If a person owns a home outright, no leans or mortgage and home has sifnificant damage from a flood, are they obligated to fix the home with the

You are under no obligation to use the money that you receive from insurance to fix your existing home.  you can sell the home "as is" and then use the money that you received for whatever purpose you want.  the damaged home will sell for less than it wold have sold for if you completed the repairs, but that's your choice to make.