A D J U S T I N G T O D A Y

Adjusters International Dis aster Recovery Consulting

E DI TO R ’S N OT E

The topic of flood claims was
originally addressed in an earlier
edition of Adjusting Today. Changes
in the industry and the National
Flood Insurance Program — which
provides property owners with
federally backed coverage — along
with vast demand for material on
this topic from our readers, has
caused us to revisit this subject.
In this edition, original author and
industry veteran Bill Koehler is joined
by fellow Adjusters International
public adjuster, Hal Arnold, in
exploring the coverages and issues
unique to the adjustment of flood
claims. This article aims to clarify
Flood
the complexities of flood insurance Understanding and Recovering from
and describe the role of the National
Flood Insurance Program as it stood One of Nature’s Worst Disasters
at press time. By Bill Koehler
Contributing: Hal Arnold
Rounding out this edition is a brief
discussion of the role of the FEMA
It is the inevitable disaster. Each The National Flood Insurance
Public Assistance Program by
Jeff Shaw, a nationally recognized year floodwaters will rise and Program is subject to a different
expert in FEMA disaster programs. numerous properties will be set of rules than those found in an
Mr. Shaw outlines the key steps in destroyed. Heavy rains, hurricanes insurance policy. There are literally
the grant process as well as the and winter runoff all cause thousands of pages from many
potential pitfalls.
flooding. Flooding can occur just official National Flood Insurance
If you or any of your clients have even about anywhere, and other than Program Web sites that can affect
a remote chance of a flood loss, this fire, it is the most common and the policyholder. Although this
edition of Adjusting Today is must widespread disaster. After the article discusses some of the key
reading. As always, we welcome your
water recedes, the adjusting of coverages of the National Flood
comments and suggestions.
flood insurance claims can be a Insurance policy, it is not intended
—Sheila E. Salvatore, Editor very difficult and trying process. to provide a detailed analysis of

ADJUSTERSINTERNATIONAL.COM 1
 A D J U S T I N G T O D A Y

National Flood Insurance Program

Total Number of Policies in Force¹
As of November 30, 2009
WA
ME
55,820
MT ND 8,868
OR 4,146 13,319 MN
32,468 10,906 WI
ID NY
SD 16,055 MI
7,015 WY 160,728
4,223 25,657
2,660 PA
IA
NE 66,777
NV 15,406 IL OH
UT 12,004
16,131 47,757 IN 40,709
CO WV
CA 4,184 32,353 VA
19,301 KS MO KY 21,529107,837
275,868 12,587 25,016 23,113
NC
OK 135,640
AZ NM TN 25,499 SC
16,470 AR
35,272 16,403 18,626 201,998
MS AL GA
76,460 56,312 94,825
TX LA
682,454 483,022

FL
Alaska: 2,842

2,1
45
,14
Puerto Rico: 62,628

3
Policies in Force Policies in Force — Remaining States
Hawaii: 58,345 0 to 10,000 District of Delaware 24,693
10,000 to 20,000 Columbia 1,475 Connecticut 37,297
Vermont 3,621 Massachusetts 51,048
20,000 to 40,000 New Hampshire 8,855 Maryland
Virgin Islands: 2,438 40,000 to 100,000
67,790
Rhode Island 15,132 New Jersey 226,732
100,000 and Above

coverage. For a detailed analysis, Management Agency (FEMA), (at least one of which is your
it is necessary to carefully review makes federally backed flood property) from:
policy language. insurance available in communities
that adopt and enforce floodplain • Overflow of inland or tidal
Although flood insurance claims management ordinances to reduce waters;
may seem more complicated, they future flood losses. Currently, • Unusual and rapid accumulation
work much like other claims under more than 4.2 million policies or runoff of surface waters from
property insurance policies. The representing $524 billion worth of any source;
real challenge lies in the unique coverage are in force in more than • Mudflow (defined as a river of
nature of flood damage, as well as 19,000 participating communities. liquid and flowing mud on the
in how to deal with flood adjusters surfaces of normally dry land
and interpret the policy. The NFIP defines flooding as a areas, as when earth is carried
general and temporary condition by a current of water);
The National Flood Insurance of partial or complete inundation • Collapse or subsidence of land
Program (NFIP), administered of two or more acres of normally along the shore of a lake or
by the Federal Emergency dry land or two or more properties similar body of water as a

2 ADJUSTINGT O D A Y. C O M
1
http://bsa.nfipstat.com/reports/1011.htm
 A D J U S T I N G T O D A Y

result of erosion or under- with their own policies. A company including for example: awnings and
mining caused by waves or that generally provides the poorest canopies, fire sprinkler systems,
currents of water exceeding payouts with its regular work will venetian blinds, ventilating
anticipated cyclical levels that most likely adjust its flood losses equipment and permanently
result in a flood as defined. the same way, even though the installed wall mirrors.
premium rate is the same no matter
All property owners should be which company provides coverage. Since no definitions are offered for
keenly aware of any risk of flood most of these items, controversy
that may exist for them. According There are three NFIP policies often can occur between
to FEMA, one-third of the NFIP’s available: commercial property, policyholders and the companies’
claims come from outside the condominium property and adjusters over the existence and
designated high-risk flood areas. dwellings and their contents. In extent of coverage. Also included
Of the approximately 10 million addition, the Insurance Services under building coverage are
properties in so-called Special Office (ISO) introduced an materials and supplies for use in
Flood Hazard Areas — the most endorsement, CP 10 65, which can constructing, altering or repairing
vulnerable to flood — no more be used with general lines policies the building while stored in a fully
than a quarter are covered by flood either on an excess basis over enclosed building, on the premises
insurance. Yet, in these special NFIP policies or, for businesses or on an adjacent property;
hazard areas, a building has a not subject to NFIP coverage, on a and buildings in the course of
26 percent chance of suffering primary basis. construction before being walled
flood damage during a 30-year and roofed. Certain conditions
period, compared to a 9 percent Among the key coverages offered apply to each, which should be
chance of fire. with the flood policy are: building, checked before relying on coverage
personal property, debris removal for any item.
The NFIP contracts with many and increased cost of compliance.
insurance companies to sell flood Personal Property Coverage
insurance. The insurance company Building Coverages NFIP coverage for personal
receives only a small portion of the Building coverage applies to the property applies to property inside
premium and generally contracts building structure itself, with a fully enclosed insured building.
out the adjusting of flood claims some exceptions and extensions. Unlike most property insurance
to independent adjusters. These This coverage extends to fixtures, policies, there is no coverage for
adjusters, sometimes called “storm machinery and equipment within property in the open or in vehicles
troopers,” follow storms and the building, and includes a long on or near the premises. The policy
floods spending a great deal of list of specific property items, provides for either household
time on the road traveling from
disaster to disaster.

Purchasing Flood Insurance

All NFIP policies have the same
language and will have the same
rates, regardless of the insurance
company from which they are
purchased. With this standard
pricing, it is wise to buy from
an insurance company that has

“ Eproperty
a history of fairness and good
service with their regular policy xpense incurred to remove debris off, on, or from the insured
settlements. Companies will tend caused by flood is covered by NFIP policies. This
to be as liberal or as conservative includes debris from the insured’s property on or away from
with their NFIP policies as they are the premises, and other debris brought onto the property

”
by flood.
ADJUSTERSINTERNATIONAL.COM 3
 A D J U S T I N G T O D A Y

“ Texpense
he NFIP does not provide coverage for business interruption, extra
or additional living expenses. However, if a business is large
enough and can afford the additional premium, extra coverage —
including higher policy limits — for flood losses can be purchased from
a private insurance company.
”
contents or “other than household same function). Where there is any or local floodplain management
contents” but not both. This could substantial value to such items, law or ordinance affecting
produce a problem for people who separate coverage, possibly under repair or reconstruction of a
have a business or office in their an inland marine floater that structure suffering flood damage.
home unless they obtain separate includes flood coverage, should be Compliance activities eligible
coverages for household contents arranged. Up to 10 percent of the for payment are: elevation, flood
and business property at the same personal property coverage (but proofing, relocation, or demolition
location. not as additional insurance) can be (or any combination of these
applied to tenant’s improvements activities) of a structure. Specifically
A problem may occur with and betterments to the building. excluded from this coverage is loss
property that can be considered due to any ordinance or law that
as either household or business Debris Removal Coverage the insured was required to comply
property. This should be discussed Expense incurred to remove with before the current loss.
with agents or underwriters in debris off, on, or from the insured
advance to determine how such property caused by flood is Special Coverages
property should be treated. covered by NFIP policies. This Flood policies provide temporary
includes debris from the insured’s coverage for property that has
When not insured under the property on or away from the been moved to another location
building coverage, any of the premises, and other debris brought due to the threat of flooding.
following items are covered onto the insured property by flood. This coverage applies for 45
under personal property: kitchen days, and there is a modest limit
appliances, air conditioners, Payment for this and the property for the incurred costs. To be
carpet, and outdoor equipment coverages cannot exceed the total covered, personal property must
and furniture stored inside the coverage limits for the property be in a fully enclosed building
insured building. A limit of insurance. above ground level, or otherwise
insurance is imposed collectively reasonably protected from the
on artwork, rare books, jewelry, Increased Cost of Compliance elements. Note that this extension
watches and furs. Antiques are Coverage of coverage applies only to
paid based on functional value This coverage reimburses the property threatened by flood —
(with property that serves the insured for compliance with a state not to flood damage to property

4 ADJUSTINGT O D A Y. C O M
 A D J U S T I N G T O D A Y

Amount of Insurance Available

2

Emergency Program Regular Program

Basic Additional Total
Insurance Limits Insurance Insurance Insurance
Limits Limits Limits
Building Coverage
Single-Family Dwelling $ 35,0003 $ 50,000 $200,000 $250,000
Two- to Four-Family Dwelling $ 35,0003 $ 50,000 $200,000 $250,000
Other Residential $100,0004 $150,000 $100,000 $250,000
Non-Residential $100,0004 $150,000 $350,000 $500,000

Contents Coverage
Residential $ 10,000 $ 20,000 $ 80,000 $100,000
Non-Residential $100,000 $130,000 $370,000 $500,000

that has been removed when currency, valuable papers or records, or is the maximum available for
threatened by any other peril. animals, aircraft, most motor the property under the NFIP.
vehicles and watercraft, among
There is also limited coverage for others. Exclusions unique to flood Actual cash value (ACV) is
loss mitigation measures such as policies include property located in replacement cost value at the time
sandbags, fill for temporary levees, basements. These exclusions are of the loss, less the value of its
pumps and wood materials used to detailed later in this article. physical depreciation. The repairs/
save a building endangered by flood. replacement must be completed
How Flood Damages are before the withheld depreciation
Property Not Covered Valued is paid. (They are paid the ACV
There is a lengthy list of property The value of flood damage in regardless.)
that is not insured under the the Dwelling Form is based on
flood policy. Many of these items either replacement cost value or Some building items such as
are standard to general property actual cash value. (Manufactured carpeting are always adjusted
coverages — accounts, bills, or mobile homes are subject to a on an ACV basis. For example,
special loss settlement provision.) wall-to-wall carpeting could
Replacement cost value (RCV) is lose between 10-14 percent of its
the cost to replace that part of a value each year, depending on
2
For the Residential Condominium Building
Association Policy (which is written only in building that is damaged (without the quality of the carpeting. This
Regular Program communities), the amount depreciation). To be eligible, depreciation would be factored in
of building coverage available is the lesser of the adjustment.
replacement cost value or $250,000 times the conditions that must be met are:
number of insured units in the building. See the
CONDO section of the Flood Insurance Manual for • The building must be a single- Personal property is always valued
contents coverage options.
3
In Alaska, Guam, Hawaii, and the U.S. Virgin family dwelling, and at ACV.
Islands, the amount of building coverage available • Be your principal residence,
in the Emergency Program for Single-Family
meaning you live there at least 80 NFIP Insurance:
Dwellings and Two- to Four-Family Dwellings is
$50,000. percent of the year, and Is Coverage Provided at
4
In Alaska, Guam, Hawaii, and the U.S. Virgin • Building coverage must be Replacement Cost?
Islands, the amount of building coverage available
in the Emergency Program for Other Residential at least 80 percent of the full Coverage is provided only for
and Non-Residential buildings is $150,000. replacement cost of the building, single-family dwellings and

ADJUSTERSINTERNATIONAL.COM 5
 A D J U S T I N G T O D A Y

expenses. However, if a business

is large enough and can afford
the additional premium, extra
coverage — including higher
policy limits — for flood losses
can be purchased from a private
insurance company.

A good example of purchasing

extra coverage involved a
manufacturing facility in the
Midwest. The maximum coverage
the NFIP provided to commercial
properties at that time was
$250,000. The manufacturer
purchased $50 million in flood
coverage outside the NFIP from
a private insurance company that
covered property and business
interruption. Flood struck the
facility in 1993 and 18 inches
of water flowed through the
property. The insurance company
adjuster evaluated the loss and
offered $3 million for the damages;
however, more damage occurred to
the property than met the eye.

residential condominium buildings, and the 80 percent insurance to Under certain circumstances,
if several criteria are met. value requirements for single- land subsidence is covered under
Replacement cost coverage is family dwellings do not apply to flood policies. Land subsidence
available for a single-family the RCBAP. However, coverage occurs when water moves through
dwelling, including a residential amounts less than 80 percent of the soil, washing away the finer
condominium unit that is the building’s full replacement cost particles and causing the soil to
policyholder’s principal residence value at the time of the loss will be sink. Through the aid of a public
and is insured for at least 80 subject to a co-insurance penalty. adjuster and other experts, it
percent of the unit’s replacement was proven that the floodwaters
cost at the time of the loss, up to Contents losses are always adjusted did in fact wash away the fine
the maximum amount of insurance on an actual cash value basis. If the soil underneath the facility.
available at the inception of the replacement cost conditions are This changed the soil structure
policy term. Replacement cost not met, the building loss is also beneath the building, leaving it
coverage does not apply to adjusted on an actual cash value highly vulnerable to collapse.
manufactured (e.g., mobile) homes basis. Actual cash value (ACV) is Five teams of engineers from
smaller than certain dimensions replacement cost value at the time the insurance company couldn’t
specified in the policy. Losses are of loss, less the value of its physical refute the evidence and eventually
adjusted on a replacement cost depreciation.5 agreed with the claim. Because
basis for residential condominium this loss resulted in property
buildings insured under the Additional Coverages damage and a delay in business,
Residential Condominium The NFIP does not provide the manufacturer was paid
Building Association Policy coverage for business interruption, $25 million for property damage
(RCBAP). The principal residency extra expense or additional living and $25 million for business

6 ADJUSTINGT O D A Y. C O M
5
www.fema.gov
 A D J U S T I N G T O D A Y

interruption losses. Losses from

mudflow and land subsidence
that result from erosion that is
specifically covered under the
definition of flood, are covered.
(Please see definition of flood on
page 2.)

Basements
Basements are the most
misunderstood areas when
adjusting flood losses. A basement
is defined as “any area of the
building, including any sunken
room or sunken portion of a
room, having its floor subgrade
(below ground level) on all sides.”
However, if a room is subgrade
on three sides, and has at least
one walkout door (a door opening
onto dry land where the ground
is lower than the finished floor of
the subgrade room), the room is
not considered a basement. Many “ Munless
any exclusions apply to basements
exclusions apply to basements
unless there is a walkout door.
there is a walkout door.
”
Property covered in a basement: such relevant equipment located Garden-Style Apartments
below the base flood elevation Garden-style apartments and their
• Unpainted drywall and ceilings if such relevant equipment was “basement” units present a unique
• Sewer lines (if backed up) installed on or after Oct. 1, 1987 problem in flood adjusting. There
• Sump pumps • Clean-up costs are thousands of these apartments
• Well water tanks and pumps in the country, and they are usually
• Fuel tanks and the fuel in them Property not covered in comprised of two levels; however,
• Cisterns and the water in them a basement: often the first floor is several feet
• Pumps and/or tanks used in below ground. Unfortunately,
conjunction with solar energy • Contents or personal property unless there is a walkout door,
• Central air conditioners • Finished walls, floors and the bottom level is considered
• Non-flammable insulation ceilings a basement and many items are
• Furnaces and water heaters • Doors not covered by flood insurance.
• Clothes washers and dryers • Cabinets In certain instances, when a
• Food freezers and the food in them • Stoves, dishwashers flood strikes such apartments,
• Heat pumps • Any building equipment not determining what is covered and
• Electrical junction and circuit specifically listed what is not can be tricky.
breaker boxes
• Stairways and staircases NFIP will not cover anything below For example, in 1996 a widespread
attached to the building that are the Base Flood Elevation (BFE). flood devastated Grand Forks,
not separated from the building The BFE is determined by FEMA North Dakota, when the Red River
by elevated walkways and represented on contour maps overflowed its banks. Water levels
• Elevators, dumbwaiters and that are very hard for most people, reached up to six feet or higher
relevant equipment, except for including adjusters, to understand. on city streets, and roughly half the

ADJUSTERSINTERNATIONAL.COM Basic Insurance Limits 7

 A D J U S T I N G T O D A Y

“ Unfortunately, unless there is a walkout door, the

bottom level is considered a basement and many items
are not covered by flood insurance.
”
city’s residents were evacuated. The BFE, so it could not be considered
flood spread for miles. A garden-style a basement, thus allowing full
apartment complex several miles coverage. A surveyor was then
from the river was one of many to fall hired who verified that this was
victim to the flood. The complex had true and double-checked it with
the maximum NFIP flood coverage the property’s plat map from city
allowed at that time, which was hall. The base of the apartment
$250,000. The insurance company building was exactly three inches
adjuster classified the first floor as a above the BFE, and the ground
basement, denying coverage for the surrounding the structure was fill.
contents and finishings, and offered According to the policy, this would
the insured $50,000. classify the first floor as above
ground, and all the property and
After closely inspecting the contents would be covered.
premises, it was noticed that the of garden-style apartments, many
ground surrounding the property The insurance company adjuster may fall into the same category.
did not appear to be the original had already left the area and Most insurance company adjusters
ground. Rather, it looked as if had no intention of revisiting the will not look for such subtle
fill had been placed around the loss. Therefore, the first step after issues when adjusting flood losses
foundation. The insured’s flood verifying the adjuster’s oversight and, when unique cases like this
policy uncovered some interesting was to contact the supervising are discovered, the resulting
language under the Property Not general adjuster at FEMA. The settlements are not paid quickly.
Covered provision. general adjuster commented that
this instance was the first time Estimating Damages
Property Not Covered: “Building anyone had ever raised the issue All NFIP or flood insurance policies
or units and all their contents if of a garden-style apartment being from private insurers contain the
more than 49 percent of the actual above the BFE. He reviewed same language and work the same
cash value of the building or the evidence and agreed with way. The only differences insureds
unit is below ground ... .” Most the theory. However, FEMA will encounter with various
adjusters stop reading there and cannot override the insurance companies involve how different
deny coverage. However, a crucial company adjuster, so someone at adjusters interpret the policies.
point is stated directly after that: the insurance company needed The single most important thing
“ ... unless the lowest level is at to agree with the findings. The an insured can do to achieve a fair
or above the base flood elevation original adjuster would not revisit settlement is to make sure that they
and is below ground by reason the decision, and after three years, or a trusted adviser are there to
of earth having been used as just weeks before the loss was work with the insurance company
insulation material in conjunction scheduled for litigation, a new adjuster when they visit the site to
with energy efficient building adjuster was assigned to the loss. inspect the damage.
techniques.”
The new adjuster agreed with the If alone at a flood loss, flood
Based on that language in the findings and paid the insured near adjusters will quickly work their
policy, it appeared that the lower policy limits. This is a rare case. way through the property, writing
unit of the complex was above the However, given the large number down what they see and filling in

8 ADJUSTINGT O D A Y. C O M
 A D J U S T I N G T O D A Y

“ All NFIP or insurance

company flood
insurance policies
contain the same
language and work the
same way. The only
differences insureds
will encounter with
various companies
involve how different
adjusters interpret the
policies.
”

their estimating template. They inspected the damage alone Unfortunately, if everything under
usually concentrate on room sizes, without obtaining any information the flood line is covered in mud,
flooring, walls and a few other from the owner. The adjuster later adjusters can have a hard time
variables. When you work with the denied coverage for the ceiling, determining if something is brand
adjuster, it is important that there stating, “No water touched the new or 20 years old. If possible, try
is agreement about the “scope of ceiling, therefore it is not a covered to locate receipts or proofs of
damage,” meaning an agreement flood loss.” He simply said, “Take purchase before the adjuster arrives,
about what needs to be repaired or it to Appraisal,” and left to adjust especially for major appliances, to
replaced, without having a dollar the next loss. (Appraisal is a prove the age of the items.
amount at that time. policy’s form of arbitration.)
Compounding this problem, flood
Working under extremely adverse areas are usually without power,
conditions, and with the large they smell foul, and can contain
number of losses in a flood area, mold, bacteria, spiders and snakes.
the adjuster’s goal is to adjust as Mold is a very important Given these circumstances, the
many losses as they can each day. adjusters do not want to, nor do
issue to consider in
Because of their workload, once they have the time to, clean and
these adjusters set their position in flood losses. Concerns inspect every item and determine
writing, it may be very difficult to its precise age and worth. They
change. about extraordinary mold typically depreciate most items
and its health risks to a standard percentage, unless
For example, a commercial someone is there to point out
building was flooded with seven inhabitants of a property otherwise.
feet of water and mud. Inside the can have a major impact
flooded building was a suspended Another example is flooring. A
ceiling, which soaked up large on property insurance property may have very expensive
amounts of moisture, causing it to walnut wood flooring; however,
sag and grow mold. The adjuster
claims. caked with mud, it looks just like

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 A D J U S T I N G T O D A Y

Conclusion
Overall, the National Flood
Insurance Program is a very fair
and necessary program that helps
many homeowners and business
owners recover from what
would otherwise be uninsured
losses, since standard insurance
policies do not cover flood losses.
Important things to remember
about flood insurance are:

• Contents and finished items in

basements are excluded from
coverage;
• Walkout doors are required in
garden-style structures where
the door is lower than the
finished floor of the subgrade
all other hardwood floors. The agreed that electric baseboard falls room for full coverage on the
adjuster may very well mark the under this definition and should lower level;
flooring down as oak, which is be covered. The adjuster felt his • Remember that the damages are
half the value of walnut. Once that interpretation was still correct, paid on an actual cash value
estimate is on paper, it is extremely disagreed with FEMA, and refused basis — not replacement cost.
difficult to change. In some cases to grant coverage. Only after a new However, the homeowner’s
the insurance company will amend adjuster was assigned to the loss, building damages can be settled
the mistake, but many times the did the insurance company pay for on a replacement cost basis
claim will need to go to Appraisal, the claim. (provided replacement cost
which can take weeks, months coverage is purchased) and are
or years. It is wise to avoid this Continuous Flooding still subject to the replacement
situation by being present with the Another issue to consider when cost provisions;
adjusters during inspections and discussing flood insurance is • Purchase the flood policy from a
encouraging them to represent the continuous lake flooding. When company with whom there is a
losses accurately. a building is inundated by rising comfort level in settling claims;
lake waters for 90 days or more • Additional coverage can be pur-
An apartment building in Grand and continuation seems likely to chased from private insurance
Forks, North Dakota, provides a damage the building to a degree companies, usually at higher
good example of how difficult it can equal to or greater than the policy premiums than the NFIP rates;
be to change an adjuster’s opinion. limits plus the deductible, the • Be there with the insurance
The building’s electric baseboard insurer may pay the full policy adjusters when damages are
heating units in the basement were amount without waiting for estimated;
flooded. Furnaces are covered in further damage. To do this, the • Consider hiring a public
basements under all flood policies; insured needs to sign a release adjuster.
however, the adjuster would not agreeing to make no further claim
grant coverage, saying it was not a under the policy, not seek renewal For information on flood insurance
furnace because electric baseboard of the policy, and not apply for any and copies of current policies, con-
was not specified in the policy. flood insurance under NFIP for tact FEMA or visit www.fema.gov.
FEMA’s definition of a furnace is a property at that location.
device that produces heat. FEMA

10 ADJUSTINGT O D A Y. C O M
 A D J U S T I N G T O D A Y

FEMA Public Assistance Program

Overview of the Key Steps and the Potential Pitfalls in the Grant Process
By Jeff Shaw

A discussion of flood insurance Key Steps in the Process

would not be complete without The FEMA disaster recovery
commentary regarding the process follows a standard course
Federal Emergency Management of events. The key steps are as
Agency (FEMA) Public Assistance follows:
Program. Once a major disaster
declaration is made by the • A catastrophic event triggers the
president, this voluntary process.
program provides supplemental • The governor declares a disaster
reimbursement for the repair or area.
replacement of infrastructure and • There is a preliminary state/
facilities to pre-disaster condition. federal assessment of the damage,
In addition, additional funding is and reports are generated.
obtainable for codes and standards, • The president declares the
and mitigating future hazards. catastrophe a disaster area,
Typically, FEMA funds 75 percent making federal funds available.
of eligible costs while the • Within the damaged area,
remaining 25 percent is borne by applicants are briefed by state/
the state and applicant (cost share). FEMA representatives.
However, in special circumstances, • The damage must be a direct • Applicants file a Request for
the FEMA share can be as much result of an incident for which Public Assistance (RPA), which
as 100 percent (with the exception there is a major disaster is the first of many applicant
of the Hazard Mitigation Grant declaration made by the responsibilities.
Program, which is statutorily president. • The applicant has a kickoff
capped at 75 percent). Since this is • The damage must be located meeting with the Public
a federal grant program, applicants within the designated disaster Assistance Coordinator (PAC).
seeking federal reimbursement area (typically designated by • FEMA prepares Project Work
must adhere to stringent program county). sheets (PW) for large projects.
guidelines and meet all eligibility • The damaged infrastructure/ • The applicant prepares PWs for
requirements. facility must be owned by and/ small projects (FEMA will assist
or be the legal responsibility of with this process, or will write
Eligible applicants include state an eligible applicant. all PWs as requested by an
agencies, municipalities, Native • The damage and related work applicant).
American tribal organizations to be performed must not be • FEMA reviews the PWs.
and certain private nonprofit eligible for reimbursement • Approved PWs are obligated
organizations. under the authority of another and funds are made accessible
federal program (exceptions by the state.
In order for a disaster-related may be made for emergency • Payment of the federal share is
expenditure to be considered as work). made.
part of an eligible public assistance • Assistance is supplemental to • Payment of the state share (if
application, it must meet the any insurance proceeds. applicable) is made.
following minimum criteria: • A final inspection is completed.
• Project is closed out.
• Disaster is closed out.

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 A D J U S T I N G T O D A Y

Potential Pitfalls • Lack of documentation for fringe

There are a number of potential benefits and/or nonproductive
pitfalls in the FEMA process. leave time.
Requested payments can be • Lack of support for equipment
disallowed for a number of rates.
Adjusting Today on the Web —
reasons, including: • Excessive claims for equipment
hours. www.AdjustingToday.com
• Cost is unallowable — a cost • Failure to distinguish between
charged to a PW is unallowable disaster-related work and View our entire catalog
according to statute, regulation normal ongoing activities. of back issues,
or policy. • Failure to provide a clear audit download PDF versions,
• Cost is eligible but incorrectly trail from the supporting cost subscribe and
allocated — an otherwise eligible summaries to the supporting contact the editor
cost is incorrectly charged to the records.
wrong disaster project. • Failure to segregate ineligible
• Cost is ineligible — costs work.
were charged that were not
authorized in the PW’s scope of In the case of a flood-related disaster,
work. eligible facilities within a Special
• Cost is eligible but unallowable Flood Hazard Area may be subject
— eligible costs cannot be to a reduction in eligible costs. This
adequately documented. reduction, which can be as much as
• Cost is administratively $1 million, is a penalty for the failure
unallowable — cost may be to carry insurance with either NFIP
eligible, but the project fails or a commercial carrier.
to meet an administrative
requirement. It is important to keep in mind
that, as with an insurance claim,
Once a payment is made, audits the applicant is responsible for
may discover problems that, if providing documentation and
unresolved, could force applicants maintaining all information Jeff Shaw
to return some or all of the FEMA pertaining to the damage and Adjusters International
funds received. Some common the grant request. It is equally
problems include: important for applicants to stay
informed on the ever-changing
• Failure to adequately describe rules and regulations governing
the work performed. these programs, including 44 CFR
and the Robert T. Stafford Act.

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