Insurance

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From May 19, 2013 to June 14, 2013, heavy rains and flooding damaged two pedestrian/snowmobile bridges (Facilities) at Backbone State Park, which were the responsibility of the Iowa Department of Natural Resources (Applicant).  FEMA prepared Project Worksheet (PW) 561 to repair the Facilities, in the amount of $70,712.40.  The Iowa Department of Homeland Security and Emergency Management (Grantee) requested and FEMA approved an improved project for the Applicant to replace the Facilities with larger bridges.  Later, the Applicant and Grantee requested an alternate project for the Applicant to remove the two bridge abutments, purchase rock for trails, and purchase a John Deere Gator (utility vehicle) for Backbone State Park.  FEMA approved the alternate project and updated PW 561 for the new scope of work, including a requirement to obtain and maintain adequate insurance coverage to protect the utility vehicle against future loss.

The Applicant received the utility vehicle on October 19, 2016.  At closeout, FEMA requested documentation of insurance coverage for the utility vehicle.  The Applicant stated that Iowa’s self-insurance policy covered the utility vehicle as a self-propelled vehicle used to service Backbone State Park.  The Grantee and Applicant responded in a chain of emails that the Applicant would store the utility vehicle within a boathouse[1] and would use it to maintain the trail system within Backbone State Park.  In a letter dated August 24, 2017, FEMA determined that the Applicant did not obtain and maintain insurance on the utility vehicle because it was not covered under the Standard Flood Insurance Policy (SFIP),[2] and reduced the eligible amount by the cost of the utility vehicle, $18,690.64.[3]  FEMA obligated PW 561 for $12,887.60 to remove the two bridge abutments and purchase rock for trails.

First Appeal

In a first appeal dated October 18, 2017, the Applicant claimed that the utility vehicle was insurable under a standard flood insurance policy, as a “non-licensed self-propelled vehicle stored inside an insured building to service the described location (Backbone State Park),”[4] and therefore the Applicant’s self-insurance met FEMA’s obtain and maintain requirement.  The Applicant stated that the State of Iowa was exempt from the requirement to purchase additional flood insurance on state-owned structures and their contents because it had in effect an adequate plan of self-insurance, approved by the FEMA Administrator per Title 44 Code of Federal Regulations (44 C.F.R.) § 75.14.  The Applicant provided: (1) a letter from the Iowa Commissioner of Insurance supporting the Applicant’s position that it was exempt from purchasing flood insurance; (2) emails from the FEMA Chief of Floodplain Management and the Applicant’s Flood Plain Management Engineer stating that the utility vehicle was insurable under the SFIP while it is inside an insured building;[5] (3) a National Flood Insurance Program summary of coverage for commercial property; and (4) an email providing self-insurance.  The Grantee forwarded the Applicant’s appeal to FEMA, reiterating the Applicant’s argument that the utility vehicle was insured under its self-insurance policy.

FEMA issued a final Request for Information (RFI) stating that the utility vehicle was only insured under the Applicant’s policy when it was stored in a covered building, which was not sufficient.  The RFI requested: (1) an explanation of how the “described location” in the SFIP was the entirety of the park, as the Applicant claimed, instead of the locations specifically described in the policy; or (2) a certificate for flood insurance that specifically identified the utility vehicle; or (3) a letter from the State Insurance Commissioner (SIC) stating that the types and amounts of insurance required by the Regional Administrator were unreasonable. 

The Applicant responded that the utility vehicle was insured since it was stored in the boathouse, which was a described location, and the utility vehicle was used to service the grounds of the described location.  The Applicant noted that the Iowa Commissioner of Insurance stated that the utility vehicle was covered by the state’s self-insurance whether it was stored in a covered building or not.  The Applicant provided a map of Backbone State Park to show the roads and trails that the utility vehicle would be servicing and provided another letter from the Iowa Commissioner of Insurance stating that any additional insurance coverage mandated by FEMA above and beyond the Applicant’s self-insurance was unreasonable.

On May 14, 2018, the FEMA Region VII Regional Administrator (RA) denied the appeal.  The RA stated that the described location was the area immediately surrounding the boathouse and since the utility vehicle was used to service more than this area, it was not covered by the insurance policy.  The RA determined that since the SIC did not provide a rationale or supporting information to support his certification, it was inadequate.

Second Appeal

In a second appeal dated June 27, 2018, the Applicant maintains that the utility vehicle is covered by its self-insurance policy, and any requirement for additional insurance is unreasonable.  The Grantee forwarded the second appeal to FEMA, reiterating the Applicant’s arguments and noting that since the utility vehicle is mobile, it can be relocated outside of an area at risk of flooding.

Discussion

The Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act requires that, with respect to any property to be constructed, replaced, restored, or repaired with Public Assistance (PA) funds, an applicant must obtain and maintain such types and extent of insurance as may be reasonably available, adequate, and necessary to protect against future loss to such property.[6]  Such types and amounts of insurance must be reasonable and necessary to protect the facility against future damage.[7]  Such insurance requirements also pertain to alternate projects, for which insurance must be obtained and maintained on vehicles, buildings and building contents in an amount equal to the alternate project funding.[8]  Failure to obtain and maintain adequate insurance coverage will result in denial of PA funding; however, FEMA may not require greater types and extent of insurance than that certified as reasonable by the SIC.[9]  

Further, the Federal Insurance Administrator has determined that Iowa is exempt from the requirement to purchase flood insurance on State-owned structures and their contents because Iowa has in effect adequate State plans of self-insurance that equal or exceed the standards set forth in 44 C.F.R. Part 75.[10]  These standards require, at a minimum, the self-insurance plan to include the flood and flood-related hazards which are covered under the SFIP.[11] 

The SIC maintains that the Applicant’s insurance policy included flood insurance for the utility vehicle, even when it was not stored in a structure; however, the Applicant has not provided any documentation to demonstrate this.  The SIC also states that FEMA’s requirement to purchase additional flood insurance for the utility vehicle is not reasonable.[12]  While Stafford Act § 311(a)(2) allows the SIC to certify the type and extent of insurance that is available, adequate, and necessary to obtain and maintain, FEMA must make an independent determination as to what is or is not included in the policy itself.[13] 

The Applicant has not submitted a copy of its self-insurance plan for the administrative record.  Therefore, FEMA Region VII could only examine the SFIP to determine what was covered by the policy.  The SFIP does not cover self-propelled vehicles or machines, except if they are not licensed for use on public roads and are: (a) used mainly to service the described location, or (b) designed and used to assist handicapped persons while the machines are inside a building at the described location.[14]  Nowhere in the SFIP does it discuss insurance coverage for utility vehicles when not stored in a fully enclosed structure.[15] 

On second appeal, FEMA obtained the 2016 Iowa self-insurance plan from the Federal Insurance and Mitigation Administration.  The plan includes SFIP policies for flood coverage to various buildings, including the boathouse and its contents.  The documents do not include an inventory listing, which would specifically identify property such as a utility vehicle.[16]  However, the State Insurance Plan also includes a disaster contingency fund, which provides protection for damage or loss to any state property for multiple perils, including flood, regardless of whether the property is inside or outside of a covered building.[17]  This disaster contingency fund covers the utility vehicle whether it is inside or outside of the boathouse.  Therefore, the Iowa self-insurance plan verifies the SIC’s statement that the Applicant obtained and maintained flood insurance for the utility vehicle.

Conclusion

The Iowa self-insurance plan includes a disaster contingency fund, which covers the utility vehicle for all hazards.  This confirms the SIC’s statement that any requirement to purchase additional flood insurance for the utility vehicle was not reasonable.  As such, the second appeal is granted.