Surface Water Exclusions” in homeowners’ policy bars coverage for Sandy flood damage, N.J. appellate court says

The New Jersey Appellate Division has affirmed summary judgment for defendant-insurers Chubb
Insurance and its member company Federal Insurance, upholding the flood damage exclusion in the
policies of two plaintiff-insureds.

Doerfler v. Federal Insurance Company arose in the wake of Superstorm Sandy, which caused the
insureds’ Mantoloking, NJ homes to collapse in 2013. Both policies excluded coverage for flood damage
and contained a notification page delineating the “surface water exclusion.” The exclusion specifically
encompassed water damage “driven by wind.” The insureds procured additional flood insurance policies
from Fidelity National Indemnity Insurance Company.

Adjusters on behalf of Chubb and Federal Insurance determined that the structural damage that caused
both houses to collapse was triggered by a storm surge of floodwater, and that wind would not have
caused the collapses. Fidelity paid the insureds the maximum coverage available under their flood
insurance policies.

On summary judgment, the insureds first argued that they were entitled to coverage under their
homeowners’ policies because wind—not floodwater—was the destructive proximate cause of the
storm surge. A New Jersey Superior Court judge rejected this argument, finding that Appleman’s Rule
was inapplicable to this case. Appleman’s Rule, or the efficient proximate cause doctrine, requires
coverage for non-covered perils that are set in motion by a covered peril. Here, however, the wind and
floodwaters were not separate events, so there was no sequential causes of loss. Additionally, the
policies contained “anti-sequential language” that precludes coverage “when an excluded peril,
alongside a covered peril, either simultaneously or sequentially, causes damage to the insured.”

Second, the insureds argued that their losses were caused by a “storm surge,” which was not specifically
contained in the surface water exclusion. The court rejected this argument as well, finding that “the
exclusion was unambiguous, and defendants were not required to list every synonym that could be used
to describe a flood.”

Finally, the insureds unsuccessfully attempted to characterize their loss as “building collapse,” which
was not an excluded loss under their policies. As the trial court judge correctly identified, “the collapse
of the homes was the ‘form’ of the damages plaintiffs suffered, and not the ‘cause’ of these damages.”
Rather, water pressure created by floods caused the insureds damage, which was excluded from
coverage under the clear terms of the homeowners’ policies.

The Appellate Division affirmed summary judgment for both insurers, “substantially for the reasons
expressed by the judge” in the Superior Court.

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