Conflict in Policy Provisions Gives Sweet Victory to Candy Company


That a property loss falls – or seems to fall – squarely within the terms of an insurance policy’s exclusion does not necessarily mean that it won’t be covered. That’s the lesson to be derived from a recent decision by a New York federal appeals court in Madelaine Chocolate Novelties, Inc. v. Great Northern Insurance Company.


Madelaine Chocolate suffered property damage in Superstorm Sandy attributable to “storm surge,” a weather phenomenon wherein water is pushed ashore by force of wind. When its insurer Great Northern (a Chubb affiliate) refused to pay, Madelaine Chocolate sued Chubb in New York federal court. Relying on the policy’s flood exclusion, the trial judge granted summary judgment to Chubb and threw Madelaine Chocolate out of court.

Appellate Decision

On appeal, the New York Federal Appeals Court revived Madeleine Chocolate’s claim, holding that while the loss in question fell within the scope of the flood exclusion, a potential conflict existed between the exclusion and the relevant coverage provision; i.e., the policy’s windstorm endorsement. The court observed that the endorsement created coverage for damage caused by “wind … regardless of any cause or event that directly or indirectly contributes concurrently to, or contributed in any sequence to, the loss or damage.”

As a result, the court sent the case back to the trial judge with instructions to determine whether the endorsement and exclusion conflicted and, if so, how the conflict should be resolved. Before concluding its remarks, the court reminded Judge Dearie of relevant precedent requiring policy exclusions to be “set out in ‘clear and unmistakable language’ and to be accorded a ‘strict and narrow construction.’” Thus, the appeals court sent a clear message to the trial judge that this loss should be covered.


Evan S. Schwartz
Founder of Schwartz, Conroy & Hack