There will be significant legal activity regarding New Jersey insurance contract interpretation following Hurricane Sandy. Many insurance adjusters and insurance companies will be interpreting unique fact patterns in relation to policy language under New Jersey law for the first time. They have an obligation to act in good faith and should explain all denials, partial or total, in writing and cite the facts and all applicable policy language upon which denials are based.

As stated in Simonetti v. Selective Insurance Company,1 here are the basic New Jersey rules of insurance contract interpretation that all insurance adjusters must consider:

[T]he interpretation of an insurance contract is a question of law which we decide independent of the trial court’s conclusions. On this score, when interpreting an insurance contract, the basic rule is to determine the intention of the parties from the language of the policy, giving effect to all parts so as to give a reasonable meaning to the terms…On this score, where the terms of the contract are clear and unambiguous, the court must enforce the contract as it is written; the court cannot make a better contract for parties than the one that they themselves agreed to.

However, where an ambiguity exists, it must be resolved against the insurer… If the controlling language of the policy will support two meanings, one favorable to the insurer and one favorable to the insured, the interpretation supporting coverage will be applied…. Yet, an insurance policy is not ambiguous merely because two conflicting interpretations have been offered by the litigants… A genuine ambiguity exists when the "phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage."…

Even if a particular phrase or term is capable of being interpreted in the manner sought by the insurer, "where another interpretation favorable to the insured reasonably can be made that construction must be applied." In this regard, coverage clauses should be interpreted liberally, whereas those of exclusion should be strictly construed. Finally, insurance contracts are to be construed in a manner that recognizes the reasonable expectation of the insured. . . . [citations omitted]

Please note that National Flood Insurance claims are governed under federal common law as well as federal statutes and regulations. New Jersey insurance law has no bearing regarding flood claims underwritten as either Direct or Write Your Own policies by the National Flood Insurance Program.

Tomorrow I will discuss the causation dispute in Simonetti v. Selective Insurance Company.

This post is the fourth in a series regarding New Jersey insurance contract analysis following Hurricane Sandy. The other three prior posts which should be read are:

1 372 N.J. Super. 421, 429, 859 A.2d 694, 698-99 (N.J. App. Div. 2004).