A New Jersey trial court has declined to reconsider its previous determination that a $22 million “named-storm” deductible applied to a $54 million property insurance claim for damage arising from Superstorm Sandy. The claim and subsequent lawsuit was brought by insured supermarkets seeking compensation for spoiled food, property damage, business interruption, and other losses following Sandy. The policy defined a “named storm” as a storm declared by the National Weather Service to be a hurricane, tropical cyclone, tropical storm, or tropical depression. The policyholders contended that the deductible did not apply because Sandy was classified as a post-tropical cyclone at the time of landfall. In granting partial summary judgment in the defendant insurer’s favor, the Court noted that many of the losses had occurred before landfall, when Sandy was still classified as a hurricane.
In declining to reconsider its previous decision granting partial summary judgment in the defendant insurer’s favor, the Court explained that its decision was based upon policy language stating that the deductible applied if the damage “arose out of” a “named storm.” The Court found that under such language, the deductible would apply so long as a named storm had a “substantial nexus” with the damage, regardless of whether the damage was actually caused by the named storm. As many of the losses had occurred when Sandy was a hurricane, the Court found a “substantial nexus” between the hurricane and the total losses, thereby justifying the application of the deductible. The Court disagreed with the policyholder’s contention that it had incorrectly found that “Appleman’s Rule” (which allows for recovery of losses partially caused by uninsured perils so long as the first or last peril in the chain of causation was covered) applied only to exclusions rather than the deductible at issue. The Court observed that the parties had agreed that the named-storm deductible would apply regardless of causation or the number of coverages, locations, or perils allowed.
The Court also rejected the policyholder’s argument that the deductible, as described in the policy as 2% of “total insurance values,” should be interpreted as 2% of the policy’s wind and hail limit of $150 million, rather than 2% of the total value of the insured property. The Court noted that such an interpretation would set the deductible for all named storms at $3 million, conflicting with language elsewhere in the policy establishing the minimum deductible for each occurrence at $250,000.00.
The Court’s decision suggests that a named-storm deductible may be a useful tool to limit liability for hurricanes or other tropical events. It also reflects that New Jersey courts may apply a broader interpretation to policy deductibles than policy exclusions.
