The New Jersey Superior Court considered whether recovery for storm surge was limited by the policy's sublimit for loss caused by flood. Public Serv. Enter. Group, Inc. v. Ace Am. Ins. Co., 2015 N. J. Super. Unpub. LEXIS 620 (N.J. Super. Ct. Law Div. March 23, 2015).
Storm surge from Superstorm Sandy inundated and damaged Public Service Enterprise Group, Inc.'s (PSEG) property, including eight large generating stations. PSEG had coverage of $1 billion under policies with defendant carriers. There was no sublimit in the policies for "named windstorms," other than named windstorms in Florida. A $250 million sublimit appeared in the policies for losses caused by "flood."
The carriers paid only a portion of PSEG's claim. The total damages exceeded $500 million.
In the coverage suit, the parties agreed that there was a storm surge. The parties disagreed on whether this constituted a "flood" under the policies and whether the aggregate "per occurrence" flood limits applied. While there was no applicable New Jersey law, two cases from other jurisdictions held that losses caused by a storm surge were not subject to flood sublimits. SEACOR Holdings, Inc. v. Commonwealth Ins. Co., 635 F.3d 675, 683 (5th Cir. 2011); Pinnacle Entertainment, Inc. v. Allianz Global Risks U.S. Ins. Co., 2008 U.S. Dist. LEXIS 108583 (D. Nev. March 26, 2008). The New Jersey court found that the reasoning in these two cases was sound and consistent with New Jersey law that when two provisions dealing with the same subject matter are present, the more specific provisions controls over the more general.
Here, the specific term "storm surge" was included in the definition of "named windstorm" but not in the definition of "flood." Therefore, storm surge losses were not subject to the flood sublimits.
Further, New Jersey's efficient proximate cause doctrine supported this conclusion. Where multiple events, one of which was covered, occurred sequentially in a chain of causation to produce a loss, the loss was covered if a covered cause started or ended the sequence of events leading to the loss. Here, wind caused the storm surge and wind was a covered peril. Therefore, storm surge was not subject to the flood sublimits under the last sentence of the flood definition.
