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(Article from Insurance Law Alert, November 2018)

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The Second Circuit ruled that a New York federal district court erred in granting summary judgment to an insurer in a coverage dispute arising out of property damage caused by storm surges during Hurricane Sandy.  Madelaine Chocolate Novelties, Inc. v. Great Northern Ins. Co., 2018 WL 5276274 (2d Cir. Oct. 23, 2018).

Madelaine Chocolate suffered property damage caused by storm surges—a phenomenon produced when water is pushed towards the shore by the force of winds.  The company sought approximately $40 million for property damage and $13.5 million for lost income and extra expenses under an all risk policy issued by Great Northern.  The insurer refused to pay most of the claimed amount on the basis that storm surges were excluded from coverage.  A New York district court granted Great Northern’s summary judgment motion, finding that coverage was unambiguously excluded under a flood exclusion. 

Vacating the decision, the Second Circuit held that the trial court erred in relying on cases that involved different policy language.  In particular, the Second Circuit emphasized that the policy here contained a Windstorm Endorsement, which operated to provide coverage for windstorm-related losses.  The Windstorm Endorsement included an anti-concurrent causation clause which stated that windstorm means wind “regardless of any other cause or event that directly or indirectly: contributes concurrently to; or contributed in any sequence to, the loss of damage . . . .”  The Second Circuit remanded the matter, instructing the district court to assess whether the anti-concurrent causation clause conflicts with or creates an ambiguity with respect to the flood exclusion.