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Insurance

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1909
ApplicantNashville Symphony Association
Appeal TypeSecond
PA ID#037-UPJBE-00
PW ID#5542
Date Signed2016-08-26T00:00:00

Conclusion: On second appeal, the Nashville Symphony Association (Applicant) has provided additional documentation demonstrating that certain losses were not covered by insurance and that additional funding is eligible contingent upon reconciliation of all actual costs and satisfactory closeout. 

Summary Paragraph

In May 2010, flood waters inundated the Schermerhorn Symphony Center in Nashville, TN and severely damaged the building, equipment, and contents owned by the Applicant.  Initially, FEMA documented damage to the Applicant’s fine arts property (i.e., musical instruments and equipment) on PW 3474 but subsequently transferred these items to PW 5542 to separately account for all of the property believed to be covered by the Applicant’s Inland Marine (IM) Fine Arts insurance policy.  On PW 5542, FEMA allowed a total of $884,765.36 in estimated costs to repair/replace two concert grand pianos, Education Department instruments, percussion instruments, organ equipment, a mahogany corner cabinet, miscellaneous non-scheduled contents, and non-scheduled contents from the Orchestra Department.  Upon review of the Applicant’s IM policy, FEMA determined that the fine arts property was fully insured, deducted $859,765.36 in anticipated proceeds, and obligated PW 5542 for the Applicant’s IM insurance policy deductible – $25,000 – only.  On first appeal, the Applicant disputed the amount of anticipated proceeds deducted by FEMA and requested $183,745.13 in additional funding for various fine arts property and for its non-scheduled contents from the Orchestra Department (i.e., chairs, musical stands, etc.).  It argued that FEMA based its original insurance deduction on the presumption that the insurer would pay for the full replacement cost of damaged items less the deductible, when in fact, its IM policy covers either the scheduled value of an item or the fair market value for non-scheduled items and the personal property of others.  Further, it objected to the decision to move its non-scheduled contents from the Orchestra Department from PW 3474 to PW 5542 because its IM policy did not cover those items.  In December 2014, the Regional Administrator (RA) determined that the Applicant appealed prematurely and prior to closeout, and ultimately denied the appeal because it could not properly review the insurance claim for statutory compliance without actual costs.  On second appeal, the Applicant requests $49,607.24 in costs spent to replace the non-scheduled contents from the Orchestra Department; and $79,480.71 incurred to replace two grand pianos (in excess of scheduled coverage limits).  It reiterates its same arguments from the first appeal, but provides a summary to explain itemized estimates allowed by FEMA, insurance proceeds received on claimed items, and what it expended. 

Authorities and Second Appeals

  • Stafford Act § 312.

  • 44 C.F.R. § 206.250.

  • Public Assistance Guide, at 122.

Headnotes

  • Stafford Act § 312 prohibits the duplication of benefits between insurance and Federal funding in the provision of disaster assistance.

  • 44 C.F.R. § 206.250 requires the deduction of actual and anticipated insurance from otherwise eligible costs.Costs for eligible work items not covered by insurance may be eligible for funding.

    • With its appeal, the Applicant provides actual expenditures and proof of purchase to support $129,087.95 in additional funding.This amount was incurred to replace fine arts property in excess of scheduled limits or for items excluded from coverage by policy.

    • Although it substantiated the appealed amount, FEMA cannot approve additional funding without review of all actual costs for the other fine arts property not appealed for which grant funding was also provided.Further, all final costs must be reconciled at closeout.

Appeal Letter

Patrick Sheehan
Director
Tennessee Emergency Management Agency
3041 Sidco Drive, P.O. Box 41502
Nashville, Tennessee 37204-1502

Re: Second Appeal – Nashville Symphony Association, PA ID 037-UPJBE-00, FEMA-1909-DR-TN, Project Worksheet (PW) 5542 – Insurance

Dear Mr. Sheehan:

This is in response to a letter from your office dated March 17, 2015, which transmitted the referenced second appeal on behalf of the Nashville Symphony Association (Applicant).  The Applicant is appealing the amount of insurance proceeds deducted by the U.S. Department of Homeland Security’s Federal Emergency Management Agency (FEMA) from PW 5542.   

As explained in the enclosed analysis, I have determined that the Applicant has provided sufficient documentation on second appeal to substantiate the appealed amount of $129,087.95 in additional funding to replace its two concert grand pianos and the non-scheduled contents from the Orchestra Department.  However, the Applicant is required to submit actual expenditures and proof of payment to substantiate costs incurred for the restoration of its other fine arts property for which grant funding was also provided.  Further, all costs must be reconciled at closeout.

Accordingly, the appeal is granted contingent upon the Applicant’s ability to demonstrate actual costs for the other property along with any other documentation required for satisfactory closeout of the subgrant.  By copy of this letter, I am requesting the Regional Administrator take appropriate action to implement this determination.

Please inform the Applicant of my decision.  This determination is the final Agency decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.
 

Sincerely,

/s/

Christopher Logan
Acting Director
Public Assistance Division                                                                     

Enclosure

cc: Gracia Szczech
      Regional Administrator
      FEMA Region IV

Appeal Analysis

Background                                                                                                

In May 2010, torrential rainfall caused the flooding of buildings throughout downtown Nashville, Tennessee.  Contaminated flood waters inundated the Schermerhorn Symphony Center and caused severe damage to the building, equipment, and contents owned by the Nashville Symphony Association (Applicant), a Private Nonprofit organization.  FEMA prepared multiple Project Worksheets (PWs) to document permanent repairs, including PW 3474 to repair/replace contents, furniture, and fixed equipment located in the lower level of the building and PW 5542 to repair/replace fine arts equipment.  Initially, FEMA grouped musical instruments and equipment (i.e. fine arts property) with other damaged items from the lower level but subsequently transferred them to PW 5542 to separately account for all fine arts property believed to be covered by the Applicant’s Inland Marine (IM) Fine Arts insurance policy. 

On PW 5542, FEMA allowed a total of $884,765.36 in estimated costs to repair/replace two concert grand pianos, Education Department instruments, percussion instruments, organ equipment, a mahogany corner cabinet, miscellaneous non-scheduled contents, and non-scheduled contents from the Orchestra Department.  Upon review of the Applicant’s IM policy, FEMA determined that the fine arts property was fully covered by insurance and deducted $859,765.36 in anticipated insurance proceeds from the eligible total.  In February 2011, FEMA obligated PW 5542 for the eligible difference of $25,000.00, which represents the Applicant’s IM policy deductible.  

First Appeal

In a letter dated March 28, 2011, the Applicant disputed the amount of anticipated insurance proceeds deducted by FEMA and requested additional funding in the amount of $183,745.13,[1]  based on the amount of insurance proceeds it had received at that time.  Of this amount, the Applicant requested $138,756.57 in additional funding for various fine arts property including its two concert grand pianos that were covered under its IM insurance policy, and $69,988.56 for its non-scheduled contents from the Orchestra Department that were not insured under its IM policy (i.e., chairs, musical stands, etc.).  The Applicant argued that FEMA based its original insurance deduction on the presumption that the insurer would pay for the full replacement cost of damaged items less the deductible, when in fact, the Applicant’s IM policy covered either the scheduled value of an item or the fair market value for non-scheduled items and the personal property of others.  Further, the Applicant objected to FEMA’s decision to move the cost of $69,988.56 for its non-scheduled contents from the Orchestra Department from PW 3474 to PW 5542 because its IM policy did not cover those items.  Rather than moving the contents back, the Applicant requested that FEMA increase the eligible total of PW 5542 by that same amount. 

Upon initial evaluation of the first appeal documentation, FEMA Region IV concluded that the Applicant did not submit the information necessary to verify the amount of insurance proceeds it had received for the damaged items or fully evaluate claimed costs.  Accordingly, on July 10, 2014, FEMA Region IV sent by email a Request for Information (RFI) to obtain copies of the Applicant’s actual cost records for the property claimed; statements of loss for insurance; settlement documentation related to actual insurance proceeds; and any related denials of insurance coverage.[2]  In an email response to the RFI, on August 8, 2014, the Applicant forwarded letters from its insurance carrier which served as the insurance statement of loss and amounts paid against the claim.[3]  The Applicant also clarified that although none of its insured fine arts property was denied coverage outright, the amount of insurance proceeds received was still less than the cost to replace the items.[4]

In a first appeal letter dated December 15, 2014, the FEMA Region IV Regional Administrator (RA) denied the appeal because the Applicant did not provide a detailed accounting of costs necessary for FEMA to conduct a proper insurance review.  The RA found that the Applicant merely resubmitted the list of estimated costs that it used to support its first appeal in lieu of providing actual costs.  Further, the RA concluded that the Applicant submitted its first appeal prematurely, prior to requesting closeout of the subgrant, which would have been the appropriate method to finalize eligible costs and confirm that listed, damaged contents had been either repaired or replaced.   

Second Appeal

In a letter dated March 5, 2015, the Applicant submitted a second appeal.[5]  The Applicant’s second appeal reiterates the same arguments from its first appeal but includes updated exhibits, including a spreadsheet showing estimated replacement costs allowed by FEMA, actual insurance proceeds received, and actual replacement costs for those items.  It also provides invoices that correlate to its actual costs for appealed items, as well as other cost-supporting documentation that is ordered and annotated to align to the spreadsheet.[6]  The Applicant is seeking $129,087.95 in additional funding for PW 5542, which consists of $49,607.24 in actual costs to replace the non-scheduled Orchestra Department contents that were not covered under its IM insurance policy, and $79,480.71 for costs expended in excess of the insurance proceeds received to replace its two concert grand pianos.  

Discussion

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) § 312 prohibits an applicant from receiving Public Assistance (PA) funding that is duplicative of benefits received from an insurance policy or any other source.[7]  Further, Title 44 Code of Federal Regulations (44 C.F.R.) § 206.250 requires FEMA to deduct actual and anticipated insurance from otherwise eligible costs.[8]  Costs for eligible work items not covered by insurance may be eligible for PA funding.[9]  The issue for consideration on appeal is whether the Applicant has provided sufficient information to substantiate adjusting the amount of insurance proceeds deducted from the eligibile total of the subgrant. 

The Applicant has requested additional funding on the grounds that FEMA overestimated the amount of insurance deducted from PW 5542 on the assumption that the Applicant would recoup full replacement costs from its insurer.  At the time of the first appeal decision, the Applicant had not provided sufficient information pertaining to the actual costs of the contents for FEMA to verify that these costs exceeded the amount of insurance proceeds received.  With its second appeal, the Applicant submitted actual expenditures for the non-scheduled contents from the Orchestra Department and the two grand pianos.  FEMA reviewed the actual costs together with a copy of the IM policy and the settlement information previously provided as well as PWs 3474, 5542, and the PW backup documentation.[10]

In support of its appeal, the Applicant forwarded a complete copy of its IM fine arts policy[11] along with a Settlement Letter[12] from its insurance company to substantiate its explanation of how its property was valued, the total amount of insurance proceeds received under the IM policy, and to confirm that the IM policy did not afford coverage to the non-scheduled contents from the Orchestra Department.  The policy covers fine arts property damaged by flood which is defined as “musical instruments and related equipment and accessories and similar property of others.”[13]  According to the policy, as modified by the General Purpose Endorsement,[14] for covered property owned by the insured that is completely destroyed (i.e. “total loss” items) valuation is assessed at the time of loss at “fair market value” or “the price at which property would change hands between a willing buyer and seller.”[15]    

The Settlement Letter, offered as proof of loss and to document the final proceeds paid out by the insurance company to settle the claim for the covered items, confirms that the Applicant received a total settlement of $170,274.00 for the two destroyed pianos in accordance with the IM policy (less the $25,000.00 flood deductible).  The Applicant provided invoices and cancelled checks to substantiate that it expended a total of $274,754.71 to replace the pianos.[16]  Accounting for the deductible already obligated, the difference of $79,480.71 exceeds the scheduled limit of the Applicant’s insurance for the pianos and is an eligible cost.  In addition, the Settlement Letter verifies the Applicant’s assertion that the IM Fine Arts policy does not extend coverage to the non-scheduled contents from the Orchestra Department.[17]  FEMA originally documented the damage to those items on PW 3474 and later moved them to PW 5542 to separately account for all of the Applicant’s fine arts property that was presumed to be fully insured under the IM policy.  Invoices and payment records included on second appeal substantiate the Applicant expended $49,607.24 to replace the contents.  FEMA finds the expended amount eligible for PA funding. 

The Applicant provided actual costs in support of the two pianos and the non-scheduled contents from the Orchestra Department, which represent part of the eligible scope of work addressed in the subgrant.  In addition to the appealed items already discussed, FEMA previously approved funding to restore other fine arts property damaged by the flood, including costs for “Education Department instruments, percussion instruments, organ equipment, a mahogany corner cabinet, and miscellaneous non-scheduled contents.”[18]  Although the Applicant reported actual insurance proceeds for its fine arts property claim, it has yet to submit actual costs in support of other line items, which are required to reconcile the subgrant.  Consequently, even though the Applicant has substantiated the appealed amount, FEMA cannot adjust final funding for the subgrant as a whole prior to a reconciliation of all actual costs during the closeout process.[19] 

Conclusion

The Applicant has provided sufficient documentation to substantiate the appealed amount of $129,087.95 based on actual costs and actual insurance proceeds for the replacement of its two grand pianos and the non-scheduled contents from the Orchestra Department.  However, the Applicant did not provide actual cost documentation specific to the other fine arts property included on PW 5542 for which funding was also provided.  Accordingly, the appeal is granted contingent upon the Applicant’s ability to demonstrate actual costs for the other property and produce any other documentation required for closeout of the subgrant.  Further, all final costs must be reconciled during the closeout process. 

 

 


[1] Letter from Vice President and Chief Fin. Officer, Nashville Symphony Ass’n, to Governor’s Authorized Representative, Tenn. Emergency Mgmt. Agency (Grantee), at 1 (Mar. 28, 2011) (specifying $208,745.13 as the amount sought on first appeal, which, per Applicant, included the $25,000.00 deductible that FEMA awarded previously for PW 5542).  The amount of additional funding shown excludes the obligated deductible.

[2] Email from FEMA Region IV, to State Public Assistance Officer, Tenn. Emergency Mgmt. Agency (July 10, 2014, 09:24 EST).

[3] Letter from Claim Representative, Inside Property, to Nashville Symphony Ass’n, at 1-2 (Nov. 18, 2010) (Claim No. BAW9502) (reporting final proceeds as paid for fine arts property under the IM Fine Arts policy); Letter from Claim Representative, Inside Property, to Nashville Symphony Ass’n, at 1-2 (Mar. 23, 2011) (Claim No. BAW9502) [hereinafter Settlement Letter] (clarifying how the claim was adjusted against the IM Fine Arts Policy and that unscheduled items from the Orchestra Dep. were not covered by policy).

[4] Email from Senior Accountant, Nashville Symphony Ass’n, to State Public Assistance Officer, Tenn. Emergency Mgmt. Agency, and FEMA Region IV (Aug. 8, 2014, 16:55 EST).

[5] In a letter dated January 12, 2015, the Grantee notified the Applicant that FEMA denied the first appeal.  The notification date was obtained in order to verify that the Applicant submitted its second appeal within 60-days of receiving notice of the first appeal decision, as required by 44 C.F.R. § 206.206.

[6] Letter from Chief Financial Officer, Nashville Symphony Ass’n, to Deputy Comm’r, Tenn. Emergency Mgmt. Agency, at Exhibit 3 (Mar. 5, 2015). 

[7] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 312(a), 42 U.S.C. § 5155(a) (2007).

[8] 44 C.F.R. § 206.250(c) (2010).

[9] Public Assistance Guide, FEMA 322, at 122 (June 2007).  Generally, eligible uninsured losses may include differences in FEMA eligible costs and final loss valuations used by insurers and costs in excess of insurance policy limits.

[10] During the review of the second appeal, a FEMA Insurance Specialist reviewed the Insurance-related documentation and independently verified the insurance proceeds associated with the disputed costs.  The Specialist concluded that the Applicant substantiated its request for additional funding amounting to $129,087.95, subject to the verification of all documented actual costs during closeout.

[11] Travelers Property Casualty Company of America, Commercial Inland Marine Policy No. QT-660-8178A50A-TIL-09 (Aug. 21, 2009) [hereinafter Inland Marine Policy].

[12] Settlement Letter, at 1-2.

[13] Inland Marine Policy, Commercial Articles Coverage Form, at 1.

[14] Id., Commercial Inland Marine General Purpose Endorsement, at 1-5 (defining $25,000.00 as the flood deductible for fine arts; and changing the valuation of covered property owned by the Applicant to either fair market value for total loss items or the cost of repairs for partial losses.  The value of the property is assessed at the time of loss).

[15] Id. at 1.

[16] In PW 5542, prior to deducting anticipated insurance, FEMA approved the replacement of both pianos based on an estimate of $288,938.77.  Since the Applicant expended less to replace the pianos, FEMA considers this cost to be reasonable.   

[17] Settlement Letter, at 2 (stating that “[t]he orchestra unscheduled items…would be covered under [the Applicant’s] business personal property policy as they consist of chairs, stands, etc.”).  In light of this new information, a FEMA Insurance Specialist reviewed PW 5529, which addressed the structural damages to the building, and the Applicant’s Deluxe Property policy that also provides limited flood coverage for the building and contents.  Actual insurance proceeds have been applied; FEMA found that the flood damage exceeded the limits of coverage afforded by the policy.

[18] Project Worksheet 5542, Nashville Symphony Association, Version 0 (Feb. 17, 2011).

[19] See 44 C.F.R. § 206.205(b) (requiring the Grantee to certify that reported costs were incurred in the performance of eligible work, that the approved work was completed, and that payments were made in compliance with § 13.21). 

Last updated May 28, 2020