The definition of a basement is the focal point of a class action lawsuit that deals with insurance claims for damages caused by Hurricane Irene in 2011 and Superstorm Sandy in late October of this year.

As reported by, the lawsuit is one of the first major legal actions involving Sandy and was filed last Thursday in the U.S. District Court of New Jersey. The action is against nine local and national insurance companies, including Fidelity, Travelers and State Farm. These companies are accused of wrongly denying claims by misinterpreting the term “basement.” The common definition is that used in the Standard Flood Insurance Policy, “any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.” According to the allegations in the complaint, the carriers are denying legitimate claims by misrepresenting the definition of the term.

This issue hits home for me. I recently dealt with a Tropical Storm Debby claim where the carrier denied coverage for a hotel claim. The hotel entrance actually leads to the second floor. In fact, you could not tell there was a ground level from the front entrance. The carrier argued the ground level constituted a basement. We simply pointed to the definition in the policy that requires a basement floor to be below ground level on all sides. Because the hotel was not below ground level on all sides, the ground floor was not a basement. Fortunately, the carrier’s adjuster admitted his mistake and tendered owed benefits without any further delay or litigation.

According to Insurance Journal, Sandy caused about $62 billion in damage and other losses in the United States, the vast majority in New York and New Jersey. These mistakes in policy interpretation should not happen, but they do. Public adjusters and policyholders need to read policies carefully and raise any concerns with the carriers. You may be right and help your clients get what they paid for.