Nearly five years after Superstorm Sandy, some consistent themes are beginning to emerge from the increasingly robust body of property coverage case law related to the storm. A recent decision from the Eastern District of New York addresses a topic that this Blog has covered before – the application of flood exclusions in traditional open peril policies.
The Madelaine Chocolate Company was a manufacturer of seasonal foil-wrapped chocolates insured under an “open peril” business policy issued by Great Northern Insurance Company. Purported to be one of the largest private employers in Queens, New York, Madelaine Chocolate conducted its business in three buildings located in Rockaway Beach. During Superstorm Sandy, the facility was inundated with four feet of water from both Long Island Sound to the north and the Atlantic Ocean to the south. After the storm, Madelaine Chocolate made a $40 million property damage claim and a $13.5 million business income/extra expense claim. Great Northern paid Madelaine Chocolate $4 million and denied the remainder of the claim based on the policy’s flood exclusion.
Madelaine Chocolate brought suit against Great Northern in a case that was removed to the Eastern District of New York. Madelaine Chocolate argued that, although the policy contained a flood exclusion, a separate windstorm endorsement reinstated coverage for wind-caused flood or created an ambiguity with the flood exclusion. On cross motions for summary judgment, Magistrate Judge Brown (a member of the Eastern District’s Committee of Magistrate Judges appointed to administratively handle the huge number of cases related to Superstorm Sandy) found that the policy did not provide coverage for Madelaine Chocolate’s water-related damages.
In his June 30, 2017 Report and Recommendation, Magistrate Judge Brown first concluded that the flood exclusion unambiguously excluded damage caused by storm surge. Recognizing that he was not “writing upon a blank slate,” the Court cited prior Second Circuit precedent (discussed on this Blog) arising from Sandy to hold that, even though the phrase “storm surge” was not specifically listed as part of the policy’s flood definition, it still fell squarely within the terms of the flood exclusion. The Court then rejected Madelaine Chocolate’s argument that the windstorm endorsement, which increased the policy’s deductible and waiting period from business income losses, and modified the definition of “windstorm,” somehow superseded or conflicted with the flood endorsement. Noting that the windstorm endorsement specifically provided that “[a]ll other terms and conditions remain unchanged,” the Court cited Hurricane Katrina case law from the Fifth Circuit finding that a deductible-altering endorsement does not provide coverage for an otherwise excluded risk.
Madelaine Chocolate objected to Magistrate Judge Brown’s Report and Recommendation. On September 28, 2017, Judge Dearie adopted Judge Brown’s opinion, confirming that the policy unambiguously excluded damage from flooding, and that the wind endorsement did not alter the flood exclusion or create ambiguity.