N.J. Supreme Ct. Affirms That Insurers Liable for $300M in Superstorm Sandy Damages

The New Jersey Supreme Court on Wednesday ended an effort by Lloyd’s of London syndicates and other insurers to escape coverage for an additional $300 million in Superstorm Sandy damages suffered by the New Jersey Transit District.

The high court affirmed the state Appellate Division and the trial court’s order granting summary judgment in favor of NJ Transit, finding that a $100 million flood sublimit in the district’s 11 insurance policies did not bar coverage for damages caused by a named storm — a peril that was listed separately.

“The decision is a big win for the beleaguered transit agency, and for insurance professionals working with complex insurance towers,” the Traub Lieberman law firm said in an analysis posted on its website. “The decision highlights critical underwriting issues that can dramatically affect the amount of risk transferred by the policyholder or assumed by the insurer.”

Although the Supreme Court did not publish its decision until Wednesday, the thrust of the ruling was made public earlier this month after a legal news service obtained a draft.

Superstorm Sandy caused an estimated $625 million in damages to NJ Transit’s tracks, stations, busses and trains when it came ashore on Oct. 29, 2012, according to a report by Metropolitan Consulting Engineering & Forensics. More than 300 railcars were flooded after they were moved to a railyard that lay between the Hackensack and Passaic Rivers, which the district said had never flooded before, local press reported.

The district sought coverage for the full $400 million limit in the 11 policies that made up its insurance tower, which it had purchased through Marsh & McLennan. The carriers denied the claim, arguing that a flood sublimit allowed coverage for only $100 million in damages.

NJ Transit filed suit in October 2014. The district insisted that it has purchased separate coverage for damaged caused by named storms. It argued in its civil complaint that the flood sublimit does not apply to all water damage because the term is narrowly defined and does not include “storm surge” or wind driven water.”

A trial court judge and the Appellate Division agreed. Appellate Division Presiding Judge Joseph L. Yannotti explained in the court’s decision that the policies do not define “flood” to include “storm surge” and “wind driven water” associated with a named windstorm. The definition of flood does include “surge,” but the court said if two provisions of a policy address the same subject, the more specific provision controls.

“Furthermore, if the parties had intended that damage from a ‘storm surge’ would be subject to the flood sublimit, the policies would have stated so in plain language,” Yannotti wrote.

Attorney Evan S. Schwartz, founder of Schwartz, Conroy & Hack, blogged about the case after the trial court ruled. He said the decision was probably influenced by the decimation that Superstorm Sandy had caused in New Jersey.

“Nonetheless, insurance companies ordinarily don’t escape coverage when it’s given in one part of the policy and taken away in another,” Schwartz wrote.

About the photo: In this Oct. 31, 2012 file photo, workers try to clear boats and debris from the New Jersey Transit’s Morgan draw bridge after surge from Sandy pushed boats and cargo containers onto the train tracks. NJ Transit is replacing two electrical power substations near the ocean that were damaged by Superstorm Sandy. The transit agency approved contracts Wednesday, May 8, 2019 totaling $23.7 million to build a new storm-resistant electrical substation at the Bay Head rail yard, part of the North Jersey Coast Line rail service. (AP Photo/Mel Evans, File)