March 2, 2021

Volume XI, Number 61

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March 02, 2021

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March 01, 2021

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New Jersey Supreme Court Hears Insurers’ Bid to Overturn a $400M Decision

New Jersey’s highest court heard arguments Monday in the appeal of a ruling that the New Jersey Transit Corp.’s (“NJ Transit”) insurers are required to insure $400 million of water damage loss caused by Hurricane Sandy.

The matter stems from an insurance claim NJ Transit made after the super storm rocked the East Coast in 2012. NJ Transit claimed over $400 million in losses as a result of damage to its tracks, bridges, tunnels and power stations. In response, its tower of property insurers took the position that a $100 million flood sublimit applied to limit NJ Transit’s recovery under its insurance tower, not the policy’s $400 million overall limits.NJ Transit filed a coverage action in state court. The trial court granted summary judgment to NJ Transit, holding that NJ Transit was entitled to full coverage of $400 million under the tower’s named windstorm coverage. The insurers appealed, again arguing that the flood sublimit applied to the claim.

The New Jersey Appellate Division affirmed the trial court’s ruling that the named windstorm coverage applied. In doing so, the appellate court focused on the plain language of the policy. Specifically, the appellate court distinguished the definitions of the defined terms “named windstorm” and “flood.” In doing so, the court noted that the definition of “named windstorm,” which included the words “storm surge,” was more specific than the definition of “flood,” which merely used the word “surge.” Accordingly, the court determined that the named windstorm limits applied, not the flood sublimit.

In addition, the court applied the efficient proximate cause doctrine to determine that the windstorm coverage pertained to the loss. The court found that the storm surge caused by Hurricane Sandy was a peril specifically insured against and because the hurricane’s storm surge resulted in “an unbroken sequence” of events, the storm surge is “regarded as the proximate cause of the entire loss.” Accordingly, the appellate court concluded that if NJ Transit’s losses were caused both by “flood” and by a storm surge associated with a “named windstorm,” and the efficient proximate cause doctrine is applied, NJ’s Transit’s coverage would not be restricted to the flood sublimit.

On Monday, the Supreme Court of New Jersey heard argument on the insurers’ appeal of the Appellate Division’s ruling. The Supreme Court justices referred to the policy’s plain language as they probed the insurers’ arguments. Several members of the court questioned the meaning of the provisions, expressing concern that the insurers’ arguments could render the windstorm provision superfluous.

The Supreme Court’s decision will help to clarify issues that have long been debated, specifically where to draw the line between flood and storm surge coverage in the context of a named storm. As always, close analysis of a property policy’s coverage, particularly where there are overlapping or dovetailed coverages afforded under the policy, is key to obtaining a fair recovery.

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Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume XI, Number 7
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Lawrence J. Bracken II Insurance Attorney Hunton Andrews Kurth Atlanta, GA & New York, NY
Partner

Larry Bracken has more than 30 years of experience litigating and investigating insurance coverage, class action, technology, environmental and commercial matters.

Larry has represented clients in federal and state courts throughout the United States in a broad range of cases, particularly the litigation of insurance coverage disputes, class actions and other cases involving allegations of unfair trade practices, ...

404-888-4035
Michael S. Levine Insurance Lawyer Hunton Andrews Kurth
Partner

Mike has more than 20 years of experience litigating insurance disputes and advising clients on insurance coverage matters.

Mike Levine is a partner in the firm’s Washington, DC office and a member of the firm’s Insurance Recovery team. Mike’s policyholder representation focuses on:

  • Property damage and business interruption claims, including COVID-19 losses
  • Event cancellation insurance counseling
  • Representations and warranties coverage
  • ...
202 955 1857
Daniel Hentschel Complex Business Litigation Attorney Hunton Andrews Kurth Miami, FL
Associate

Daniel’s practice focuses on complex business litigation, with an emphasis on insurance coverage litigation and government investigations.

With experience in the areas of insurance litigation, bad faith and government investigations, Daniel represents corporate entities in complex litigation disputes in both federal and state court. Daniel’s practice focuses on counseling clients on insurance coverage disputes arising out of cyber policies, crime policies, commercial general liability (CGL) policies, professional liability/errors and omissions (E&O) policies, and directors and...

305-810-2469
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