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A Policy Limit is a Policy Limit (NJ)

June 7, 2017

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In 2012, Superstorm Sandy caused millions of dollars in damages to residential and commercial property owners on the Jersey Shore.  Five years later, some claims are still making their way through the Courts.  The New Jersey Supreme Court granted <em>certiorari</em> in <a href="http://blog.wcmlaw.com/wp-content/uploads/2017/06/Of-Interest-June-2017.pdf">Oxford Realty Group Cedar v. Travelers Excess and Surplus Lines Company </a> to interpret an insurance policy at issue in one of the Sandy claims involving flood limits coverage and debris removal coverage.
The plaintiff, a Jersey Shore apartment complex located in a flood zone, was insured by Travelers for property coverage with a $1,000,000 limitation for a flood occurrence.  Travelers paid plaintiff’s $1 million claim – the full policy flood limit.  However, plaintiff sought additional coverage for $207,961.28 of storm-related debris removal costs pursuant to the policy’s Property Coverage Form.  Travelers denied this additional claim, and litigation ensued.
The Trial Court granted partial summary judgment in favor of Travelers finding that there was no ambiguity in the flood coverage language or the terms of the debris removal coverage.  While the Court acknowledged that the policy appeared to allow additional debris removal coverage, it concluded that, “the general condition that the debris removal is an additional coverage [that] must yield to the specific term in the Supplemental Coverage Declarations that the [$1,000,000] coverage [which] applies to ‘all losses’ caused by flood.” In a subsequent motion, the Court granted summary judgment in favor of Travelers on the remaining issues and dismissed the action in its entirety.  Plaintiff appealed.
The Appellate Division reversed the Trial Court finding coverage for plaintiff’s storm-related debris removal costs.  The Appellate Division agreed with the Trial Court that the flood coverage and debris removal coverage were unambiguous. However, the panel ultimately concluded that the policy entitled plaintiff to a maximum of $500,000 for debris removal coverage in addition to the $1 million Flood Limits.  It held that the $1 million limitation in the Supplemental Coverage Declarations applied to insured “buildings” rather than insured “occurrences.”  On the other hand, the Court found that debris removal coverage applied to all “Covered Property,” not just plaintiff’s  buildings.  The Court interpreted the policy’s Flood Endorsement to apply “only to loss or damage to <em>covered property caused by flood</em><u>,</u> meaning Oxford’s <em>building</em>” [Emphasis added].  Therefore, the Appellate Division awarded plaintiff the $207,961.28 for storm-related debris removal costs reversing the Trial Court.  Travelers appealed.
Writing for a majority of the Court, Justice Fernandez-Vina held that the policy’s sublimit for debris removal coverage could not be interpreted as a self-contained policy provision separate and apart from the policy’s $1,000,000 flood limit.  Once the Court decided the terms of the Policy were unambiguous, plaintiff’s reasonable expectations argument failed.  This rule of contract construction is also known as <em>verba fortius accipiuntur contra proferentem</em> roughly translated that every presumption is construed against the drafter.  In upholding the policy’s $1 million flood Limit in favor of  the insurer, the New Jersey Supreme Court took the position that the <em>contra proferentem</em> rule is a “doctrine of last resort” when interpreting terms of a policy of insurance.  “If the language is clear, that is the end of the inquiry.”  In addition, the Court explained that “sophisticated commercial insureds … do not receive the benefit of having contractual ambiguities construed against the insurer.”
Thanks to Ann Marie Murzin for her contribution.
For more information, contact Denise Fontana Ricci at <a href="mailto:dricci@wcmlaw.com">dricci@wcmlaw.com</a>.
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