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Insurance

Appeal Brief

Disaster1909-DR-TN
ApplicantNashville Metropolitan Transit Authority
Appeal Type2nd
PA ID#037-UQKMW-00
PW ID#3653 and 3739
Date Signed

Citation:  FEMA-1909-DR-TN; Nashville Metropolitan Transit Authority (Applicant),PWs 3653 and 3739

Cross-Reference: Insurance; Duplication of Benefits

Summary:   The Applicant sustained the loss of 53 transit vehicles at the 130 Nestor Street service terminal as a result of flooding from severe storms during the period of April 30 through May 4, 2010.  FEMA prepared PW 3653 in the amount of $188,377 to cover the total cost to replace 21 facility support vehicles damaged at the Nestor Street location.  FEMA also prepared PW 3739 for $4,186,232 to cover the total cost to replace 32 buses damaged at the same location.

A provision of the Applicant’s insurance policy, Endorsement 004 Limit of Liability, provides $10,000,000 in flood coverage on a per occurrence basis for vehicles specifically listed on the policy.  The policy exception to the $10,000,000 per occurrence flood coverage states, “Flood $10,000,000: except 130 Nestor Street, $10,000,000 ‘annual aggregate’ Nashville, TN.”  FEMA determined that the policy exception changes the coverage at the Nestor Street location from $10,000,000 for each and every occurrence to an annual aggregate policy limit amount of $10,000,000 for the Nestor Street location.  As a result, PW 3653 was reduced to $33,592 for the market value of four (4) of the 21 vehicles that were uninsured plus $677 for direct administrative costs.  PW 3739 was reduced to $1,289 for direct administrative costs.The Applicant submitted its second appeal on February 3, 2012, which the State transmitted to FEMA on April 17, 2012.  The Applicant reiterates its position from the first appeal that the vehicles damaged at the 130 Nestor Street location were not covered for flood damage.  The Applicant filed a lawsuit against the insurance company in the Chancery Court of Davidson County seeking a declaratory judgment as to whether the insurance policy excludes flood damage and proposes that FEMA not take action on the second appeal until after the court ruling.

Issues: Did the Applicant demonstrate that flood is not a covered peril under the provisions of the insurance policy? Findings: No. Rationale: Section 312(a), Duplication of Benefits; 44 CFR §206.250(c), General; 44 CFR §206.206(c)(3), Appeals, Time Limits 

Appeal Letter

August 14, 2012

James H. BasshamDirectorTennessee Emergency Management Agency3041 Sidco Drive, P.O. Box 41502Nashville, Tennessee  37204

Re:  Second Appeal–Nashville Metropolitan Transit Authority, PA ID 037-UQKMW-00, Insurance ­ Vehicle Replacement, FEMA-1909-DR-TN, Project Worksheets (PW) 3653 and 3739

Dear Mr. Bassham:

This is in response to your letter dated April 17, 2012, which transmitted the referenced second appeal on behalf of Nashville Metropolitan Transit Authority (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) deduction of anticipated insurance proceeds from PWs 3653 and 3739 in the amounts of $154,785 and $4,184,943 respectively. 

Background

As a result of flooding from severe storms during the period of April 30 through May 4, 2010, the Applicant sustained the loss of 53 transit vehicles at the 130 Nestor Street service terminal.  FEMA prepared PW 3653 in the amount of $188,377, including $677 for direct administrative costs, to cover the total cost to replace 21 facility support vehicles damaged at the Nestor Street location.  FEMA also prepared PW 3739 for $4,186,232, including $1,289 for direct administrative costs, to cover the total cost to replace 32 buses damaged at the same location.

The Applicant’s insurance policy with Fireman’s Fund includes “flood” as a covered peril for all vehicles including public transit buses and vehicles located at 130 Nestor Street.  Policy Endorsement 004 Limit of Liability provides $10,000,000 in flood coverage on a per occurrence basis for vehicles specifically listed on the policy.  The policy exception to the $10,000,000 per occurrence flood coverage states, “Flood $10,000,000: except 130 Nestor Street, $10,000,000 ‘annual aggregate’ Nashville, TN.”  Following a FEMA insurance review, FEMA determined that the policy exception changes the coverage at the Nestor Street location from $10,000,000 for each and every occurrence to an annual aggregate policy limit amount of $10,000,000 for the Nestor Street location.  In addition, FEMA determined that the Applicant did not pursue available insurance proceeds from the insurance company.  As a result, FEMA reduced the estimated cost of vehicle replacement for both PWs to account for anticipated insurance proceeds.  PW 3653 was reduced to $33,592, for the market value of four (4) of the 21 vehicles that were uninsured plus $677 for direct administrative costs.  PW 3739 was reduced to $1,289 for direct administrative costs.

First Appeal

In two letters dated June 1, 2011, the Applicant submitted its first appeal to FEMA requesting $4,339,428 for uninsured vehicles listed under PW 3653 ($154,785) and PW 3739 ($4,184,943). 

The Applicant states that FEMA erred in its interpretation of the insurance policy and that damage to vehicles located at 130 Nestor Street was not covered by insurance.  Citing policy Endorsement 004 Limit of Liability, the Applicant argues that the endorsement “clearly excludes 130 Nestor Street from damages caused by the peril of flood to items otherwise insured by this policy (i.e. buses).”  The Applicant provided a copy of its insurance policy to support its appeal.   

Other support documentation provided includes copies of emails and an insurance denial letter from the Applicant’s insurance adjuster, and a copy of a letter dated October 25, 2010, from the Applicant’s insurance broker.  The insurance broker’s letter states that the insurance underwriter was “aware that the Nestor Street facility was located in an AE flood prior to offering the coverage and endorsed the policy exclusion for flood coverage with a limit of $10,000,000; except 130 Nestor Street, with a $10,000,000 aggregate.”  The letter further states that, “this was done to provide the peril of flood for up to $10,000,000 per occurrence for vehicles away from the Nestor Street location.”

FEMA reviewed the insurance policy, as well as first appeal support documentation, and determined that the Applicant’s insurance policy covers flood damage to vehicles, including buses, at the 130 Nestor Street location.  In a letter dated October 14, 2011, the Regional Administrator denied the appeal stating that the insurance policy shows that the Applicant “can receive $10,000,000 per year for flood at the [Nestor Street] location” and this is “verified in the insurance denial correspondence…which states that the Subgrantee had a $10,000,000 annual aggregate limit at 130 Nestor Street location.”

Second Appeal

The Applicant submitted its second appeal on February 3, 2012, which the State transmitted to FEMA on April 17, 2012.  The Applicant reiterates its position from the first appeal that flood is a not a covered peril for vehicles damaged by flooding at the 130 Nestor Street location.  Further, the Applicant states that it filed a lawsuit in the Chancery Court of Davidson County against the insurance company seeking a declaratory judgment as to whether the insurance policy excludes flood damage and proposes that FEMA not take action on the appeal until after the court ruling.

DiscussionSection 312 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) precludes FEMA from duplicating benefits, including those from insurance.  Pursuant to Title 44 Code of Federal Regulations (44 CFR) §206.250(c), General, “Actual and anticipated insurance recoveries shall be deducted from otherwise eligible costs.”  FEMA is required to reduce the amount of the grant by any insurance proceeds that the applicant anticipates receiving or does receive from any insurance company.  FEMA will estimate the anticipated proceeds and deduct the anticipated amount if the applicant has not completed negotiations with the insurer at the time the PW is developed.

The Applicant has an insurance policy with Fireman’s Fund for coverage of its public transportation vehicles.  The amount of insurance coverage is $44,835,000.  Endorsement 004 Limit of Liability of the policy provides $10,000,000 in flood coverage on a per occurrence basis for vehicles specifically listed on the policy.  The policy exception to the $10,000,000 per occurrence flood coverage states, “Flood $10,000,000: except 130 Nestor Street, $10,000,000 ‘annual aggregate’ Nashville, TN.” 

FEMA interprets the policy endorsement to mean that flood is a covered peril at 130 Nestor Street with a $10,000,000 annual aggregate limit with a $100,000 deductible.  The Applicant was reimbursed for the full $100,000 deductible on PW 3317.  In accordance with Section 312 of the Stafford Act, FEMA is precluded from duplicating benefits, including those received from insurance.  Therefore, the Applicant is not eligible to receive FEMA assistance for the flood damage to buses and vehicles at the Nestor Street location covered under the Applicant’s policy.

The Applicant also proposed that FEMA delay making its second appeal determination until the Chancery Court of Davidson County renders a decision on its lawsuit.  44 CFR §206.206(c)(3), Appeals, Time Limits, requires FEMA’s Recovery Assistant Administrator to make a second appeal determination within 90 days following receipt of an appeal.  FEMA will not hold the Applicant’s second appeal in abeyance pending a decision from the Chancery Court of Davidson County.  This decision is based on anticipated insurance proceeds.  If the Court determines that actual insurance proceeds differ from this decision FEMA will review the Court’s findings at project closeout and amend the PWs accordingly.

Conclusion

I have reviewed the information submitted with the appeal and have determined that the Regional Administrator’s decision in the first appeal is consistent with Public Assistance regulations and policy.  Accordingly, I am denying the second appeal.

Please inform the Applicant of my decision.  This determination is the final decision on this appeal pursuant to 44 CFR §206.206, Appeals.         

Sincerely,

/s/

Deborah IngramAssistant AdministratorRecovery Directorate

cc:  Major P. May       Regional Administrator       FEMA Region IV

 

Appeal Analysis

Last updated May 28, 2020

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