The New Jersey Supreme Court will soon decide whether insurers can deny coverage on the grounds of late notice without showing prejudice, while courts statewide grapple with sublimits and deductibles in Superstorm Sandy suits. Here, Law360 explores four issues that insurance lawyers are tracking in the Garden State.
Superstorm Sandy Coverage Disputes
New Jersey courts are continuing to address numerous issues pertaining to claims for coverage of damages from Hurricane Sandy, including the application of sublimits and deductibles and questions of causation.
In March, a New Jersey state judge held in the case of Public Service Enterprise Group Inc. v. Ace American Insurance Co. that some $500 million in damages that PSEG had suffered from the storm wasn’t subject to flood-related limits in its insurance policies. The flood sublimits capped coverage for losses from storm surge flooding at $250 million per occurrence and limited payouts in particular flood zones to $50 million.
PSEG prevailed on its argument that, in all but one instance, its flood losses were inseparable from provisions covering damage from named storms, which don’t have a sublimit. The case settled in April.
The ruling was also notable for the judge’s interpretation of New Jersey’s efficient proximate cause doctrine, which is also known as Appleman’s Rule, attorneys say.
The rule applies when a loss results from multiple covered and uncovered events that occur sequentially in a chain of causation. Pursuant to the rule, “the loss is covered if a covered cause starts or ends the sequence of events leading to the loss,” according to court documents.
PSEG asserted that wind was the “efficient proximate cause” of the storm surge damages and that the flood sublimits don’t come into play, while the insurers argued that the rule doesn’t apply outside of disputes essentially involving coverage versus no coverage. The judge disagreed, saying the rule has been applied in other contexts.
“The PSEG decision is important to those litigating Sandy cases — not just on the storm surge issue but on Appleman’s Rule,” Sherilyn Pastor, practice group leader for McCarter & English LLP’s insurance coverage group, said. “The court rejected insurers’ arguments trying to limit Appleman’s Rule relating to causation. The court also reiterated the rule of contract interpretation which mandates that more specific insurance provisions govern over more general provisions of a contract.”
The New Jersey high court recently refused to create a new judicial standard around bad faith claims in the case of Badiali v. New Jersey Manufacturers Insurance Group, but policyholders may have other avenues to pursue extracontractual damages over insurers’ alleged misconduct, according to attorneys.
In March, a New Jersey federal judge held in the case of Bannon v. Allstate Insurance Co. that a homeowner could assert a claim under the state Consumer Fraud Act against Allstate in a dispute over coverage for damages stemming from Superstorm Sandy.
The federal judge looked to the Third Circuit’s 2007 decision in Weiss v. First Unum Life Insurance Co. and predicted that the New Jersey Supreme Court would find that the CFA applies to the payment of insurance benefits.
Pastor said that, specifically in the context of Sandy-related claims, courts will likely allow policyholders to pursue a variety of claims due to what she deemed inappropriate insurer conduct.
“Insurers and their agents have not timely and properly investigated, adjusted and paid claims,” she said. “They have stonewalled and stalled. It therefore would not surprise me, given the type of conduct we’ve seen, for courts to allow breach of contract, bad faith, and CFA claims to move forward against insurers that wrongfully deprive their policyholders of insurance benefits to which they are otherwise entitled.”