N.J. Trial Court Applies "Named Storm" Deductible in Superstorm Sandy Case

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N.J. TRIAL COURT APPLIES “NAMED STORM” DEDUCTIBLE IN SUPERSTORM SANDY CASE

Steven A. Meyerowitz, Esq., Director, FC&S Legal November 11, 2014

A New Jersey trial court has ruled that the “Named Storm” deductible applied to an insured’s claim in a Superstorm Sandy case.

The Case

Wakefern Food Corporation, a buying cooperative of owners/operators of Shoprite and PriceRite supermarkets that purchased commercial property insurance from Lexington Insurance Company, claimed over $50 million in losses from Superstorm Sandy. Lexington paid about $22 million, and Wakefern sued the insurer.

Wakefern asserted that Superstorm Sandy was not a “Named Storm” by definition when it hit New Jersey and its losses had occurred. It asserted that when the storm hit New Jersey at approximately 8:00 p.m. EDT on October 29, 2012, the storm was not declared by the National Weather Service to be a hurricane, typhoon, tropical cyclone, or tropical depression, as its policy defined Named Storm. Wakefern pointed out that as of 5:00 p.m. EDT on October 29, 2012, the storm already was “expected to transition into a frontal or wintertime low pressure system shortly.” Wakefern contended that by 7:00 p.m. EDT, the National Weather Service’s National Hurricane Center (“NHC”) had declared the storm a “Post-Tropical Cyclone.” Wakefern argued that a “Post-Tropical Cyclone” was defined in the glossary of NHC terms as its own weather event and that a Post-Tropical Cyclone was a “former tropical cyclone” not a “Hurricane, Typhoon, Tropical Cyclone, Tropical Storm or Tropical Depression.”

In support of its assertions, Wakefern referred to the fact that, after the storm, New Jersey Governor Chris Christie issued Executive Order No. 107, which precluded insurers from applying hurricane deductibles to claims. Wakefern contended that the governor’s order recognized that “the National Weather Service categorized Sandy as a post-tropical storm.”

Conversely, Lexington argued for the application of the “Named Storm” deductible, contending that it was undisputed that “Hurricane” Sandy was a Named Storm on October 29, 2012 prior to 7:00 p.m. and that the only question was whether each of Wakefern’s claimed locations was involved in loss or damage “arising out of” Hurricane Sandy.

Lexington asserted that summary judgment also was appropriate for locations that had sustained losses after 7:00 p.m., given the broad construction of the “arising out of” policy language. It argued that, in New Jersey, the phrase “arising out of” in an insurance policy was given an encompassing meaning: “the phrase arising out of has been defined broadly . . . to mean conduct ‘originating from,’ ‘growing out of,’ or having a ‘substantial nexus’ with the activity for which coverage is provided.”

Lexington disagreed with Wakefern’s assertion that Sandy was not a Named Storm “when it hit,” contending that Wakefern erroneously had referred to the center of the cyclone and that other portions of the cyclone had reached land hours earlier, while the storm was a hurricane.

Lexington asserted that a loss “arises out of” a Named Storm so long as the Named Storm had a “substantial nexus” to the loss, and that the losses Wakefern had incurred would not have occurred but for Hurricane Sandy.

Lexington asserted that Executive Order No. 107 applied solely to homeowners’ insurance claims in which statewide uniform policy language determined the applicability of a hurricane deductible. It asserted that, with respect to commercial insurance, there was “no uniform hurricane deductible language.”

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The Policy

The Lexington policy’s wind and hail coverage included a $250,000 per occurrence deductible except as contained in subsection (2) of the policy, which provided for a:

2% deductible of Total Insurable Values at the time of the loss at each location involved in the loss or damage arising out of a Named Storm . . . subject to a minimum deductible of $250,000 for any one Occurrence.

The policy defined a:

Named Storm

as:

a storm that has been declared by the National Weather Service to be a Hurricane, Typhoon, Topical Cyclone, Tropical Storm or Tropical Depression.

The policy further provided:

If two or more deductible amounts provided in this Policy apply to a single Occurrence, the total to be deducted shall not exceed the largest deductible applicable unless otherwise stated in this Policy.

Additionally:

When this Policy covers more than one Location, the deductible shall apply against the total loss or damage covered by this Policy in any one Occurrence, unless otherwise stated in Paragraph G.

The Court’s Decision

The court decided that application of the Named Storm deductible for damage caused by Sandy was “consistent with the clear and unambiguous language” of the policy.

In its decision, the court explained that the policy provided that the Named Storm deductible applied when a storm had been declared by the National Weather Service to be a “Hurricane, Tropical Cyclone, Tropical Storm, or Tropical Depression.” The court stated that it was “undisputed” that prior to 7:00 p.m. on October 29, 2012, “Sandy was a hurricane.” The court then observed that it also was “undisputed that damage at some Wakefern locations had occurred prior to 7:00 p.m.,” and it found that the pre-7:00 p.m. damage “while Sandy was still a hurricane created a substantial nexus between the storm and Wakefern’s total losses.” The court decided that the phrase “arising out of” was frequently used in insurance policies and “should be treated liberally.”

The court also found that Executive Order No. 107 was “inapplicable to the instant commercial matter.”

The court then held that the application of the Named Storm deductible was “consistent with the language of the policy” and it denied Wakefern’s motion for partial summary judgment on that issue.

By the same token, the court granted Lexington’s cross motion for partial summary judgment declaring that the Named Storm deductible applied to all of Wakefern’s locations.

The case is Wakefern Food Corp. v. Lexington Ins. Co., No. L-6483-13 (N.J. Superior Ct. Oct. 29, 2014). Attorneys involved include Sherilyn Pastor, Nicholas M. Insua, Cynthia M. Betz, McCarter & English, LLP; William D. Wilson, Wayne R. Glaubinger, Mound Cotton Wollan & Greengrass.

Update: On January 23, 2015, the court denied plaintiffs’ motion for reconsideration.



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About The Author

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc.

As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments.

A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.