Windstorm, Storm Surge, Flood Exclusion and Anti-Concurrent Causation Confusion
Back in October, the U.S. Court of Appeals for the Second Circuit issued a Summary Order (no precedential effect) in a Hurricane Sandy storm surge coverage dispute. The court reversed summary judgment in favor of the insurer and remanded the case back to the district court to assess whether an endorsement’s anti-concurrent causation clause conflicts with or creates an ambiguity concerning a flood exclusion. The struggle to articulate coverage or non-coverage for storm surge continues.
In Madelaine Chocolate Novelties, Inc. v. Great Northern Ins. Co., No. 17-3396-cv (2d Cir. Oct. 23, 2018), the court was faced with an all-risks policy with a twist. Typically, an all-risks policy covers all property risks, except for those excluded (the Company will pay for damage or direct physical loss to a building or personal property caused by or resulting from a peril not otherwise excluded). Here, there was an exclusion for flood, which included rising and overflowing harbors and oceans, whether driven by wind or not. The full text is in the court’s opinion.
If there were nothing else, coverage for storm surge arising from Hurricane Sandy, which caused extensive property damage and loss of business income, would appear excluded. But in this case, there was something else. The policy had a Windstorm endorsement. The endorsement defines Windstorm as including wind-driven rain and collapse of a building or other structure caused by or resulting from wind, regardless of any other cause or event that directly or indirectly contributes concurrently or contributed in any sequence to the loss or damage, even if the other cause or event would otherwise be covered. Again, the full relevant text is in the opinion.
While the district court concluded that the flood exclusion unambiguously excluded storm surge damage from coverage, the circuit court felt otherwise. In remanding, the court distinguished the authorities relied on by the district court as being inapposite because of the lack of endorsements like the windstorm endorsement and because of the lack of an anti-concurrent causation clause in the other cases. The circuit court instructed the district court to assess whether the windstorm endorsement’s anti-concurrent causation clause conflicts with, or otherwise creates an ambiguity concerning the flood exclusion. In doing so, said the court, the district court may consider discovery of extrinsic evidence concerning the windstorm endorsement. But the court noted that exclusions must have clear and unmistakable language and must be construed strictly and narrowly with ambiguities resolved in favor of the insured. The Second Circuit may have an opportunity to revisit this case after the district court reaches a final determination on remand.
So is it better to specifically endorse an all-risks policy for a specific peril or to rely on an exclusion? Exclusions are harder for an insurance company to enforce, but an all-risks policy is expected to cover “all risks,” except those excluded. Whether an insurance policy covers damages caused by storm surge during a hurricane or other windstorm, however, should not be this difficult to articulate in clear and simple language. And care must be taken to make sure there are no inconsistencies between coverage grants and exclusions.