September 5, 2017– A New Jersey judge has ruled that a $100 million sublimit for flood losses does not apply to New Jersey Transit Corp.’s claim for coverage of Superstorm Sandy damage, granting the transportation system a major win in its $400 million dispute with a group of excess insurance carriers.
Ruling from the bench on Aug. 24, Essex County Superior Court Judge Dennis F. Carey III granted NJ Transit‘s motion for a summary judgment holding that its coverage for water damage attributed to Sandy is not subject to a flood sublimit in its policies with Certain Underwriters at Lloyd’s of London, Ironshore Specialty Insurance Co., Torus Specialty Insurance Co. and others.
The judge determined that NJ Transit can seek coverage in excess of the $100 million flood cap because the policies’ “named windstorm” definitions include storm surge and wind-driven water.
“Here there is no real dispute that New Jersey Transit’s water damages were caused by Superstorm Sandy, which obviously qualifies as a named windstorm under the definitions of that peril in the policies,” Judge Carey said, according to a transcript of the hearing. “Thus, this court finds that the flood sublimits in New Jersey Transit’s policies do not apply to these damages.”
NJ Transit has said it suffered extensive damage to tracks, bridges, tunnels and power stations during the October 2012 storm. According to its October 2014 complaint, NJ Transit promptly notified its insurance carrier, Marsh & McLennan Co., and Marsh notified loss adjustor York Risk Service Group Inc. that it disagreed with the excess insurers that there was a deductible or sublimit associated with the damage caused by a named windstorm.
Prior to last month’s hearing, NJ Transit had received about $114 million in insurance payments from other carriers, out of more than $400 million in claimed losses, according to the transcript.
In opposing NJ Transit’s interpretation of the scope of the policies’ “named windstorm” coverage, the excess carrier defendants argued that “storm surge” is the same thing as a “surge of surface water,” which is encompassed by the policies’ definition of flood.
Judge Carey was unconvinced, noting the principle that, when two policy provisions address the same subject, the more specific provision is controlling. While the policies define flood as including a surface water surge, their definitions of a named windstorm both specifically reference storm surge, he said.
“A surge of surface water is flood, but where that surge is caused by another independent peril, such as a named windstorm, then the flood sublimit will not apply,” Judge Carey said.
The judge also denied the insurers’ bid to reform NJ Transit’s policies, rejecting the notion that the transit system took measures to sneak an expansive definition of a named windstorm into the policies. He also refused to hold that the insurers’ exclusions for claims related to asbestos or NJ Transit’s underground lines apply, saying too many factual issues regarding the potential applicability of those exclusions still exist.
An attorney for NJ Transit declined to comment, while counsel for the insurer defendants did not immediately respond to requests for comment.
NJ Transit is represented by Robin Cohen, Kenneth H. Frenchman and Alexander M. Sugzda of McKool Smith PC.
Torus is represented by Shawn L. Kelly and Jonathan D. Henry of Dentons and Michael J. Smith and Bryan W. Petrilla of Stewart Bernstiel Rebar & Smith. The other defendant insurers are represented by Robert W. Fisher, James Bauer, Taylor L. Davis and Anthony Tessitore of Clyde & Co.
The case is New Jersey Transit Corp. v. Certain Underwriters at Lloyd’s London et al., case number ESX-L-006977-14, in the Superior Court of New Jersey, Law Division, Civil Part, Essex County.