While there are many instances of court rulings on associated FEMA programs in the areas of freedom of information, the National Flood Insurance Program, and FEMA travel trailers. A single key court case addresses the implementation of insurance regulation through FEMA’s Public Assistance program.
1. State of Hawaii vs. Federal Emergency Management Agency This case focuses on the key points surrounding the meaning of available benefits, reasonable perseverance, risk averseness, and duplication of benefits.
Hurricane Inki impacted the Hawaiian island of Kauai in 1992, causing an estimated $2.6 billion in damages.99 Hurricane Inki was the largest disaster ever
to hit the State of Hawaii.
The State of Hawaii sustained damage to 16 state facilities as a result of the hurricane. After some deliberation, the state settled with their insurance companies for $42.7 million.100 The settlement was made in order to expedite
recovery by providing “the best results in terms of restoring the buildings in the most efficient and timely manner” as argued by the Hawaii comptroller. While the state could have settled based on actual costs with the insurance company, the loss estimate basis would reduce the accountability to the insurers and would speed the pace of recovery, as the insurers would not be involved in developing the scope of work, overseeing the bidding process, and resolving cost and constructions issues during the replacement process. The settlement was below the $50 million policy limit.
99 State of Hawaii, Attorney General vs. FEMA, No. 00–15895, argued November 5, 2001,
Submitted June 26, 2002, State of Hawaii Circuit Court.
100 Ibid.
To facilitate repairs and the recovery process, FEMA mission assigned the U.S. Army Corps of Engineers (USACE) to perform work at the 16 sites in removing debris and making emergency temporary repairs to schools, armories, a hospital and a community college on the island in order to expedite the reestablishment of the community.101 The cost of the mission assignment to the
USACE was roughly $12.1 million. During an Office of Investigator General (OIG) Audit, the determination was made the 12.1 million as a duplication of benefits as the repairs were included in the $42.7 million settlement with the State’s insurance companies. The State filed a first appeal to the Regional Administrator, a second appeal to the Associate Administrator for Response and Recovery, and then in the State of Hawaii Circuit Court. The State submitted that $7.4 million was work performed on the 16 facilities. The dispute was $4.7 million, or the difference between the $12.1 million and $7.4 million.102
The State argued that the Stafford Act restricts a duplication of benefit when a party has already received the financial assistance for its loss. Since the assistance provided was not financial assistance, it was not a duplication of benefits. Additionally, the State argued that the benefit may be available to a person if they actually obtain the benefit.103
FEMA argued that the USACE work, which FEMA paid for through the mission assignment, was a duplication of benefits and that the State should repay the entire $12.1 million.104 However, FEMA’s technical assistance close
out team could only substantiate the $7.4 million the amount that the State of Hawaii received from their insurers. However, FEMA argued that the
101 FEMA, Second Appeals Database, FEMA-0961-DR-HI, State of Hawaii, March 6, 1999. 102 State of Hawaii, Attorney General vs. FEMA, No. 00–15895, argued November 5, 2001,
Submitted June 26, 2002, State of Hawaii Circuit Court.
$12.1 million was the total cost of the USACE repairs to the 16 facilities was not greater than the State’s $42.7 million insurance settlement.105
The Circuit Court concluded that the proper approach to “determining if a disaster aid recipient adequately sought out “available” benefits is to inquire whether the recipient acted in a commercially reasonable manner in determining the amount of insurance proceeds to accept. Because Hawaii so acted, it owes FEMA, under §5155(c) of the Stafford Act, only the amount of insurance proceeds it actually received to make the disputed repairs.”106
The Court took great lengths to define “available” in their ruling. Available was defined as the resources available to the same person for the same purpose from another source. The benefit of available resources actually received and benefits that would have been received if the person acted in a commercially reasonable manner with regard to the settlement claim. The Stafford Act does not require an insured disaster survivor to pursue a course of action to obtain insurance benefits that disregards “competing considerations” that any other person would reasonably take into account. The Stafford Act requires disaster survivors to seek out benefits with the perseverance and risk averseness that a party acting commercially reasonable manner would.107 Reckless litigation,
accepting settlement offers that could result in unreasonable delays, or hiring expert negotiators at excessively high rates are not a component of commercially reasonable manner.
In the Court’s ruling, several points were made by the circuit court judges, which did not agree with either party. A duplication of benefits existed whether the State actually received the benefits or not, which was contrary to the State’s argument. In other words, the State has the responsibility to pursue benefits under its insurance policies. However, contrary to FEMA’s argument, a
105 Ibid. 106 Ibid. 107 Ibid.
duplication of benefits existed in the form of the insurance payment and other available sources, but only if commercially reasonable. With respect to other sources of assistance, a duplication of benefits existed if the work was performed by another entity, which was the USACE in this case. The State was the recipient of assistance from the USACE, which was duplicative of the insurance proceeds received.
The court ruled that the State of Hawaii was only liable for $7.4 million of the $12.1 million for work performed by the USACE, which represented the verifiable duplication of benefits received by the State.