Courts reviewing Super-Storm Sandy cases will be checking to see if the outcome is consistent with the parties’ intent when they made the insurance contract. This means courts will be reviewing the facts and policies of insurance to determine if the damages sought were caused by a covered loss. Importantly, many homeowners’ policies are all-risk insurance policies. All-risk insurance extends to risks not usually contemplated and generally allows recovery for all fortuitous losses, unless the policy contains a specific provision that clearly excludes the loss from coverage. Much of the litigation related to this type of insurance has involved the interpretation and application of exclusions. This will be the case following Super-storm Sandy.
A plaintiff seeking coverage under an all-risk insurance policy must make an initial showing that the losses suffered were of covered property. An all-risk policy is intended to cover “fortuitous events,” which have been defined as events “happening by chance or accident.”1 Once a plaintiff has met this burden, it is well settled that,
[If] an insurer wishes to exclude certain coverage from its policy obligations, it must do so “in clear and unmistakable” language. Any such exclusions or exceptions from policy coverage must be specific and clear in order to be enforced. They are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction. Indeed, before an insurance company is permitted to avoid policy coverage, it must satisfy the burden it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation.2
In this context, courts’ determinations may involve whether the covered event was sufficiently proximate to a loss to require the insurer to compensate the insured. This can depend on the dominant and efficient cause of the loss.3 New York Courts have written that in any proximate cause analysis in an insurance context, the chain of causation is explored only to the extent that the inquiry reflects the intent of the parties.4 “Our guide is the reasonable expectation and purpose of the ordinary business [person] when making an ordinary business contract.”5
For nearly a century, New York Courts have recognized the parties’ reasonable expectations should be considered and taken into account in the coverage analysis. It is good news for policyholders that their reasonable expectations do matter in this analysis. If policyholders receive decisions by their insurers that seem inconsistent with their reasonable expectations of coverage, they should seek review by competent insurance professionals. I will discuss the chain of causation in greater detail in upcoming posts.
1 New York State Electric & Gas Corp. v. Lexington Ins. Co., 612 N.Y.S.2d 43 (1st Dept.1994).
2 Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 476 N.E.2d 272 .
3 Throgs Neck Bagels, Inc. v. GA Ins. Co. of N.Y., 671 N.Y.S.2d66 (1st Dept. 1998).
4 Album Realty Corp. v. American Home Assurance Co., 592 N.Y.S.2d 657 (1992).
5 Id. quoting Bird v. St. Paul Fire & Mar. Ins. Co., 224 N.Y. 47 (1918).