The Second Circuit’s recent reversal of summary judgment involving a coverage dispute over a $50M Hurricane Sandy storm surge claim is an important reminder to always closely read the policy. At first blush, the policy in question was a seemingly standard all-risk commercial property policy that featured a flood exclusion and a separate windstorm or hail deductible endorsement. The coverage analysis in this case should have been straightforward – storm surge falls within the scope of the flood exclusion vitiating coverage – which is exactly what the District Court concluded when it granted summary judgment to the insurer.
Many policies incorporate some form of anti-concurrent causation clause when defining the trigger as to when a higher storm deductible will be applied. However, the windstorm deductible endorsement of this specific policy contained a definition of windstorm which (i) did not explicitly exclude storm surge or flood, (ii) incorporated an anti-concurrent causation clause, and (iii) was not limited in scope to the endorsement. Consequently, the insured asserted that the endorsement’s definition of windstorm applied to the entire policy and encompassed storm surge within its definition. As a result, the insured claimed the policy’s flood exclusion was ambiguous because it excluded storm surge but also contained a restriction on its application, excepting ensuing loss or damage caused by or resulting from a “specified peril” – a defined term which included windstorm, and by extension storm surge.
Rather than deciding the coverage issue, the Second Circuit vacated and remanded the matter to the District Court for further consideration to assess whether the anti-concurrent causation clause in the definition of windstorm conflicted with or otherwise created an ambiguity in the flood exclusion. In doing so, the Second Circuit suggested that the District Court permit additional discovery regarding interpretive materials relating to the windstorm or hail deductible endorsement.
In the end, the outcome of this case will likely have little impact beyond the parties directly involved due to the specific policy language at issue.
Madelaine Chocolate Novelties, Inc. v. Great N. Ins. Co., No. 17-3396-CV, 2018 WL 5276274 (2d Cir. Oct. 23, 2018).