The New Jersey Appellate Division in New Jersey Transit v. Certain Underwriters at Lloyds, et al, A-1026-17T1 (App. Div. Slip Op. November 18, 2019) recently held that storm surge damage caused by Superstorm Sandy was not subject to a $100M flood sublimit, but instead was afforded the full $400M in property coverage under several layered policies issued by eleven participating insurers. The New Jersey Appellate Division relying in significant part on a revised definition of “Named Windstorm” found that none of the flood sublimits applied because it found that damage was caused by a named windstorm which it deemed a separate peril not subject to the flood sublimit.
The appellants, Certain Underwriters at Lloyds, Maiden Specialty, RSUI Indemnity, Westport Insurance and Torus Specialty contended that the Named Windstorm provision was merely included in the policies to emphasize that all losses arising from a “named windstorm” are those that occur in a single, seventy-two hour period. (Presumably to avoid stacking of coverage in the event of a prolonged storm causing damage in separate episodes over several days.) The insurers contended that the flood sublimit applied to all losses caused by flood over that 72 hour period, including such flooding caused by storm surge.
The court disagreed, finding that the plain language of the policies indicated that the purpose of the “named windstorm” definition was to differentiate between the inundation caused by a surge of water, which may have no relationship to a storm, and the inundation resulting from “storm surge” which the policies defined as wind driven water associated with a named storm.
The Appellate division found that the purpose of named windstorm definition was to expand coverage to include a separate storm surge peril. This finding was made despite proofs presented at the trial level indicating that Marsh, the insurance broker negotiating on behalf of NJ Transit had represented on renegotiation of the policies at renewal that “the named windstorm definition was required to be included solely for ‘concurrency purposes’ [i.e. to ensure that the same language was in all policies providing excess coverage].
Torus, who was the sole insurer to take this particular issue up on appeal argued that their policy should be reformed based on equitable fraud committed by Marsh on behalf of its client NJ Transit. Torus contended that Marsh masked its intention of increasing coverage limits by requesting a change in the definition of named storm misleading the insurers into believing this was an innocuous change on renewal merely to conform primary and excess policies. The court’s response? Insurers, you should have read your policies.
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