Following Superstorm Sandy, many state insurance departments along the East Coast issued bulletins indicating that insurance companies should not impose hurricane deductibles on homeowners, mainly because the classification of Sandy shifted from a hurricane to a post-tropical storm as it traveled the East Coast. The bulletins expressly refer to homeowners policies and do not reference commercial lines. Many insurance policies, however, contain “named storm” deductibles rather than hurricane deductibles, which apply when damage is caused by a tropical storm or hurricane that is named by the U.S. National Weather Service or other government authority. It remains unclear how courts are going to apply “named storm” deductibles to Sandy claims.
In AFP 104 Corp. v. Columbia Cas. Co., 2014 U.S. Dist. LEXIS 24215 (D.N.J. Feb. 26, 2014), the United States District Court for the District of New Jersey denied an insurer’s motion to dismiss a claim seeking coverage for damage caused by Sandy, holding that the insured offered evidence that could potentially establish that the insurer improperly applied the policy’s Named Storm deductible.
The insured claimed that Columbia Casualty Company (“Columbia”) wrongfully refused to pay for losses sustained to property known as Ocean Place Resort and Spa during Sandy. The insured claimed that the Resort sustained $106,917.16 in direct property damage and $667,645.16 in Time Element losses following the storm. Columbia denied coverage on the grounds that the total loss did not exceed the policy’s Named Storm deductible of $1 million per occurrence. The policy defined a “Named Storm” as follows:
A storm that has been declared to be a named tropical storm or hurricane by the U.S. National Weather Service or other government authority including hurricane or tropical storm spawned tornado(s) or microburst(s). The named tropical storm or hurricane . . . ends when the National Weather Service officially declares the named tropical storm or hurricane permanently downgraded to a tropical depression.
The insured thereafter brought a declaratory judgment and breach of contract lawsuit. Columbia moved to dismiss on the grounds that pursuant to the plain language of the policy, the insured’s losses did not exceed the Named Storm deductible. Specifically, Columbia argued that “Sandy became a Named Storm when it was declared a tropical storm, and it never ceased to be a Named Storm because . . . a downgrade to a tropical depression never occurred.” The insured, however, argued that the deductible was not triggered and did not apply to its claim because Sandy was characterized as a “post-tropical storm” upon landfall in New Jersey. The Court concluded that the insured’s pleadings were sufficient for it “to draw the reasonable inference” that the Named Storm deductible should not apply to bar recovery of the insured’s claim.
It will be interesting to see if hurricane and “named storm” deductible issues crop up in other Sandy cases.