In light of the recent hurricanes that have decimated parts of the United States, Puerto Rico and the Caribbean, it is important to remember that ongoing battles that resulted from older natural disasters continue—in particular, from Superstorm Sandy.
Last month, a New Jersey judge ruled that the New Jersey Transit Authority is not subject to a $100 million cap for its flood losses suffered in connection with Sandy. This ruling is significant in that the damages exceed $400 million—more than $300 million of which has been in dispute.
This case brings to the forefront a discussion about the words and language in a policy, particularly:
•What do they mean?
•What do they mean in relationship to the insured and the insurance company?
•How do the courts interpret insurance policy provisions?
In Sandy’s case, extensive damage occurred overall—especially to New Jersey Transit’s tracks, bridges, tunnels, and power stations. The underwriters of NJ Transit’s insurance company (Lloyd’s Syndicate) had issued coverages for significant losses. The insurance policy had windstorm definitions—including storm surge and wind-driven water—that was not excluded by the surge of surface water (which is excluded under the flood exclusion).
In this summary judgment ruling in favor of NJ Transit against the insurance company, the interpretation of the language partly involved the meaning of flood surge vs. wind-driven rain and water.
The inability to distinguish which one was which led the judge to rule in favor of the more specific and controlling provision. Since the surface water surge appeared in both sections of the policy (and both sections referenced it), the judge ruled that the section that actually provides coverage is the one that applies.
When interpreting insurance policies that have conflicts in language, it is not uncommon to rule in favor of an insured because the insurance companies usually draft the language in the first place. In addition, a traditional doctrine called The Reasonable Expectations of the Insured—what the insured reasonably believes the coverage would be—is also used in interpreting policies, and was used in this case.
Superstorm’s Sandy’s decimation of the state of New Jersey surely influenced the result as well. Nonetheless, insurance companies ordinarily don’t escape coverage when it’s given in one part of the policy and taken away in another.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack