The moral of this story is don’t be caught off guard by insurance policy sublimits. It isn’t every day that a policy sublimit issue involves hundreds of millions of dollars. However, that recently was the case involving a Superstorm Sandy claim in New Jersey.1 Public Service Enterprise Group filed a lawsuit in New Jersey against numerous insurance carriers seeking several hundred million dollars in coverage for Super Storm Sandy damage. One of the issues involved whether a flood sublimit applies.
So what are insurance policy Sublimits? Larry Bache provides a good industry definition in his post, Are You Covered? Sublimits Can Sneak Up On Unaware Policyholders. An insurance policy “sublimit” is:
A limitation in an insurance policy on the amount of coverage available to cover a specific type of loss. A sublimit is part of, rather than in addition to, the limit that would otherwise apply to the loss. In other words, it places a maximum on the amount available to pay that type of loss, rather than providing additional coverage for that type of loss.
Sublimits impose smaller limits on narrower categories of property otherwise covered for a greater amount as part of a broader group of property. It places a maximum on the amount available to pay that type of loss, rather than providing additional coverage for that type of loss. Sublimits may be stated as dollar amounts or as a percentage of the limit that would otherwise apply.
A recent New Jersey Sandy case involved several insurers taking the position Superstorm Sandy damages were caused by flooding and that a $250 million flood damage sublimit per occurrence would apply to cap the damages. If the damages were considered something other than "flood" then they would not be capped by the flood Sublimit. Chase Mathis discussed the importance of the issue before the Court—whether a “storm surge” falls within the policy understanding of the term flood. Chase provides a thorough analysis of the New Jersey case in his recent post, Court Rules Flood Sublimits Do Not Apply to Loss Caused by Storm Surge.
One insurance carrier had earlier been dismissed from the case where its policy specifically stated that storm-related flood damage was subject to flood limits elsewhere in the policy.
Whether wind or flood damaged property during Super Storm Sandy is one of the most common issues that parties are dealing with in New York and New Jersey. Policies that exclude or limit flood and had anti-concurrent causation language were common, and this will be sorted through the litigation and opinions of the courts deciding Sandy disputes. Knowing about what policy Sublimits may be included within your particular policy coverage limits is important ahead of time before sustaining a loss. The New Jersey case reveals how much can be at stake regarding policy Sublimits. We will continue to monitor this case and issue an update if it progresses forward through any appellate process.
1 Public Service Enterprise Group, Inc., v. Ace Am. Ins. Co., (N.J. Sup. Ct. March 23, 2015).