In a decisive victory for policyholders, Judge Thomas Vena of the Essex County Superior Court in New Jersey ruled that significant damages incurred by Public Service Enterprise Group Inc. (“PSEG”) as a result of storm surge flooding caused by Superstorm Sandy were not subject to the relevant policies’ sublimit of $250M for losses caused by “flood.”
In this case, a storm surge caused by Superstorm Sandy lead to significant damage to PSEG’s property throughout the State of New Jersey. The relevant primary and excess policies provided up to $1 billion in damages, but the defendant insurers argued that PSEG’s claim was limited to $250M due to a sublimit in the policies for losses caused by “flood.” While the policies contained a flood sublimit, they did not have one for “named windstorms” (except for those causing damage in Florida). Thus, the question came down to whether a “storm surge” is included in the definition of “named windstorm,” or if it is more properly classified as a “flood.”
In ruling that PSEG’s loss was not subject to the flood sublimit, the court observed that there were no reported cases addressing whether, under New Jersey law, the term “flood” is defined to include “storm surge” in an insurance policy. As such, the court thoroughly assessed two rulings from other jurisdictions, SEACORE Holdings, Inc. v. Commonwealth Ins. Co., 635 F.3d 675 (5th Cir. 2011) and Pinnacle Entertainment, Inc. v. Allianz Global Risks U.S. Ins. Co., 2008 WL 6874270 (D. Nev. March 26, 2008), in reaching its decision. In both cases, the court held that losses caused by a storm surge were not subject to flood sublimits. Judge Vena found the reasoning employed by these courts to be sound and consistent with New Jersey’s rules of contract construction that “when two provisions dealing with the same subject matter are present, the more specific provision controls over the more general.”
The PSEG court also found that it could rely on New Jersey’s proximate cause doctrine to hold that the “named windstorm” portion of PSEG’s policy may apply where wind was the efficient proximate cause of all of the water-related damage. New Jersey’s efficient proximate cause doctrine, known as “Appleman’s Rule,” provides that in situations in which multiple events, one of which is covered, occur sequentially in a chain of causation to produce a loss, the loss is covered if a covered cause starts or ends the sequence of events leading to the loss. Based on Appleman’s Rule, the PSEG court found that the storm surge was part of the sequence of events leading to the loss and thus, was covered in full.
Finally, the court also relied on extrinsic evidence to conclude that the insurers knew that storm surge was not subject to the flood sublimits under the policies.
All in all, the court found three different avenues for PSEG to prevail. This case seems to follow the trend of case law finding that storm surges caused by named storms are not subject to flood sublimits.