Economy

Audit: FEMA mishandled Florida hurricane payments

A new housing development, in South Miami Heights, Florida, is seen on Friday, August 26, 2005, after being flooded by the rain from Hurricane Katrina.
A new housing development, in South Miami Heights, Florida, is seen on Friday, August 26, 2005, after being flooded by the rain from Hurricane Katrina. MCT

Some 10 years after the winds died down, federal officials are still cleaning up after a flurry of hurricanes hit Florida in 2004 and 2005, with a new federal audit saying the Federal Emergency Management Agency might have paid cities for damages that insurance should have covered.

The audit by the inspector general of the Department of Homeland Security, which oversees FEMA, found that the quality of FEMA’s insurance reviews in Florida was so lacking the agency can’t ensure it didn’t pay for damages that a private insurer should have covered.

FEMA also improperly waived the need for communities to buy insurance to protect against future disasters. That means FEMA and federal taxpayers might be on the hook to cover damages from the next hurricanes. According to the audit, FEMA stands to lose up to $1 billion in future Florida disasters because of these improper insurance waivers.

While the payments in question revolve around damages incurred by cities and other government entities, the issue isn’t with them or with the Florida insurance company that handled the claims. The issue is with FEMA.

“FEMA needs to be checking that the communities are allowing the insurance companies to pay for the portion they should be covering,” John Kelly, an inspector general official who oversaw the report on FEMA’s Florida payments, said in an interview. “It is FEMA’s responsibility to make sure tax dollars are being spent properly… It’s critical that FEMA start applying its regulations correctly and consistently.”

That’s doubly important, he said, since some of the FEMA employees involved in Florida reviews have moved on to other disasters, such as the superstorm Sandy that hit New York and New Jersey.

“We need to make sure the same problems don’t perpetuate themselves,” Kelly said.

While up to $177 million in payments are at issue, Kelly said, Florida cities “are not going to lose a penny.” The private insurer, however, could be found to be liable for additional payments, he said.

The 2004-2005 hurricanes – Charley, Frances, Ivan, Jeanne, Dennis, Katrina, Wilma – ravaged the state, resulting in $4.4 billion in what is known as “public assistance funding” to help local governments recover. It covers activities such as debris removal as well as the repair, replacement or restoration of disaster-damaged facilities.

In some cases, FEMA’s insurance specialists determined that insurance was not available to cover specific damages. Some of those cases involved disagreements over what a policy should or shouldn’t cover: If a ball field was damaged, for example, does the insurance cover only damage to the ground – or also to the fences, scoreboard and bleachers? Those are some of the kinds of issues at play in the insurance reviews, Kelly said.

In most cases, however, the inspector general found that FEMA reviewers could not support their “no insurance” decisions. They either incorrectly arrived at the decisions or had no support to justify them – often because paperwork was incomplete or missing.

The inspector general reviewed only a sample of the 2,088 projects at issue; those projects received a total of $177 million from FEMA. But in its review of the projects, the inspector general “concluded that FEMA could not have completed a valid insurance assessment with the documentation available. … We conclude that FEMA has little assurance that its insurance specialists properly” handled the $177 million in FEMA-approved damages.

The inspector general is calling on FEMA to conduct a review of all projects – large and small – associated with the insurance company and recover any additional money the insurance company should have covered.

In a statement, FEMA press secretary Susan Hendrick said the agency “is on track to respond to the report’s findings and recommendations in late March of 2015."

The insurance company was not named in the inspector general’s report, since the report was about FEMA’s actions, not the insurer’s or the cities’. But the company was the Florida Municipal Insurance Trust, which provides insurance services for more than 600 public entities in the state and is part of the Florida League of Cities.

Eric Hartwell, deputy general counsel for the Florida League of Cities, said that federal officials approached them around 2010 to review claims from the 04-05 hurricanes and that they worked with cities, the state and FEMA to do so.

“When we found something that should have been paid, we paid it,” he said. “But there were cases in which there was no coverage.”

At one time, the trust earmarked $25 million to handle claims stemming from the FEMA review, but that earmark no longer exists, as the trust believes that all legitimate claims against it have been paid, Hartwell said.

“We have reviewed everything that has been identified,” he said. “For everything that has been identified and everything they brought forward – yes, we did a fair review.”

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