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Accordingly, Law, Regulation, and Policy form the insurance policy and considerations in FEMA’s Public Assistance program. This chapter will review the law as provided in the Robert T. Stafford Disaster Relief and Emergency Assistance Act as amended. The regulation is the 44 CFR specifically Sections § 206.250 through Section § 206.253. At the policy level of guidance, the Public Assistance Guide, Public Assistance Digest, and a Disaster Assistance Policy on “Guidance for FEMA Field Personnel” provide the direction on insurance in the Public Assistance program. Also, a review of previous policy, which was recently rescinded, will be addressed. Then, the chapter will address the key components of insurance policy which includes past efforts in drafting law, regulation and policy, the role of the State Insurance Commissioner, key court cases in the development of the guidance that forms the law, regulation, and policy, and conclude with the moral hazard of insurance.

A. ROBERT T. STAFFORD DISASTER RELIEF AND EMERGENCY ASSISTANCE ACT

The Stafford Act is the legal basis for disaster assistance in the United States. The law provides the authority for the President to declare an emergency or major disaster in order to provide federal government resources in the areas of preparedness, response, recovery, and mitigation both in funding and other assistance. The Stafford Act gives the President the authority to determine when to supplement state and local efforts and provide capabilities to save lives and to

52 _{Federal Emergency Management Agency, FEMA Publication 1, 17.}

protect property and public health and safety, or to lessen or avert the threat of a catastrophe in any part of the United States.53 _{For declared emergencies and}

major disasters, state or local government resources must be exceeded as determined by the President.

The intent of Congress is clearly delineated in the Act, which is “to provide an orderly and continuing means of assistance by the federal government to state and local governments in carrying out their responsibilities to alleviate the suffering and damage which results from such disasters.”54 _{Several provisions in}

Congress’s intent relate to insurance including encouraging the development of disaster preparedness, encouraging entities to protect themselves by obtaining insurance coverage to supplement or replace governmental assistance, and encouraging hazard mitigation.55

While the authorities granted in the Stafford Act are broad in reach, many areas of assistance are prohibited by the Act. The first is duplication of benefits. Section 312 of the Stafford Act directs the President to assure that no such person, business concern, or other entity will receive such assistance with respect to any part of such loss as to which he has received financial assistance under any other program, insurance proceeds, or any other source.56

Additionally, the law requires the recoupment of duplicative benefits regardless of the source.57

With respect to insurance, the intent of Congress provided by the law encompasses several areas of guidance.

53 _{The Stafford Act, Section 102.} 54 _{Ibid., Section 101.}

• The Act recognizes the insurance structure in the United States and directs the President to not require greater types and extent of insurance than are certified as reasonable by the appropriate State Insurance Commissioner responsible for regulation of such insurance.58

• The Act prohibits an applicant from receiving any assistance for any property for which the applicant previously received assistance unless all insurance required pursuant to this section has been obtained and maintained with respect to such property.59 _Section

311 prohibits a Federal Agency from waiving the insurance requirement.60

• The Act allows a state to elect to act as a self-insurer with respect to any or all of the facilities owned by the state.61 _{When such an}

election is made, the Act requires a plan in writing, acceptance at the time of the disaster declaration, and the self-insurer may not receive assistance for properties covered by such insurance.

• The Act provides intent and guidance of Congress with respect to flood insurance as well. The Act prohibits Federal disaster assistance to those applicants that have received flood disaster assistance, which was conditional on obtaining flood insurance and, subsequently, the applicant failed to maintain flood insurance as required under applicable Federal law on such property.62

Congress authorizes a disincentive for facilities sustaining repetitive loss. The minimum federal share of assistance shall not be less that 75 percent for eligible cost of repair, restoration, reconstruction, or replacement.63 _{In cases}

where the same facility sustained damage from the same peril within the preceding 10 year period and the facility owner failed to implement appropriate mitigation measures to address the hazard that caused the damage to the facility, the Act authorized a reduced federal share of assistance.64

58 _{The Stafford Act, Section 311.} 59 _Ibid. 60_Ibid. 61 _Ibid. 62 _Ibid. 63 _{Ibid, Section 406.} 64 _Ibid.

The Act provides clear guidance for facilities damaged by flood inside or outside of a Special Flood Hazard Area (SFHA). The Act also directs the reduction of assistance by the lesser of the value of the facility or the maximum amount of insurance proceeds that would have been available if the facility had been covered by the flood insurance under the National Flood Insurance Act of 1968 for a facility that is located in a SFHA for greater than one year.65

B. 44 CODE OF FEDERAL REGULATIONS

The 44 CFR attempts to further define the implementation of the law through regulation. The regulation is broken into two sections that apply to facilities damaged by flood and other than flood perils.

For facilities damaged by flood, an insurable building in a Special Flood Hazard Area, for more than one year, will be reduced by the maximum amount of insurance proceeds available if the facility had been covered by a standard flood insurance policy.66 _{In addition, 44 CFR § 206.252 prescribes the requirement to}

obtain and maintain flood insurance in the amount of eligible disaster assistance received.67 _{This “obtain and maintain” requirement is applicable to those}

facilities inside and outside the Special Flood Hazard Area. For some applications of “obtain and maintain” requirements for damages caused by flood perils, the Regional Administrator shall not require greater types and extent of insurance as certified by the State Insurance Commissioner.68

For facilities damaged by other than flood, the eligible disaster assistance costs will be reduced by the insurance proceeds for that facility. An “obtain and maintain” requirement will be placed on that facility to protect against future losses to such property from the types of hazard, which caused the major

65 _{The Stafford Act, Section 406(d).}

disaster.69 _{As in cases of damage caused by flood perils, the Regional}

Administrator shall not require greater types and extent of insurance certified by the State Insurance Commissioner.

The 44 CFR also provides for consideration for blanket policies in order to reduce the cost of insurance. In the case of a blanket policy, eligible costs for damages occurring in a second or subsequent disaster to a facility will be reduced by the amount of eligible damage sustained on the previous disaster.

The insurance regulation in the 44 CFR was promulgated on December 11, 1991.70