243 A.3d 1248
N.J.2021Background:
- In October 2012 Superstorm Sandy caused water damage to properties owned by New Jersey Transit (NJ Transit).
- NJ Transit had a $400 million, multi-layered property insurance program issued by multiple insurers, with a $100 million flood sublimit in the policies.
- Certain insurers invoked the $100 million flood sublimit and refused to pay beyond that limit for Sandy-related water damage.
- NJ Transit sued for a declaratory judgment; the trial court held the flood sublimit did not apply and denied insurers’ summary judgment and reformation claims.
- The Appellate Division affirmed, holding water damage from Sandy was not subject to the flood sublimit because policy language treated storm surge/wind-driven water as part of a separate “named windstorm” definition.
- The New Jersey Supreme Court affirmed the Appellate Division substantially for the reasons in the Appellate Division opinion, relying on the policies’ plain language and not on Appleman’s Rule or contra proferentem.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the $100M flood sublimit apply to Sandy-related water damage? | Sandy water damage is not “flood” subject to the sublimit because storm surge/wind-driven water fall under the separate "named windstorm" definition. | The policy’s definition of “flood” (including “surge” or "unusual or rapid accumulation") covers the Sandy damage, so the sublimit applies. | Court affirmed: the “named windstorm” provision is the more specific definition; storm surge/wind-driven water are treated as windstorm-related, not flood, so the sublimit does not apply. |
| Does the Occurrence Limit of Liability Endorsement (OLLE) aggregate perils so the flood sublimit applies? | OLLE does not decide whether damage was caused by a “flood” vs a “named windstorm.” | OLLE combines windstorm, flood, and other perils into one occurrence for sublimit application. | Rejected: OLLE does not expressly treat flood and named windstorm as a single event for applying the flood sublimit. |
| Is the policy ambiguous (requiring contra proferentem or extrinsic evidence)? | The policy language is clear; no extrinsic evidence needed. | Ambiguity exists, so contra proferentem or extrinsic evidence should control. | Court relied on plain language, rejected extrinsic evidence and did not rely on contra proferentem. |
| Can insurers reform the policies to make the flood sublimit apply? | NJ Transit: reformation unsupported—insurers lack sufficient evidence of mutual mistake. | Insurers: policies should be reformed to reflect parties’ intent (so flood sublimit would capture storm surge). | Reformation claim failed: insurers did not present sufficient evidence to reform the policies. |
Key Cases Cited
- N.J. Transit Corp. v. Certain Underwriters at Lloyd’s London, 461 N.J. Super. 440 (App. Div. 2019) (appellate division’s detailed interpretation of the policy language holding flood sublimit inapplicable).
- In re Certification, 242 N.J. 497 (2020) (granting petition for certification).
- In re Certification, 242 N.J. 504 (2020) (granting petition for certification).