Claim: Denied

The first sign of trouble at Waitsfield’s MINT Restaurant & Tea Lounge [1] came around noon on the day Tropical Storm Irene hit Vermont — August 28, 2011. A neighbor popped his head in to tell owners Savitri Bhagavati and Iliyan Deskov that “there might be a problem” with the nearby river.

A short time later, they learned water was being turned off in the building, which stands on Waitsfield’s Bridge Street, a few hundred yards from the Mad River. Floodwater was filling a nearby parking lot. The couple closed up and carted out their rubbish. “Essentially, we saved the trash,” quips Deskov, the chef.

And little else. The 1100-square-foot vegetarian eatery eventually succumbed to four feet of water, which ruined its kitchen equipment, food, furniture, and, of course, walls and carpeted floors. When Bhagavati saw some of their white upholstered chairs bobbing in the water, the scale of the disaster “kind of hit me,” she recalls.

Still, in the back of her mind was a beam of light in the storm: MINT was covered by flood insurance, which the couple had purchased when they opened the business in 2009 [2]. “Thank God,” Bhagavati remembers thinking.

That was then. Over the ensuing months, MINT’s quest to rebuild would become a cautionary tale for other Vermont restaurants about the bureaucratic labyrinth of insurance and the inherent risks of doing business on a floodplain — even for those who think they’ve covered all their bases.

When Bhagavati and Deskov opened MINT in the Waitsfield Hotel building, they were fresh from Los Angeles and unfamiliar with life on a 100-year floodplain like the one where their new business partially resided. Still, being careful people, they opted for a National Flood Insurance Program policy, which then cost about $350 a year and insured them for up to $20,000. After the May floods of 2011, Bhagavati upped that to $50,000.

Created in 1968 by Congress, NFIP is a sort of “court of last resort” for those who reside in areas prone to flooding, according to Robert Desaulniers, the New England manager of NFIP for the Federal Emergency Management Agency. NFIP coverage is sold through local agents, administered by a carrier, and guaranteed and paid out by the federal government.

If that sounds complicated, it is. Bhagavati purchased MINT’s policy through Denis, Ricker & Brown in Montpelier, which asked her to fill out a questionnaire about her business. The agency forwarded that to NFIP, which approved it and issued the policy.

The day after Irene, when Bridge Street looked like a muddy war zone filled with ruined furniture, equipment and dazed business owners, Bhagavati and Deskov mucked out alongside their neighbors [3]. As they pushed mud out of the eatery, they kept their phone cameras fully charged and diligently took pictures of every bit of damage. Buoyed by the fact that they were covered, “We never really thought about not coming back. Our work started right away,” says Bhagavati.

The couple’s landlord, Norman Abend, eventually replaced the restaurant’s walls and floors, which took about three months. “When something gets flooded, mud gets deposited in places you never thought it could,” says Abend. Also during the fall, an independent adjuster for NFIP arrived to survey the damage.

As Bhagavati and Deskov waited to get back into the space, they served up lunches in the basement of the Waitsfield United Church of Christ. In late November, they were finally able to begin renovation, using a combination of funds: a loan from the Vermont Economic Development Authority; a grant from the Mad River Valley Community Fund; private donations; and their own credit cards. The cost of rebuilding added up to about $40,000, on top of lost revenues from four months of lost business.

On December 19, shortly before their planned reopening, Bhagavati and Deskov received “the letter.” Their carrier, Union Mutual Fire Insurance Company, formally announced that NFIP had denied their claim because the adjuster had determined that MINT was in a basement — defined as “any area of the building having its floor subgrade (below ground level) on all sides.” While NFIP covers certain systems losses in a basement — such as fuel tanks, heating systems and the like — it does not cover contents.

The restaurant’s basement location came as news to Bhagavati, Deskov and Abend, who says that nowhere in his own insurance policy does it state that the building even has a basement. The space does not meet the definition of basement by the town of Waitsfield’s standards, either. “Because you can walk into MINT from ground level, I would not consider this a basement,” writes Susan E. Senning, the town’s planning and zoning administrator. “However, insurance definition and rules are different.” When Bhagavati and Deskov had an engineer look at MINT after NFIP’s denial, they found that the restaurant was technically 3 ½ inches below grade, or ground level.

To visit MINT, you need to walk down a railroad-tie step from an alley, then descend another step inside the restaurant. Somewhere in those two steps lies the crucial 3 ½-inch margin that cost the couple $38,285.30 in rebuilding costs — and left them responsible for future losses. “You are afraid, what if it happens again?” wonders Deskov.

Above all, they wondered why they’d been sold a policy that was essentially no good. Examined more closely, the sequence of events is almost Kafka-esque.

When they applied for flood insurance, Bhagavati filled out a questionnaire that asked if her premises were on the “lowest floor only above ground level.” Believing MINT was a ground-floor establishment — as did her landlord — and unaware of the corresponding elevation requirement, she affirmed this.

Who verifies such a claim? In some cases, an insurance agent asks for an elevation certificate, which attests to the level of a building’s lowest floor relative to the ground. In MINT’s case, none was required or requested. No agent or engineer visited, and the application was approved. When the same space flooded back in 1998, the NFIP claim had been paid.

But after Irene, with NFIP experiencing its own flood of claims, those 3 ½ inches suddenly mattered. “Basements are a big deal,” when it comes to NFIP claims, says Desaulniers. “The rules have to be the same for everybody, and they have to be applied evenly. Nobody has the authority to say, ‘OK, we’ll make an exception for a business.’ It’s a federal product that can’t be interpreted loosely. As a result, there can be a lot of angst spent because people weren’t aware of the policy conditions.”

Bhagavati and Deskov’s denial letter arrived less than two weeks before MINT was slated to open. “This pulled the rug from under our feet,” says Deskov. The kicker: The letter arrived at the same time as an offer to renew their flood insurance.

The couple contacted the state’s Department of Banking, Insurance, Securities and Health Care Administration for assistance. BISHCA officials, though sympathetic, didn’t believe the agent had sold them a policy in error and said they had no authority to force NFIP to pay up. A letter from Hickok & Boardman, a sister agency to Denis, Ricker & Brown, also expresses regret for MINT’s situation, but asserts that “[Bhagavati’s] loss is not due to any fault of DRB” and that “her dispute is with the issuer of her policy, NFIP, with respect to it’s [sic] definition of ‘basement,’ and with the NFIP adjuster who determined that her premises were located below grade level.”

“Therein is the argument we’ve been trying to make to FEMA. Whose definition of a basement does it meet?” says Michael Boardman, senior vice president of Hickok & Boardman. He says his agency has been wrangling with FEMA on behalf of its clients regarding any number of claims. But basements are more “black and white. The crux of the matter is that specific definition.”

Boardman wouldn’t comment on MINT’s claim specifically, but he noted that NFIP, for all its disputed denials, “has paid millions of dollars in flood claims after Irene.”

On a recent afternoon, MINT buzzes with lunchtime customers tucking into richly flavorful, vegetarian rice bowls, lentil soup and salads. Sun spills inside through broad front windows facing an alley. Inside, the eatery is still colorful, with abstract painted murals; and more spacious now, too, with an undulating maple bar, shimmery purple curtains and an open kitchen.

One front window, though, still bears faint marks indicating how high the floodwaters rose during Irene. Through all of the cleaning and rebuilding, Bhagavati kept them intact as a reminder of what happened there.

The space is serene and elegant, yet, talking with Bhagavati and Deskov, one gets a sense of how precarious their business’ survival might be. The couple have nothing but kind words for their neighbors, their landlord and state agencies, but they still feel intensely vulnerable to another flood.

“You commit to rebuilding, and then you find out everything you’ve done is futile,” says Bhagavati with a sigh. She’s delayed filing an appeal with FEMA until she’s sure it does not preclude seeking legal damages. “We’re not people who get depressed easily, but this has been really bad.”

When it rains heavily, water still seeps into the front part of the restaurant; the couple have been forced to close for service twice since reopening. Abend is exploring a solution, but he sounds weary after the Irene ordeal. “I’m 80 years old and getting tired,” says the landlord, who eventually recouped about 40 percent of his own $175,000 loss.

“We had insurance. We were prepared,” says Bhagavati. “Who could tell me what I should have done? No one can tell me what I should have done. I would urge everyone to look into their own situation to make sure they are covered.”

It’s sage advice: Boardman says that in the wake of Irene, his agency is selling more flood insurance: “A lot more people are interested in having flood insurance that didn’t have it before.”

If another catastrophic flood hits Vermont, NFIP insurance could spell the difference between survival and ruin for many. But, as Bhagavati and Deskov have learned, the gray areas can get you.