The magistrate recommended that summary judgment be entered in favor of the insurer, thereby eliminating coverage for property damage incurred during Hurricane Sandy. Madelaine Chocolate Novelties, Inc. v. Great Northern Ins. Co., 2017 U.S. Dist. LEXIS 103015 (E.D. N.Y. June 30, 2017).
Madelaine Chocolate owned a facility three blocks form the Atlantic Ocean and one block from the Jamaica Bay section of Long Island Sound. Hurricane Sandy arrived October 29, 2012. Madeline Chocolate's facility sustained significant damage to its inventory, production machinery and premises, as storm surge from both bodies of water hit the property. Operations ceased during the 2012 holiday season and beyond, resulting in millions of dollars in lost income.
The property was covered by an all-risk policy issued by Great Northern. Madelaine Chocolate submitted a proof of loss that totaled more than $40 million, while its claim for business income loss amounted to $13.5 million. Great American ended up paying just under $4 million.
The policy had a flood exclusion providing, in part, "This insurance does not apply to loss or damage caused or resulting from waves, tidal water or tidal waves . . . " A windstorm endorsement increased the deductible for damage from a windstorm from $25,000 to $50,000. The policy defined windstorm as follows:
- wind-driven rain;
. . .
All other terms and conditions remain unchanged.
The court noted that, on the one hand, since wind is the primary motive force behind storm surge, attributing the damage to this phenomenon could render coverage more appropriate under the policy's wind coverage. On the other hand, damage caused by "storm tide" could arguably fall within the coverage of the policy's flood exclusion, which expressly excluded tidal waters.
In coverage cases surrounding Hurricane Katrina, the Fifth Circuit had repeatedly held that term "flood" included storm surges in the ordinary meaning of the words. Therefore, there was no doubt that the flood exclusion covered the damages at issue in this case.
The court then rejected Madelaine Chocolate's argument that the policy's wind endorsement provided a separate basis for coverage of the damage caused by the storm surge. There was nothing in the text of the endorsement that supported this notion. The plain meaning of the policy meant that the damage caused by storm surge was excluded by the policy's unambiguous flood exclusion. The windstorm endorsement did not resurrect coverage for the excluded period of flood, particularly where the endorsement explicitly provided that other provisions of the policy, such as the flood exclusion, were unaffected by the endorsement.