Supreme Court of New Jersey Holds Policy Sublimit Offers No Additional Coverage to Insured for Superstorm Sandy

In a recent opinion, the Supreme Court of New Jersey reversed a prior opinion by the state’s appellate division and reinstated a partial grant of summary judgment to Travelers Excess and Surplus Lines Company (“Travelers”) over damages to an apartment complex as a result of Hurricane Sandy in October 2012.  The policy in question included a $1,000,000 limit for flood loss, as well as a $500,000 sublimit for debris removal.  The owners of the apartment complex submitted a claim for the full $1,000,000 limit for flood damages, as well as an additional $207,961.28 for debris removal.  Travelers refused to pay more than the $1,000,000 flood limit, asserting that the debris removal costs were the result of flooding and, therefore, the owners’ total recovery was limited to the $1,000,000 flood coverage limit, regardless of the sublimit for debris removal.  The trial court agreed and granted partial summary judgment in favor of Travelers, holding that the debris removal sublimit could not be read to increase the flood coverage limit.  A panel of the state’s appellate division reversed the trial court, holding that the policy provided up to an additional $500,000 in coverage for debris removal.

The New Jersey Supreme Court, in a 5-2 decision, reversed the Appellate Division’s decision.  The court held that “[t]he terms of the Policy unambiguously place a $1,000,000 total on recovery for all flood occurrence losses.”  In reaching its decision, the Supreme Court noted that the flood endorsement included language that “[t]he most [Travelers] will pay for the total of all loss or damage caused by Flood” was the $1,000,000 limit.  According to the court’s majority, this language constituted “a hard cap on the amount recoverable for flood damage” and “categorically denies any flood damage coverage in excess of $1,000,000.”  The court went on to hold that “the Flood Endorsement controls the extent of flood coverage and is not modified by the rest of the Policy’s terms,” and noted that other portions of the policy supported its interpretation.  Therefore, the court found it unambiguous that the debris removal sublimit did not increase coverage under the flood endorsement in the policy.

Parts of South Carolina have recently experienced similar damages from several named storms, including October 2017’s Hurricane Matthew, and we have already seen issues arise regarding the interplay between policy coverages and sublimits as a result of damages sustained from these storms.  It is worth noting that the appellate division’s opinion found that the policy unambiguously included additional coverage for debris removal, while the Supreme Court’s opinion found that the policy unambiguously excluded additional coverage for debris removal.  While the decision of the Supreme Court of New Jersey appears to be in line with a number of opinions in other jurisdictions regarding flood policy sublimits, the differing results reached by New Jersey’s appellate courts regarding this policy language demonstrates not only the importance of well-written policy provisions, but also the importance of properly analyzing and interpreting various interrelated policy provisions when making coverage decisions.

The case is Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Co. (077617), A-85-15 (N.J. 2017), in the Supreme Court of New Jersey.  Please contact us if you would like a copy of the opinion or would like to discuss the case further.

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