Hurricane Sandy Aftermath

Superstorm Sandy, and its unprecedented storm surge, caused extensive property damage and ravaged the lives of countless homeowners and business owners along the East Coast. As those affected still try to pick up the pieces, many are looking to their property insurers, only to be turned away and told that their loss is not covered because “flood” is an excluded peril. Although policyholders may feel hopeless, there are three distinct yet related positions that policyholders may be able to pursue in order to obtain coverage for the extensive damage that their properties endured.

1. Flood Exclusion Is Inapplicable

First, when the damage to the policyholder's property occurred as a result of the inundation of the property by storm surge, the policyholder can argue that the flood exclusion is inapplicable. The policyholder should argue, instead, that such damage is covered because wind was the actual cause of inundation of water and the actual cause of the loss, and therefore a storm surge is not an excluded peril under the policy. This factual argument is strongly supported by meteorological science. According to the National Hurricane Center, a “[s]torm surge is produced by water being pushed toward the shore by the force of winds moving cyclonically around the storm.”' This definition illustrates that a storm surge is a weather-related phenomenon that cannot occur absent a hurricane or other cyclonic wind storm.

Although this argument did not fare well when raised in coverage disputes following Hurricane Katrina, the courts that addressed it failed to set forth factual support when concluding that a storm surge is a flood within the definition of the applicable policies' flood exclusions. Therefore, if a policyholder can set forth the necessary meteorological evidence to support the assertion and a court considers the facts presented, a policyholder stands a chance at qualifying damage caused by storm surge as damage caused by wind.

2. Ambiguity

Second, policyholders may argue that failing to explicitly include storm surge in the definition of flood renders the exclusion ambiguous, thus requiring a court to interpret the exclusion in favor of the policyholder and in favor of coverage. After recent devastating hurricanes and the attempt at arguments similar to the one above, many insurers changed the language of flood exclusions to specifically include the phrase “storm surge” in the definition of “flood.” If a policy does not contain such an express reference to “storm surge,” the policyholder may argue that failure to explicitly exempt loss caused by storm surge renders the flood exclusion ambiguous. When there is an ambiguity, the exclusion should be read in favor of the policyholder, and therefore, in favor of coverage.

Although post-Katrina coverage cases, again, did not generally entertain these arguments, post-Sandy litigants can bolster the argument of ambiguity by pointing to policy exclusions that do explicitly exempt “storm surge” damage and can now argue that if their insurance company wanted to exclude storm surge damage, they knew how to do so unambiguously and chose not to. Based on the ambiguity, policyholders can argue that flood exclusion that does not include “storm surge” within the definition, when construed in favor of the policyholder, would not exclude loss caused by storm surge.

3. The Causation Doctrine

Third, policyholders can argue that if some damage was caused by wind, and some damage was caused by water, all damage should be covered pursuant to the principles of the relevant jurisdiction's applicable causation doctrine. The strength of such arguments will depend on which causation doctrine ' concurrent causation or efficient proximate causation ' the court applies and whether the policy contains anti-concurrent causation language. Because New Jersey courts have adopted the efficient proximate causation analysis, for post-Sandy insurance disputes governed by New Jersey law, policyholders must argue that wind is the predominant cause of the loss.

Because New York law is unclear on which doctrine applies, for post-Sandy insurance disputes governed by that state's law, policyholders should first argue that the court should apply concurrent causation so that the policyholder need only show that a covered peril ' wind ' meaningfully contributed to the loss and any damage, whether caused by wind, rain, or storm surge, will be covered by the policy. If the court instead employs the efficient proximate causation analysis, the policyholder must argue that wind is the predominant cause of loss.

It is, however, important to note that many insurers have added language to circumvent the concurrent causation and efficient proximate cause doctrines in the form of so-called “anti-concurrent causation” provisions. Such language could be a difficult barrier to overcome by a policyholder arguing for coverage under the above causation principles.

Conclusion

The arguments discussed above have support in both the facts and the law and may serve as useful aids in helping policyholders pick up the pieces left behind by Sandy. Therefore, policyholders affected by Superstorm Sandy and denied coverage by their insurers should investigate whether any of these arguments may help in obtaining coverage for all or part of their loss.

John N. Ellison and Lauren A. Angelucci are attorneys in Reed Smith LLP's Insurance Coverage Practice Group. Their practices focus exclusively on the representation of policyholders, including counseling on insurance-related issues and litigating coverage disputes under all types insurance products. The authors are representing numerous policyholders seeking coverage for Sandy-related losses.

Superstorm Sandy, and its unprecedented storm surge, caused extensive property damage and ravaged the lives of countless homeowners and business owners along the East Coast. As those affected still try to pick up the pieces, many are looking to their property insurers, only to be turned away and told that their loss is not covered because “flood” is an excluded peril. Although policyholders may feel hopeless, there are three distinct yet related positions that policyholders may be able to pursue in order to obtain coverage for the extensive damage that their properties endured.

1. Flood Exclusion Is Inapplicable

First, when the damage to the policyholder's property occurred as a result of the inundation of the property by storm surge, the policyholder can argue that the flood exclusion is inapplicable. The policyholder should argue, instead, that such damage is covered because wind was the actual cause of inundation of water and the actual cause of the loss, and therefore a storm surge is not an excluded peril under the policy. This factual argument is strongly supported by meteorological science. According to the National Hurricane Center, a “[s]torm surge is produced by water being pushed toward the shore by the force of winds moving cyclonically around the storm.”' This definition illustrates that a storm surge is a weather-related phenomenon that cannot occur absent a hurricane or other cyclonic wind storm.

Although this argument did not fare well when raised in coverage disputes following Hurricane Katrina, the courts that addressed it failed to set forth factual support when concluding that a storm surge is a flood within the definition of the applicable policies' flood exclusions. Therefore, if a policyholder can set forth the necessary meteorological evidence to support the assertion and a court considers the facts presented, a policyholder stands a chance at qualifying damage caused by storm surge as damage caused by wind.

2. Ambiguity

Second, policyholders may argue that failing to explicitly include storm surge in the definition of flood renders the exclusion ambiguous, thus requiring a court to interpret the exclusion in favor of the policyholder and in favor of coverage. After recent devastating hurricanes and the attempt at arguments similar to the one above, many insurers changed the language of flood exclusions to specifically include the phrase “storm surge” in the definition of “flood.” If a policy does not contain such an express reference to “storm surge,” the policyholder may argue that failure to explicitly exempt loss caused by storm surge renders the flood exclusion ambiguous. When there is an ambiguity, the exclusion should be read in favor of the policyholder, and therefore, in favor of coverage.

Although post-Katrina coverage cases, again, did not generally entertain these arguments, post-Sandy litigants can bolster the argument of ambiguity by pointing to policy exclusions that do explicitly exempt “storm surge” damage and can now argue that if their insurance company wanted to exclude storm surge damage, they knew how to do so unambiguously and chose not to. Based on the ambiguity, policyholders can argue that flood exclusion that does not include “storm surge” within the definition, when construed in favor of the policyholder, would not exclude loss caused by storm surge.

3. The Causation Doctrine

Third, policyholders can argue that if some damage was caused by wind, and some damage was caused by water, all damage should be covered pursuant to the principles of the relevant jurisdiction's applicable causation doctrine. The strength of such arguments will depend on which causation doctrine ' concurrent causation or efficient proximate causation ' the court applies and whether the policy contains anti-concurrent causation language. Because New Jersey courts have adopted the efficient proximate causation analysis, for post-Sandy insurance disputes governed by New Jersey law, policyholders must argue that wind is the predominant cause of the loss.

Because New York law is unclear on which doctrine applies, for post-Sandy insurance disputes governed by that state's law, policyholders should first argue that the court should apply concurrent causation so that the policyholder need only show that a covered peril ' wind ' meaningfully contributed to the loss and any damage, whether caused by wind, rain, or storm surge, will be covered by the policy. If the court instead employs the efficient proximate causation analysis, the policyholder must argue that wind is the predominant cause of loss.

It is, however, important to note that many insurers have added language to circumvent the concurrent causation and efficient proximate cause doctrines in the form of so-called “anti-concurrent causation” provisions. Such language could be a difficult barrier to overcome by a policyholder arguing for coverage under the above causation principles.

Conclusion

The arguments discussed above have support in both the facts and the law and may serve as useful aids in helping policyholders pick up the pieces left behind by Sandy. Therefore, policyholders affected by Superstorm Sandy and denied coverage by their insurers should investigate whether any of these arguments may help in obtaining coverage for all or part of their loss.

John N. Ellison and Lauren A. Angelucci are attorneys in Reed Smith LLP's Insurance Coverage Practice Group. Their practices focus exclusively on the representation of policyholders, including counseling on insurance-related issues and litigating coverage disputes under all types insurance products. The authors are representing numerous policyholders seeking coverage for Sandy-related losses.