Recently, a New Jersey Magistrate ruled that an insurer did not have to provide coverage for a chocolatier’s property damage and business interruption losses due to Hurricane Sandy.
Madeline Chocolate Novelties Inc. (Madeline), a family-owned chocolatier in Queens Rockaway Beach, held a one-year all-risk policy with Great Northern Insurance (Great Northern). The policy contained a flood exclusion and a windstorm endorsement. When Hurricane Sandy hit in October 2012, Madeline suffered extensive damage and ceased operations during the ensuing holiday season. The chocolatier claimed $40 million in property damage and $13.5 million in business interruption losses and sought coverage under its policy. Great Northern paid just under $4 million and denied the remainder of the claim, citing the policy’s flood exclusion.
Madeline then filed a breach of contract suit against Great Northern and argued that the policy’s windstorm endorsement provided a separate basis for the loss and superseded the flood exclusion because the two were in conflict. The court argued that Madeline’s position was faulty because it was clear that the policy provides coverage from wind damage, but flood damages are excluded. Essentially, there was nothing to indicate that the wind endorsement incorporated the flood exclusion or that the endorsement was subject to the exclusion in any way.
The court looked to the plain meaning of the policy, the endorsement, and the exclusion and concluded that there was no coverage for the damages caused by Sandy’s storm surge, and that where a policy explicitly excluded coverage for a flood peril, a wind endorsement could not bring back coverage.
In the aftermath of Hurricanes Harvey and Irma, it is more than likely that insurers will look to flood exclusions within policies to deny coverage. Policyholders must do their due diligence to determine their actual causes of loss and damage (whether by flood, wind or otherwise) to ensure an appropriate coverage determination. Sometimes where a covered peril sets in motion an uncovered peril that results in damages, policyholders may still find recovery under their policy.