Wade Clark Mulcahy LLP

<p style="text-align: justify;">This week, the New Jersey Appellate Division handed down a large victory for New Jersey Transit.  The Court in <em>New Jersey Transit v. Certain Underwriters, et al.</em>, affirmed the trial court’s prior decision that NJT was entitled to the full $400 million in coverage available in its property insurance program for damage wrought during Superstorm Sandy on October 29, 2012, ending a years-long insurance coverage dispute.</p>
<p style="text-align: justify;">Following Superstorm Sandy, the primary layer of coverage ($50million) and first excess layer tendered full limits to NJT for the resulting property damage claim.  However, in April 2013, a disclaimer letter was sent on behalf of certain excess insurers including Certain Underwriters and Torus, stating that coverage was limited to a $100 million flood sublimit, and therefore the excess carriers would pay no more than $50 million, collectively, above the $50 million primary layer.</p>
<p style="text-align: justify;">The defendant insurers argued that the Sandy-related inundation of water met two separate definitions of “flood” within their policies, as either “the overflow, release, rising, back-up, runoff or surge of surface water,” or as “the unusual or rapid accumulation or runoff of surface water from any source.”  If defendants could establish that these definitions unambiguously described the Sandy damage, then a $100 million sublimit would apply to limit their exposure.</p>
<p style="text-align: justify;">The Court disagreed, noting that the policies also included a definition for “named windstorm” that included “storm surge” and “wind driven water.”  Noting that the definition of “flood” did not include either “storm surge” or “wind driven water,” the Court held that Superstorm Sandy fit more squarely within the definition of windstorm and its specific reference to wind driven waters and a storm surge.  Thus, the Court held that where two separate provisions could be logically read to describe one subject, the more detailed and on-point provision controls.  Hence, Superstorm Sandy was deemed more of a “named windstorm” than a “flood,” and the sublimit of insurance was held not to apply.</p>
<p style="text-align: justify;">The Appellate Division, applying general rules of contract construction to the insurance policy language <em>de novo</em>, parsed the terms and words, flood, wind and water<em>. </em>In finding that losses caused by a storm surge could not be defined as losses caused by a flood in order to limit the insurers’ exposure, the Court made a judicially ubiquitous remark to insurers: if that is what you meant, you should have written it that way. As such, this case illustrates the importance of ensuring that insurance policies clearly state their intended coverage.</p>
<p style="text-align: justify;">Thank you to Vivian Turetsky for her contribution to this post.  Please email <a href="mailto:chayes@wcmlaw.com">Colleen E. Hayes</a> with any questions.</p>