Insurance and Duplication of Benefits in Public Assistance

Insurance runs through a FEMA Public Assistance grant from beginning to end. Proceeds an applicant receives, or is expected to receive, reduce what FEMA pays; an applicant that receives funding to restore a facility must insure it afterwards, as a condition of the assistance; and an uninsured facility in a mapped flood zone faces a reduction of its own. The rules come from three sections of the Stafford Act, FEMA's regulations, FEMA's Public Assistance Program and Policy Guide (PAPPG) and FEMA's Public Assistance Policy on Insurance, which are the sources for this page.

No double payment

The Stafford Act prohibits what it calls a duplication of benefits: disaster assistance for any part of a loss that insurance, another program or any other source has already paid for. The Act also describes how the rule works in practice — assistance can be provided before another source pays, on the understanding that any duplicated amount is repaid; receiving partial benefits does not rule out assistance for the uncovered part of a loss; and an amount that turns out to be duplicated becomes a debt to the United States.

FEMA's guide applies the rule to Public Assistance directly. When an applicant is paid by another source for the same work FEMA funded, FEMA reduces the eligible cost or deobligates the funding, and the guide extends the idea beyond insurance to certain non-federal grants and donations, recoveries from third parties, and other federal awards.

Actual and anticipated proceeds

FEMA's regulations deduct both actual and anticipated insurance recoveries from otherwise eligible costs. FEMA's guide describes the working rule: when the proceeds are known, FEMA reduces eligible costs by that amount; when they are not, it reduces by what the applicant's policy is expected to pay, and adjusts the figure once the claim settles.

FEMA's insurance policy and the guide add several refinements. Applicants are expected to make reasonable efforts to recover the proceeds they are entitled to, and FEMA limits funding where a policy provides coverage that should be pursued. Reasonable costs of pursuing a claim offset the reduction when the applicant incurred them pursuing proceeds for eligible work and can document that they went to seeking more than the initial settlement amount. When a settlement also covers losses that Public Assistance cannot fund, such as business interruption, FEMA apportions the proceeds and reduces only by the eligible share. If an insurer is insolvent because of the disaster itself, FEMA does not reduce assistance by proceeds the applicant could not recover. And, as a rule, FEMA does not reduce assistance for retained risk, such as a deductible, unless an earlier disaster left the facility with an insurance requirement.

Insuring the restored facility

Under the Stafford Act and FEMA's regulations, an applicant that receives Public Assistance for permanent work on a facility must obtain and maintain insurance that protects it against future loss, as a condition of the assistance. FEMA's guide and its insurance policy describe the shape of that obligation: it covers insurable buildings, contents, equipment and vehicles; the hazard insured against is the one that caused the damage, and when several hazards caused damage each is insured for the damage it caused; the amount is based on the eligible costs before reductions; and coverage is kept for the anticipated life of the work or of the facility, whichever is shorter. Temporary facilities are exempt, and the regulations waive the requirement for small eligible costs.

Commercial property insurance, standard flood insurance, an insurance pool or a combination of them tends to satisfy the requirement, and FEMA may approve a self-insurance plan. An applicant may ask FEMA to modify the requirement when the insurance is not reasonably available, an alternative gives adequate protection or the insurance is unnecessary, and FEMA does not require more than the state's insurance commissioner certifies as reasonable — though the commissioner cannot waive the federal requirement. An applicant that cannot insure before the grant is approved may commit to doing so and provide proof later; FEMA checks it before closeout.

The next disaster

The consequences of the requirement reach into later disasters. A facility whose owner did not obtain and maintain the required insurance is ineligible for Public Assistance in a future disaster, and FEMA denies or deobligates funding in the current one. Where the insurance was maintained and the same hazard damages the facility again, FEMA reduces assistance in the later disaster by the amount of insurance the earlier one required — whatever deductible the applicant chose, however it chose to insure, and even if actual proceeds were lower — or by the actual or anticipated proceeds if those are greater.

Flood damage in Special Flood Hazard Areas

The Stafford Act requires a separate reduction when a facility that could have carried National Flood Insurance Program coverage sits in an area FEMA has mapped as a Special Flood Hazard Area for more than a year, is damaged by flooding and is uninsured for flood loss. The reduction is the lesser of the value of the building and its contents at the time of the incident or the maximum a standard flood insurance policy would have paid. FEMA's insurance policy and guide add that a flood-zone property insured through some other source for less than a standard policy would pay is reduced by the standard-policy amount, and that a private nonprofit facility in a community that does not take part in the flood insurance program is excepted, on the condition that the community joins and the insurance is bought. An applicant that believes its property was mapped into the zone in error may ask FEMA to amend or revise the map within a period the guide describes; the reduction stands unless the request is granted.

Records and knock-on effects

FEMA's guide lists the insurance records it expects: the policies themselves, their declaration pages, schedules and endorsements, and the settlement information as it becomes available — the statement of loss, the adjuster's estimates, settlement checks or a letter of denial. Insurance also affects how a project is handled: FEMA decides whether a project is large or small on the eligible costs after reductions, so a settlement can change which procedures apply, and on alternative-procedures projects the closeout certification addresses the insurance requirement and the proceeds received.