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(Article from Insurance Law Alert, June 2017)

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The Supreme Court of New Jersey ruled that a policyholder’s coverage for flood and debris damage was limited to the $1 million cap set forth in the flood endorsement, even though a debris removal clause contained a separate sublimit.  Oxford Realty Grp. Cedar v. Travelers Excess and Surplus Lines Co., 2017 WL 2290135 (N.J. May 25, 2017).

After Superstorm Sandy, Oxford submitted a claim to Travelers under its surplus lines policy claiming flood damage in excess of $1 million and debris removal in excess of $200,000.  Travelers asserted that all damage caused by the flood was subject to the $1 million limitation for a flood occurrence.  In ensuing litigation, a New Jersey trial court granted Travelers’ summary judgment motion, finding that the policy unambiguously limited all flood damage to $1 million.  An appellate court reversed and remanded for entry of judgment in Oxford’s favor.  The appellate court held that the policy provided $500,000 of coverage for debris removal in addition to the flood limit.  The New Jersey Supreme Court reversed and reinstated the trial court’s grant of summary judgment in Travelers’ favor.

The flood endorsement provides that “[t]he most [Travelers] will pay for the total of all loss or damage caused by Flood in any one policy year is the single highest Annual Aggregate Limit of Insurance specified for Flood shown in the Supplemental Coverage Declarations.”  The New Jersey Supreme Court concluded that this language unambiguously limits total recovery for all flood occurrence losses to $1 million.  The court further explained that a separate clause “fortifies this hard cap by explaining that, even if multiple Annual Aggregate Limits of Insurance apply to flood damage, the Limit of Insurance specified in . . . the Supplemental Coverage Declarations is the most Travelers will pay.”  Thus, the court concluded that even though the policy assigns a separate debris removal sublimit of $500,000, it does not constitute a self-contained policy provision outside the application of the $1 million flood limit.  Finally, the court declined to address Oxford’s contentions as to the doctrines of reasonable expectations or contra proferentem in light of its ruling that the policy is unambiguous.