A ruling that insurance policy limits on flooding don’t apply to more than $500 million in Hurricane Sandy damages suffered by Public Service Enterprise Group Inc. could aid the legal arguments of other insureds seeking bigger recoveries and lessen the storm’s impact on ratepayers, experts say.
Elements of Judge Vena’s legal analysis could prove useful for policyholders in other litigation, including his interpretation of Appleman’s rule, according to Sherilyn Pastor, the practice group leader for McCarter & English LLP’s insurance coverage group.
The rule applies when a loss stems from multiple covered and uncovered events that occur sequentially in a chain of causation, the judge explained in the decision. Under the rule, “the loss is covered if a covered cause starts or ends the sequence of events leading to the loss,” according to the judge, who quoted another decision.
While PSEG contended that wind was the “efficient proximate cause” of the storm surge damages and the flood sublimits don’t come into play, the insurers said among other arguments that Appleman’s rule doesn’t apply outside of disputes that essentially involve coverage versus no coverage. The judge disagreed and said the rule has been applied in other contexts.
“The insurers in the causation context have sometimes argued that you don’t look to Appleman’s Rule on causation unless what you’re looking at is a policy exclusion, and here the court said that, although it has been applied in the context of exclusions, it’s not limited to that application and includes, what in this case was, sublimits,” Pastor said.