The Superior Court, Law Division, of Essex County, New Jersey has held that a flood coverage sublimit does not apply to damage arising from Superstorm Sandy. In Public Service Enterprise Group v. Ace Insurance, the utility Public Service Enterprise Group (“PSEG”) was insured under policies with total coverage limits of $1 billion. The policies did not contain a sublimit for named windstorms, but did have a $250 million sublimit for flood damage, as well as a $50 million sublimit for damage within two designated flood zones. In its motion for summary judgment, PSEG contended that the flood sublimits should not apply, because the storm surge caused by Sandy is properly classified as a windstorm, rather than a flood. The defendant insurers contended that the storm surge constituted a flood, thereby making the flood sublimits applicable.

​In analyzing the matter, the Court focused upon the fact that the subject policies’ definition of “named windstorm” included “storm surges,” but “storm surges” were not included in the policies’ definition of “flood.” The Court noted that at least two out-of-state courts interpreted similar language to hold that “storm surges” were not governed by flood sublimits. The Court indicated that such a result was consistent with the well-recognized principle of New Jersey contract interpretation that when two contractual provisions conflict, the more specific provision controls over the more general provision. The Court also found that evidence regarding underwriting practices reflected the insurers’ recognition that the flood sublimits did not apply to storm surge claims. Finally, the Court concurred with PSEG’s argument that under the efficient proximate cause doctrine, the loss was caused by wind rather than water. The Court therefore granted PSEG’s motion for summary judgment, while denying a motion for summary judgment filed by the defendant insurers.

​The Court’s decision reflects the importance of clear and precise policy language. If “flood” had been defined in the policies to include storm surges, the Court may have determined that the flood sublimits applied. Instead, the fact that only named windstorms were defined to include storm surges led to dramatically increased coverage limits.