WASHINGTON–The Federal Emergency Management Agency said it is working on clarification of language in a bulletin that says if a public entity collects once for damage on a property, FEMA won't pay a second claim if another disaster strikes.
FEMA's bulletin has been pulled back for clarification of its language, the agency said last week.
The bulletin has immense implications for municipalities and hospitals, since FEMA has paid out $8.2 billion in losses suffered by these groups through Hurricanes Katrina and Rita, according to Gil H. Jamison, a FEMA associate deputy administrator for the Gulf Coast recovery.
"Basically, what FEMA is saying is that if they paid for something in the past, they won't pay for it again," said W. Anderson Baker II, of Gillis, Ellis & Baker Inc., an independent agent and broker in New Orleans.
He said the memo "really just outlined old rules and offered guidance on how they might be applied in future claims."
Mr. Baker added, as confirmed by Mr. Jamison, that the rules are still in place.
Mr. Jamison said the bulletin outlining the policy was rescinded because, in the context of Hurricane Dean, which missed most of the U.S. Gulf Coast, representatives of municipalities and nonprofits were confused by the language in the bulletin.
"The bulletin was imprecise in what would be covered," Mr. Jamison said. "It sent the wrong message to the business community. And it was for that reason that we rescinded it for clarification."
Mr. Baker explained that the issue for nonprofits and governmental bodies is they may now be looking at a 5 percent wind deductible. If they have $100 million of property coverage, they have a 5 percent wind deductible, he said.
"If FEMA paid that last time, they won't pay it again, so it leaves the insured obligated to go out and buy that deductible down," he said. The going rate for a buy-down is, perhaps, 20 percent to 30 percent of the deductible. "So that 5 percent buydown might cost $1 million to $1.5 million," he added.
Mr. Baker also noted that the same policy exists under this program for flood. It is very difficult to get excess coverage of National Flood Insurance Program-covered losses," he said.
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