comes from the State of Florida, and is returned when losses are paid below the Westport policy insurance deductible.  Therefore, any funding it receives from FCSRMC is the Applicant’s own money.  It states this does not constitute a duplication of benefits since it is not money from an outside source.  The Applicant again offers examples wherein FEMA reimbursed commercial insurance deductibles, and states that each case involved risk management programs similar to FCSRMC.  In its transmittal letter, the Grantee again expresses support for the appeal.

Discussion

Duplication of Benefits

Per Section 312 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, no entity will receive financial assistance for any loss for which financial assistance has already been received from any other program, from insurance, or from any other source.  FEMA is legally prohibited from duplicating benefits from other sources.[3]  Specifically, it cannot provide assistance for disaster-related losses that duplicate benefits available to an applicant from another source, including insurance.[4]  Therefore, FEMA reduces assistance to an applicant by the amount of its actual or anticipated insurance proceeds.[5]

FEMA defines an insurance pool as two or more entities that agree to share risk under a contractual agreement.[6]  An insurance pool is not under the control of a single pool member and is governed by a board or similar organizational entity comprised of participating members.[7]  Self-insured retention is a type of retained risk whereby the insured retains responsibility for paying covered claims up to a set threshold; upon meeting the threshold, the insurer offering the additional layer(s) (i.e., the excess insurer) assumes liability.[8]  FEMA will not reduce assistance for any retained risk, such as a deductible, where there is no insurance purchase requirement.[9]

FEMA examined the Applicant’s agreement with FCSRMC, which is detailed in Policy No. RMC 2017-0301, referred to on appeal as the “Plan Document.”  FEMA finds that the Plan Document is a contractual agreement between the Applicant, twenty-six other colleges, and FCSRMC.[10]  The agreement requires each member college to pay an annual assessment to FCSRMC, and indemnifies each member, including the Applicant, in the event of loss, by obligating FCSRMC to provide payment for damages.[11]  Thus, risk is not solely retained by the Applicant; rather, some risk is transferred to, or shared with, the other member colleges.  As defined by FEMA policy, the agreement detailed in the Plan Document is an insurance pool.

Per the policy coverage described in the 2017 Plan Document, FCSRMC was responsible for reimbursing the Applicant’s costs to repair disaster-related damages, including the costs on appeal, less a $10,000.00-per-occurrence deductible (i.e., uninsured loss).[12]  Therefore, per the terms of the agreement in the Plan Document, the Applicant could expect to recoup the balance of its repair costs from FCSRMC.  FEMA reimbursed the Applicant the full amount of the deductible (under PW 3945), and properly reduced funding for PWs 3573, 4291, and 5045 to zero dollars, as additional PA funding for this project would duplicate the benefits available from FCSRMC.

Conclusion

The terms of the Applicant’s agreement with FCSRMC demonstrate that it is an insurance pool.  The agreement obligated FCSRMC to reimburse the Applicant for the costs on appeal and approval of additional PA funding would constitute a duplication of benefits.  Accordingly, this appeal is denied.