Insurance

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4393
Applicant	St. Andrews College DBA St. Andrews University
Appeal Type	Second
PA ID#	165-UWT6X-00
PW ID#	PW 2175
Date Signed	2021-11-18T17:00:00

Summary Paragraph

In September 2018, Hurricane Florence flooded the ground floor of the Applicant’s Facility.  FEMA prepared Project Worksheet (PW) 2175 to capture these damages.  Two years prior, in 2016, flooding from Hurricane Matthew damaged the same Facility, and FEMA obligated $118,896.96 for repairs captured in PW 400.  FEMA denied funding for repairs for PW 2175, for Hurricane Florence damages, due to the Applicant’s failure to obtain and maintain (O&M) flood insurance following Hurricane Matthew.  The Applicant appealed, arguing that the O&M requirement for PW 400 was not communicated to it prior to the disaster.  FEMA denied the Applicant’s appeal, finding that the O&M requirement was expressed in PW 400 at the time the project was approved and obligated, prior to Hurricane Florence.  The Applicant’s second appeal reasserts that it had no notice of the O&M requirement prior to Hurricane Florence and that the insurance policy does not require an applicant obtain insurance until closeout.

Authorities and Second Appeals

• Stafford Act § 311.
• 44 C.F.R. §§ 206.251- 206.253.
• PAPPG, at 86-87.
• Public Assistance Policy on Insurance, at 2-3, 7.

Headnotes

• The Stafford Act states that when FEMA provides an applicant assistance for permanent work to replace, restore, repair, reconstruct, or construct a facility, the applicant must insure that facility against future loss.  In addition, no applicant may receive assistance for a facility for which the applicant has previously received assistance unless all required insurance has been obtained and maintained with respect to the facility.
  • Here, FEMA provided assistance to the Applicant in April of 2017; however, the Applicant did not insure its Facility against future flood damage at that time.  At the time of Hurricane Florence, after the Applicant had received assistance for the repair of the Facility in a previous disaster, it had not obtained and maintained the required insurance.

Conclusion

The Applicant was required to O&M flood insurance for the Facility when it received Public Assistance for PW 400 in April 2017.  Because the Applicant did not comply with the O&M requirement, its Facility is ineligible for Public Assistance.  Therefore, the appeal is denied.

Appeal Letter

Appeal Analysis

Background

In 2016, Hurricane Matthew, FEMA-4285-DR-NC, caused damage throughout North Carolina and resulted in six inches of flooding to the Morgan Jones Science Center (Facility) on the campus of St. Andrews University (Applicant).  The Facility is located within a Special Flood Hazard Area (SFHA).  FEMA prepared Project Worksheet (PW) 400 to document the damage and repair work, which included replacing drywall, painting, and purchasing and installing carpet and vinyl tile.  At the time of Hurricane Matthew, the Applicant’s insurance policy did not include flood insurance coverage for the Facility.  FEMA subsequently obligated funding for repairs and set requirements in PW 400 for the Applicant to obtain and maintain (O&M) flood insurance for the Facility in the amount of $118,896.96, pursuant to Section 311 of the Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act. 

Two years later, from September 7 – 29, 2018, Hurricane Florence, FEMA-4393-DR-NC, flooded the ground floor of the Facility with up to 36 inches of water.  FEMA prepared PW 2175[1] to capture damage to the Facility.  At the time of Hurricane Florence, the Applicant had a commercial insurance policy covering a blanket liability limit of $71,610,480.00 for property and building contents, subject to a $1,000.00 per occurrence deductible; flood losses were limited to $25,000 in coverage.[2]  On January 15, 2020, FEMA issued a Determination Memorandum denying $1,727,773.41 in Public Assistance (PA) funding for PW 2175.  FEMA found that the Applicant’s insurance policy did not include the flood insurance required following Hurricane Matthew.

First Appeal

The Applicant submitted its first appeal on March 13, 2020.  The Applicant argued that PW 400 was improperly funded because under the Stafford Act § 406(d), FEMA was required to reduce the grant by the amount of insurance available under a standard flood insurance policy.  Therefore, the Applicant argued, because a $500,000.00 flood insurance policy was available under the National Flood Insurance Program, the funding should have been reduced to $0.00 and no O&M requirement would apply.  The Applicant also contended FEMA improperly denied PA funding for repair of the Facility because FEMA only notified the Applicant of the O&M requirement when the Applicant met with FEMA after Hurricane Florence.  It acknowledged that the North Carolina Department of Public Safety, Emergency Management (Grantee) sent a letter informing the Applicant of its PW 400 grant approval dated April 27, 2017, which stated “Approval of this project may result in obtain/maintain insurance requirement.  The [Applicant] must comply with insurance reviewer terms and conditions upon receipt of sub-grant from the State.”[3]  However, the Applicant argued, this text appears under a section related to a different building, not the Facility. 

FEMA issued a Request for Information (RFI) to the Applicant and Grantee on August 11, 2020, seeking information related to the timing and sequence of events with respect to both PW 400 and PW 2175, as well as details regarding insurance purchases and coverages.  In its RFI response, the Applicant states that its general contractor completed its work on all construction and punch list items on PW 400 by February 15, 2018, while the Grantee states that work was completed on PW 400 on March 17, 2017, and that it informed the Applicant of the O&M requirement in the amount of $118,896.96 when PW 400 was obligated, on April 27, 2017.

On May 7, 2021, the FEMA Region IV Regional Administrator denied the Applicant’s first appeal.  FEMA determined that, under applicable Stafford Act § 406(d) regulations, when multiple buildings on a campus are damaged, FEMA applies only the smallest available insurance reduction.  Because another building on the Applicant’s campus suffered less damage than the Facility, FEMA found PW 400 was properly funded.  In addition, FEMA found that PW 400 expressed the O&M requirement, stating “[t]here will be requirements to Obtain and Maintain Flood Insurance under Sec[tion] 311 [of the Stafford Act] or [Title] 44 [Code of Federal Regulations §] 206.252(d) in the amount of $118,896.96 for the [Facility].”[4]  FEMA found that PW 400 was obligated on April 22, 2017 and that the Grantee notified the Applicant of the obligation via letter dated April 27, 2017, which included a copy of the project report.  FEMA determined that the Applicant completed the scope of work on PW 400 before Hurricane Florence and because the Applicant did not obtain and maintain flood insurance prior to Hurricane Florence, FEMA found it was ineligible for PA funding.

Prior to the denial of the first appeal, on March 3, 2021, the Applicant submitted to the Grantee a request to withdraw PW 400 stating that FEMA had violated section 406(d) of the Stafford Act and 44 C.F.R. § 206.252(a) in funding the PW.  The Grantee forwarded this request to FEMA on July 7, 2021, indicating that the applicant did not maintain the required O&M from its Hurricane Matthew project and wished to return funding.

Second Appeal

The Applicant submitted its second appeal, dated June 29, 2021, requesting approval of $1,727,773.41 in Facility repair costs.  The Applicant reiterates its prior arguments that it was not made aware of the O&M requirements until after Hurricane Florence and contends that the April 27, 2017 letter from the Grantee that communicated project approval for PW 400 did not contain notice to the Applicant of the O&M requirement’s applicability, or the amount of coverage required.  The Applicant asserts that although FEMA policy states applicants “should” purchase insurance when the work is complete, it only requires O&M coverage at closeout, when actual costs are known, consistent with FEMA’s own practice in a prior second appeal.  The Applicant argues that it therefore complied with the O&M requirements for the Hurricane Matthew/PW 400 grant by purchasing flood insurance with coverage exceeding the requirement effective April 17, 2019.  The Grantee forwarded the Applicant’s second appeal with a letter expressing its support on August 17, 2021.

 

Discussion

When FEMA provides an applicant assistance for permanent work to replace, restore, repair, reconstruct, or construct a facility, the applicant must insure that facility against future loss.[5]  Such types and amounts of insurance must be reasonable and necessary to protect the facility against future losses from the hazards that caused the damage to the property.[6]  Specifically, an applicant must O&M insurance to cover the facility for the same type of hazard that caused the damage, and which must, at a minimum, be in the amount of the estimated or actual eligible costs prior to any reductions.[7]  Applicants must insure their facilities prior to grant approval, or, if they cannot, either when the applicant resumes use of or legal responsibility for the facility or when the scope of work is complete.[8]  No applicant may receive assistance for a facility for which the applicant has previously received assistance unless all required insurance has been obtained and maintained with respect to the facility.[9]  Assistance is any form of federal grant under sections 406, 422, and 428 of the Stafford Act to replace, restore, repair, reconstruct, or construct a facility and/or its contents as a result of a major disaster.[10]   

On April 27, 2017, FEMA approved and obligated PW 400, and the Applicant subsequently received assistance, for repair of flood damages to the Facility caused by Hurricane Matthew in the amount of $118,896.96.[11]  Funds were drawn down by the Grantee, and the Grantee issued checks to the Applicant, in April and May of 2017. At that point, the Applicant had received assistance within the meaning of the Stafford Act.  Although FEMA may not have an opportunity to verify that the O&M requirement is met until closeout, the requirement applies when an applicant receives assistance and the facility is insurable.[12]  The Applicant’s subsequent request, approximately four years after receiving assistance, to withdraw PW 400 and return funding does not negate the fact that the Applicant previously received assistance for this property pursuant to the Stafford Act and the requirement to obtain and maintain insurance applies to this Facility.   

FEMA policy does provide that when an applicant cannot insure a facility prior to grant approval, the applicant should insure the property when it resumes use of or legal responsibility for the property, or when the scope of work is complete.  At the time PW 400 was prepared in March 2017, the drywall and painting work was complete and the Applicant had contracted for work to replace carpet, vinyl tile, and vinyl base cove in the Facility.  In this case, the Applicant was able to insure the property at the time of grant approval.  In fact, the Applicant did obtain insurance after the Facility was damaged in Hurricane Matthew;[13] it did not however, O&M required types and extent of insurance either prior to the grant approval or when the scope of work was complete.  The Applicant did not O&M the appropriate insurance until after the Facility was damaged again in Hurricane Florence.[14]  

The Grantee affirms that the O&M requirement was communicated to the Applicant on multiple occasions, including on the same date the PW was obligated.[15]  In addition, the terms and conditions of the grant were included in PW 400.  The Applicant did not O&M insurance coverage in the required type and amount following Hurricane Matthew or before Hurricane Florence.[16]  Because the Applicant previously received assistance for this Facility and did not comply with the insurance requirements imposed in that PA grant (PW 400, Hurricane Matthew), the Facility is ineligible for PA funding.

 

Conclusion

The Applicant was required to O&M flood insurance for the Facility when it received PA for flood damages in April 2017.  Because the Applicant did not comply with the O&M requirement, its Facility is ineligible for Public Assistance and the appeal is denied.

 

[1] Grants Manager Project 75310.

[2] GuideOne Insurance Policy No. 1216-297 (Oct. 15, 2017-Oct. 15, 2018).

[3] See Letter from President, St. Andrews Univ., to Reg’l Adm’r, FEMA Region IV, at 4 (Mar. 13, 2020).

[4] Project Worksheet 400, St. Andrews College DBA St. Andrews University, Version 0, FEMA Insurance Specialist Note (Apr. 18, 2017).

[5] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act § 311(a)(1), 42 United States Code § 5154(a)(1) (2018); Title 44 Code of Federal Regulations (44 C.F.R.) §§ 206.251(a), 206.252(d), 206.253(b)(1) (2017); FEMA Policy (FP) 206-086-1, Public Assistance Policy on Insurance, at 3 (June 29, 2015).

[6] 44 C.F.R. §§ 206.252(d), 206.253(b)(1); FP 206-086-1, at 4.

[7] Public Assistance Program and Policy Guide, FP 104-009-2, at 86 (Apr. 1, 2018) [hereinafter PAPPG]; FP-206-086-1, at 3.

[8] FP 206-086-1, at 7.

[9] Stafford Act § 311(b), 42 U.S.C. 5154(b); 44 C.F.R. § 206.253(f); PAPPG, at 87.

[10] 44 C.F.R. § 206.251(a); FP-206-086-1, at 3.

[11] The Applicant asserts that the work on PW 400 was completed February 15, 2018; because this date is still more than six months before the subsequent disaster, the difference is immaterial.

[12] The Applicant, arguing that the O&M requirement attaches at closeout, cites to a prior second appeal decision that predates the Public Assistance Policy on Insurance clarifying the timeframes for purchasing insurance.    

[13] GuideOne Insurance Policy No. 1216-297 (Oct. 15, 2017-Oct.15, 2018).

[14] Auto-Owners Insurance Policy No. 30023499679 (Apr. 17, 2019-Apr. 17, 2020).

[15] See Email from PA-Admin. Assistant, N.C. Dep’t of Pub. Safety, Div. of Emergency Mgmt., to FEMA Region IV Appeals, at 2 (Sept. 10, 2020).

[16] See Letter from Chief Fin. Officer, St. Andrews Univ., to FEMA Assistant Adm’r, Recovery, at 2 (June 29, 2021) (“St. Andrews agrees with FEMA that St. Andrews did not purchase additional flood insurance during the short period of time between Hurricane Matthew and Hurricane Florence”).