CAPE MAY — The city does have some limited flood insurance covering its new $10.5 million Cape May Convention Hall, but only for about $2.5 million, said officials Wednesday, who also say they’re trying to secure more.
Last week, under questioning from residents, City Manager Bruce MacLeod said there was no flood insurance on the new oceanfront hall as it faced its first test from Hurricane Sandy.
The city fortified the hall with a makeshift sand dune as Sandy approached. There was no damage, but the issue has led to a flurry of records requests from residents and a special meeting of City Council on Wednesday afternoon.
After a closed session lasting more than one hour, MacLeod said the city does have $2.5 million in coverage through the Atlantic County Municipal Joint Insurance Fund, known as the JIF.
The coverage started in April, MacLeod said, something officials apparently were unaware of last week.
The insurance carries a $500,000 deductible on the building and contents, MacLeod said.
The city may seek a Federal Emergency Management Agency, or FEMA, policy that has maximum coverage of $500,000 on the building and $400,000 on its contents. Premiums are based on the size of the deductible, but MacLeod had no cost estimates yet.
Council has to decide by Nov. 28 on whether to ask for this coverage.
MacLeod said the city’s risk management consultant, the Marsh & McLennan Agency, is seeking three quotes to get more coverage privately. Flood insurance could cover as much as $8.5 million on the building, because it need not cover “soft costs,” such as engineering and architectural work, associated with the project, he said.
Another option, he noted, is to be self-insured.
“We could put money aside through budget appropriations, if we decide to go in that direction,” MacLeod said.
Residents have been critical of the city’s handling of the project’s insurance following the storm.
The hall opened over Memorial Day weekend. Its costs are being borne mostly by taxpayers. The Casino Reinvestment Development Authority, or CRDA, is contributing $1 for every $7 of the project. The city has not received this money yet.
Trenton Avenue resident Charles Hendricks quizzed officials on what they knew and when. Mayor Ed Mahaney, who said he learned of the issue on Oct. 29, the day the storm hit, said insurance is under the purview of the city manager.
“If you want to conduct a deposition or file a lawsuit, you’re certainly entitled to do so,” Mahaney said.
Council members also claimed they did not now about the lack of flood insurance until recently.
Deputy Mayor Jack Wichterman, in answer to Hendricks, said he found out on Nov. 3. Wichterman said he sat in at Convention Hall construction meetings for more than two years, and flood insurance wasn’t discussed once.
Hendricks said his house is in a flood zone, and he could not procure a mortgage without flood insurance.
“It seems strange in a flood zone. We require it of our residents. Has council let the community down?” Hendricks asked.
Wichterman refused to blame anyone, saying council members rely on professionals serving the city. MacLeod said those professionals have been working on getting more flood insurance since July.
Residents have raised questions about whether the building was constructed at a high enough elevation to get flood insurance from FEMA or private companies.
“They won’t issue insurance on something uninsurable,” Windsor Avenue resident James Wyatt said.
City Attorney Tony Monzo said that issue has not yet been answered.
“We haven’t determined if the construction of the building is giving us the best base for coverage and who is at fault, if anyone. We’re still studying it,” Monzo said.
Another question is whether the city was required to have such insurance, because the hall was constructed in a flood zone. Private lenders require it for home construction. The lender in this case is city taxpayers.
This question was never fully answered.
After the meeting, MacLeod said the project won’t go to permanent bonding until June or July. It’s now in short-term financing.
MacLeod said he didn’t know whether the flood insurance was required with permanent financing.
Jerry Gaffney, a former mayor here who worked in the insurance business, warned the council against choosing self insurance.
“That really scares me to death. It means we the public are the self insurers,” Gaffney said.
Gaffney also warned that due to Sandy this is the worst time to get such insurance. Private insurers and FEMA are already talking about increasing rates.
“It’s a sellers market,” Gaffney said.
Wyatt said that several years ago, when hall plans called for removing part of the seawall protecting the beachfront, he was told it would not present problems because the city had flood insurance.
That plan was later scrapped, but Wyatt said the city’s comments suggested there was no insurance problem
“Check your records. This goes back to 2010,” Wyatt said.
Gaffney said he believed some members of council had to be aware of the flood insurance problem.
FEMA and private policies are being pursued, MacLeod said.
Councilman William Murray said the city will get coverage. He had voted against the closed session, arguing the entire meeting should be before the public.
“Finger pointing at this doesn’t advance the ball,” Murray said. “What’s happened has happened. We have to make sure the building is covered.”
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