Judy Greenwald

10/23/2018 12:53:00 PM

Source: Business Insurance

The 2nd U.S. Circuit Court of Appeals in New York has overturned a lower court ruling in favor of a Chubb Ltd. unit in a case in which a chocolate company was denied coverage for damage caused by Hurricane Sandy’s storm surges.

Rockaway Beach, New York-based Madelaine Chocolate Novelties Inc., which is located three blocks from the Atlantic Ocean and one block from the Jamaica Bay section of the Long island Sound, sustained significant damage to its inventory, production machinery and premises from storm surges during 2012’s Hurricane Sandy, according to court papers in Madelaine Chocolate Novelties d/b/a The Madelaine Chocolate Co. v. Great Northern Insurance Co.

Madelaine, which had an all-risk policy with Chubb Ltd. unit Great Northern, filed claims for more than $40 million in property damage and $13.5 million in business income loss, according to court papers.  Great Northern paid Madelaine just under $4 million, but denied the balance of the claim, based on its policy’s flood exclusion provision, according to court papers.

Madelaine filed suit against the insurer, and the U.S. District Court in Brooklyn ruled in Chubb’s favor, holding the policy unambiguously excluded damage caused by storm surges.

The decision was overturned by a unanimous three-judge appeals court panel in Tuesday’s ruling.

Madelaine claimed it was entitled to coverage under its policy’s “anti-concurrent causation” clause, which states windstorm means wind “regardless of any other cause or event that directly or indirectly: contributes concurrently to; or contributed in any sequence to, the loss or damage….”

The panel reversed the lower court ruling in part because the cases cited by the district court in its ruling “did not involve endorsements that explicitly added to the definition of a covered peril. Here, by contrast, the Windstorm Endorsement adds an (anti-concurrent causation) clause to the definition of a covered peril for the entire Policy,” said the ruling, in vacating the lower court’s ruling.

The ruling said on remand, the District Court must assess whether this clause “conflicts with, or otherwise creates an ambiguity vis-à-vis, the Policy’s Flood Exclusion.”

The 2nd Circuit ruled in June that the windstorm exclusion in an equipment breakdown policy issued by a CNA Financial Corp. unit is ambiguous, and a Brooklyn shopping center may have coverage for damage sustained during Sandy.