A Discussion of FEMA Government Entities and Eligible Nonprofits. Gallagher Public Sector

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1 Government Entities and Eligible Nonprofits Gallagher Public Sector MARCH 2015

2 A basic understanding of the Stafford Act is important to begin to appreciate the nuances of FEMA and its response to a federally declared disaster. This document should not be considered an outline of either the Stafford Act or FEMA. The intent of this writing is to provide a summary framework outlining suggested actions prior to any event, necessary steps immediately following the event, and insurance requirements prior to FEMA s close out of the disaster. Key provisions of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), 42 U.S.C , as amended, and 44 CFR , and serve as the basis for disaster assistance provided by FEMA. FEMA is part of the U.S. Department of Homeland Security (DHS) whose mission includes preparation for and response to all hazards and disasters. 1 The FEMA process involves federal agencies; state, tribal and local officials; the private sector; non-profits and faith-based groups; and the general public. This document will deal solely with the Stafford Act and FEMA as they relate to governmental entities and eligible non-profit agencies. To be eligible for FEMA assistance, the President must 2. Business loans are available for organizations and private non-profits (PNPs) that have suffered damage to business property or economic injury. These lowinterest loans are available through the Small Business Administration (SBA) to repair or replace damaged property not covered by insurance and to provide working capital. SBA is not mutually exclusive of Requests for Assistance. The PNP should apply first for financial assistance and immediately follow with a request for an SBA loan. 3. Public Assistance aid to state or local governments, and eligible non-profits, to pay part of the costs of rebuilding a community s damaged infrastructure, including Hazard Mitigation to avoid the risks of loss to life and property in future disasters. The parent organization of a PNP or a public entity/scholastic pool is not generally eligible for FEMA assistance as the parent. It is important that the individual members apply for assistance. Example: An Archdiocese with multiple parishes should not apply on behalf of its parishes. Parishes should apply as individual entities. Same for a public pool - it is important that the members apply and manage the process specific to their own entity. FEMA does not always consider declared events at 100% of damages. formally declare the disaster. This is requested by each governor and done on a state by state basis. Then, within the state itself, counties that are part of the declaration are identified. Each state is assigned a separate disaster identification number. This number is important for Requests for Public Assistance (RPAs). The specific number must be referenced throughout the process. For Hurricane Sandy, attached Exhibit A provides the disaster information for each state declared. There are three principal types of disaster aid: 1. Individual assistance, which may include short term disaster housing, disaster grants for expenses not covered by insurance and low-interest disaster loans. FEMA categories A B C D E F G Assistance description Debris cleanup (vegetative) Emergency work (life safety, temp repairs) Roads, bridges, culverts Water control facilities Property damage: buildings, contents, vehicles Public utility operations Outdoor property Categories A and B are different from the remaining categories in that they are temporary in nature. FEMA does not always consider declared events at 100% of damages. The percentage of reimbursement allowed varies 1. One Team, One Mission, Securing Our Homeland, U.S. Department of Homeland Security Strategic Plan Fiscal Years ; 2

3 based on factors such as the magnitude of the event and the size of the population impacted. For example, at the time of this writing Hurricane Sandy is a 75% reimbursement storm. This means that following application of insurance and other offsets, FEMA will consider 75% reimbursement on eligible items related to Sandy. The remaining 25% is the responsibility of the applicant and potentially the state in which the applicant is located. It is possible that the political environment may influence the percentage reimbursement decision and that, over time, the allowed reimbursement amount might increase. This clearly would be positive news for applicants; however, the challenges in accounting for the differences could be difficult for your finance department. Prepare for this possibility when documenting. If this is your first disaster, you may be surprised to know that states with federally declared disasters are responsible for oversight of FEMA funds. The Department of Homeland Security is responsible for the process at the state level. FEMA makes Disaster Recovery Centers (DRC) available following a declared event. These are often mobile centers, established near the storm impacted areas. They are available to answer questions and provide status updates, not only regarding FEMA, but relative to other disaster programs which may be available. In the event of a disaster, you can locate a DRC and register for assistance online at DisasterAssistance.gov or by calling FEMA (3362). Eligibility for reimbursement First and foremost, the Stafford Act, Section 406(d) (42 USC 5172(d)) states that facilities located in Special Flood Hazard Zones must be insured by flood insurance. Failure to carry flood insurance coverage on these properties will result in a reduction of FEMA funding, equal to the amount of payment that would have been received from National Flood Insurance Program (NFIP) or the insurance carrier had coverage been in place. Often, due to budget constraints or other considerations, public bodies and PNPs choose to avoid this basic requirement of the Stafford Act because they mistakenly believe that FEMA will cover first dollar flood damage on facilities located in Special Flood Hazard Zones. Given that many buildings located in Special Flood Hazard Zones are eligible for up to $500,000 NFIP building coverage, and $500,000 contents coverage, the per building and/or contents limit offset for failure to carry flood coverage could be a substantial unexpected financial burden. Not sure if your community is eligible for NFIP? The NFIP offers flood insurance in those communities that choose to participate in NFIP. Participating communities agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding. For more detailed information, go to Second, Business Interruption insurance is not part of the FEMA process whatsoever. It is not eligible for reimbursement. It is not part of any Obtain and Maintain discussion. Third, eligibility for recovery differs between individual facilities that have NOT had a previous FEMA eligible disaster and those facilities that have had a previous FEMA related disaster. In the event a facility has been damaged in a previous FEMA related disaster, as a condition of receiving future FEMA disaster assistance on the same impacted facility(ies), the Stafford Act requires that the applicant Obtain and Maintain (O&M) such types and extent of insurance as may be reasonably available, adequate, and necessary, to protect against future loss to such property. 42 U.S.C (a) (1). However the Stafford Act specifically provides that in making a determination with respect to availability, adequacy and necessity, the President shall not require greater types and extent of insurance than are certified to him as reasonable by the appropriate State insurance commissioner responsible for regulation of such insurance. 42 U.S.C (a)(2). For wind losses, the applicant must carry insurance at least in the amount of previous wind damages (insured and non-insured). Example: School District ABC had wind damages to their central office in a previous storm totaling $46M: $10M deductible $33M insurance recovery $3M uninsured damages $46M total wind damages previous storm In the above example, FEMA s obligation is potentially $13MM ($10MM deductible + $3MM uninsured losses). The Obtain and Maintain wind insurance requirement for School District ABC for this one facility is $46M. In a subsequent wind event to the same facility, FEMA will not consider reimbursement until damages exceed $46M. The Obtain and Maintain requirement for flood losses is simple. In addition to the basic mandate of requiring 3

4 flood insurance on facilities located in Special Flood Hazard Zones, the entities or PNPs must also carry flood insurance on any facility previously damaged by flood in at least the amount of previous federal aid received for the facility for flood damage. Let s assume that a School District Central Office has a $48M loss caused by flood, that it was the FIRST flood loss to this facility and that the School District Central office WAS NOT located in a Special Flood Hazard Zone (therefore, carrying NFIP coverage was not a mandate at the time of the first loss): $48M flood loss (first flood loss to this facility) x.75 (assume this is a 75% reimbursement storm) $36M Potential FEMA flood payment In the above example, to be eligible for future FEMA payments, the Obtain and Maintain flood insurance requirement for the next flood event for this facility is $36M (the amount of previous federal aid received). In many regions, excess flood insurance is either not affordable or is completely unavailable. And as experienced in previous hard markets, wind coverage can be difficult to place as well due to capacity and/or pricing issues. As stated earlier, if an entity is unable to Obtain and Maintain the required insurance amounts because of factors such as affordability, budget constraints or market constraints, the Insurance Commissioner at each state Department of Insurance is authorized to consider granting a certification waiver to the Obtain and Maintain requirements. If given to your entity, this certification will be effective until the next major disaster. Each state handles the waiver process differently. Contact your State s Insurance Commissioner for more information on applying for the certification waiver. According to the Stafford Act, O&M Insurance requirements cannot be met by self insurance, with one exception. Currently the only entities that can self-insure are States. States are required to submit an established plan of self insurance to be approved by FEMA s Assistant Administrator of the Disaster Assistance Directorate. Not only do the O&M insurance requirements apply on a per building/per event type basis, but so does the O&M certification waiver process. None of this is done in the aggregate. What is critical about this is that it ties directly back to the data collected and documented at the very beginning - the time of loss. Following the application for Public Assistance, FEMA will assign a team to inspect your damages on a facility by facility basis. Project Worksheets (PWs) will be generated following their inspection for each facility damaged. Versions are made to these PWs as information changes throughout the process: damage costs change, insurance offsets are added, cause of loss is determined, etc. It is important to manage the PWs carefully. PWs are the critical documents that track what is being charged and expensed for each facility. Any duplicated funds received will be owed back to FEMA. Should additional damages be found during the recovery period, it is imperative to include this information immediately on the PW. It is difficult to change the damage dollar value at the end of the process. It is imperative that at the time of loss, estimated cost of damages and responsive work be detailed by building and by type of loss including photographs, mitigation efforts, scopes of work, restoration, labor (contract, force labor and in-kind) extra expense costs, cleanup, etc. This seems simple at the onset. However, it can sometimes be difficult to determine if the loss was caused by wind or flood. In the midst of a disaster, it is impossible to control all of the seemingly thousands of individuals involved in the recovery. Emergency measures, emergency responders, mitigation efforts, restoration companies, contractors who bill by the job not per building much less detail by type of loss, on and on. Consider issuing an RFP for project manager assistance. As a federal agency, FEMA requires that certain procurement processes assuring a competitive process be followed in order to be considered for reimbursement, preferably before an event occurs. These include, but are not limited to: RFP for restoration and/or remediation company RFP for debris removal company RFP for debris monitoring company (different vendor than the removal company) RFP for Project Manager For more information, see the FEMA website regarding the 9500 series. This is a collection of policy directives clarifying various issues, requirements, etc. Additionally, FEMA prefers that prior to the loss, written union labor contracts detailing hourly pay and overtime pay be in effect and adopted by the governing Board or City Council. The information needed by the insurance carrier is different than the details mandated by FEMA. FEMA s job is to follow the Stafford Act. The carrier s job is to pay 4

5 as allowed by the contract of insurance. FEMA will need to see the details of the insurance payments to determine any applicable offsets. The question often arises: which process happens first, insurance payment or FEMA? The adjusting process and FEMA review work simultaneously, but not side by side. The information being reviewed is different and the eligible recovery triggers are different. At the end of the day, FEMA will be looking to the insurance carrier for information, not vice versa. Applicant s general responsibilities: 1. Register for Federal assistance timely on-line at DisasterAssistance.gov Failure to register in the timelines allowed will disqualify the applicant from eligibility for funds. 2. Identify each damaged facility (individually), including insurance coverage in place at the time of disaster with limits and deductibles for each. Much further along in the process, FEMA s Public Assistance officer will require documentation of the insurance, including Statements of Loss, for each facility damaged. 3. Identify all damaged facilities that previously received FEMA funding (in another disaster). Note, failure to Obtain and Maintain insurance as required will render the facility ineligible for future funding. (Unless the appropriate certification waiver is obtained from the State Insurance Commissioner.) 4. Pursue insurance recovery aggressively and insist that actual insurance figures be included on FEMA s documents expeditiously. 5. Identify all facilities located in a Special Flood Hazard Zone and have available NFIP insurance information on each. Remember - if the Special Flood Hazard facility is not insured or is underinsured, FEMA will reduce the Public Assistance funding accordingly. In responding to your request for public assistance, your entity will be assigned a FEMA representative (or a team of representatives). You should expect that these individuals will change often throughout the process. Accordingly, it is not uncommon to be asked to produce repetitive information. Expect that audits will be conducted by various parties: FEMA, Office of Inspector General, Homeland Security, the State s representatives and others - sometimes years after the date of the loss. To save time and frustration, consider electronic documentation. Because audits can be conducted years after the event, they are often done by individuals who have no personal knowledge of the environment at the time of the loss. At the time of audit, after everyone s memories have faded, it is important to know the issues at the time of loss. It is important to designate a historian - an individual charged with documenting life at the time of loss and recovery. Example: Prices were inflated due to lack of availability; fuel was limited; access to the community was denied for weeks creating mitigation challenges and lack of housing for critical workers such as contractors, employees, etc.; communication challenges were rampant in many cases contractors incurred extra expenses to do business such as satellite phones, internet connectivity needs, food for their workers and more. Consider your damages closely in the first days following the event. FEMA has funds available for hazard mitigation, depending on the size of damage. These funds are in addition to the Public Assistance monies and are important. Mitigation dollars can potentially save both your entity and FEMA future damage costs. Some types of mitigation measures serve a double duty, improving both the building s damage resistance and improving other measures, such as security. If your agency is allowing use of its facilities as a Red Cross shelter, you will be eligible for related cost reimbursement from FEMA. Some states have statutes providing immunity to the local entity related to liability exposure as a result of such use. FEMA is not responsible for the liability exposure experienced by the entity. In closing, managing a massive event is intense. Not only are you dealing with your entity s losses and community s recovery, but you may be dealing with personal loss as well. It is important to prepare and have critical contracts in place prior to the storm. Prior to any major loss - assigning responsibilities and developing your documentation process is imperative. If you are reading this following a Disaster Declaration, I wish you the best of luck. Recovery can be long lasting and intense. As your broker, Gallagher stands ready to help. And last if I can assist in any way, I can be reached by Nancy_Sylvester@ajg.com 5

6 Data Collection Checklist It is imperative that documentation is done from day one of the loss on a per facility basis: A. Photos B. Damage estimates C. Mitigation costs D. Extra Expense costs E. Budgets F. Actual invoices for work done and materials received G. Purchase orders H. Copies of checks documenting all payments I. Labor 1. Contract Labor 2. In-kind Labor 3. Force Labor J. Detailed labor records necessary 1. Copies of pay checks 2. Daily Activity Logs a. Each individual (no matter what type of labor) should complete these daily, detailing where they worked, how many hours and type of work etc. 3. Copies of union contracts a. Providing hourly rates b. Overtime rules/rates 4. Keep pay records by individual without personal identifying information (such as Social Security numbers) 3. DIC 4. Builders Risk 5. Inland Marine 6. Auto physical damage 7. Any other applicable property policies O. Evidence of insurance payments as they are received 1. Proofs of loss 2. Checks received 3. Potentially, loss runs P. Engineering reports Q. Scopes of damage detailed for each building R. Remediation reports and invoices S. Rental equipment (such as generators, dehumidifiers, etc.). Track the need and use of the machinery and invoices for each, detailed by facility. T. Environmental related services and assessments including invoices, payments and contracts U. Additional utility costs to continue operations (will need past bills to document the increased usage). V. Costs spent in providing additional security either for the entity itself or its constituents. K. Legal assistance (keep hourly records) 1. Must be reasonable and related specifically to disaster management L. FEMA consultative assistance (keep hourly records) M. Contracts, such as: 1. Emergency Remediation 2. Repair 3. Mitigation 4. New Construction 5. Project Manager 6. Consultative Services N. Insurance policies and Statements of Values have copies available 1. Property 2. Flood, including NFIP 6

7 Exhibit A Information as of November 29, 2012 Source: Delaware Hurricane Sandy (DR-4090) Saturday, October 27, 2012 to Friday, November 16, 2012 Rhode Island Hurricane Sandy (DR-4089) Wednesday, October 31, 2012 Saturday, November 3, 2012 Connecticut Hurricane Sandy (DR-4087) Saturday, October 27, 2012 to Tuesday, October 30, 2012 New Jersey Hurricane Sandy (DR-4086) Tuesday, October 30, 2012 New York Hurricane Sandy (DR-4085) Saturday, October 27, 2012 to Friday, November 9, 2012 Tuesday, October 30, 2012 New Hampshire Hurricane Sandy (DR-4095) Wednesday, November 28, 2012 Virginia Hurricane Sandy (DR-4092) Monday, November 26, 2012 West Virginia Hurricane Sandy (DR-4093) Monday, October 29, 2012 to Tuesday, November 27, 2012 Delaware Hurricane Sandy (DR-4090) Saturday, October 27, 2012 to Friday, November 16, 2012 Maryland Hurricane Sandy (DR-4091) Sunday, November 4, 2012 Tuesday, November 20, 2012 Pennsylvania Hurricane Sandy (EM-3356) Emergency Declaration: Monday October 29, 2012 District of Columbia Hurricane Sandy (EM-3352) Sunday, October 28, 2012 Emergency Declaration: Sunday, October 28, 2012 Massachusetts Hurricane Sandy (EM-3350) Wednesday, October 27, 2012 Emergency Declaration: Thursday, October 28,

8 Two Pierce Place Itasca, IL Gallagher Public Sector Originally published in For more information, contact: Nancy Sylvester, CPCU, ARM-P BSD27483A