On October 29th, a New Jersey trial court held that a commercial policyholder’s Superstorm Sandy claims were subject to a $22 million “named storm” deductible equal to 2% of the total insurable values at risk at all of the loss locations for which the insured made claim. In Wakefern Food Corp., et al. v. Lexington Ins. Co., Case No. L-6483-13 (N.J.Super.Ct., Middlesex Cty., Oct. 29, 2014), the court held that damage had begun to occur hours before Sandy was downgraded and no longer constituted a “named storm” as defined and that that fact “created a substantial nexus between the storm and Wakefern’s total losses” justifying application of the deductible.
Plaintiff Wakefern was a buying cooperative consisting of the owners of ShopRite and PriceRite supermarkets, and it had a commercial property policy issued by Lexington Insurance Company. After Superstorm Sandy struck on October 29, 2012, Wakefern made claim for over $50 million in damage at dozens of different locations.
The contract of insurance afforded wind and hail coverage up to a $150 million sub-limit. It also stated that the wind and hail coverage was subject to either a $250,000 per occurrence deductible or a deductible of “2% of Total Insurable Values at the time of the loss at each location involved in the loss or damage arising out of a Named Storm.” The phrase “total insurable values” (TIV) was not defined, but the policy recited that a “named storm” was “a storm that has been declared by the National Weather Service to be a Hurricane, Typhoon, Tropical Cyclone, Tropical Storm or Tropical Depression.”
Wakefern filed suit in state court in New Jersey after Lexington calculated the appropriate deductible to be fully $22 million. On cross-motions for partial summary judgment, Wakefern argued that the “named storm” deductible did not apply or, if it did, that the maximum TIV figure that could be used to calculate it was the $150 million sub-limit for wind and hail loss. The result, according to Wakefern, was that the 2% TIV deductible could not exceed $3 million. Lexington asserted that Superstorm Sandy was a “named storm” as defined and that the appropriate deductible was 2% of the total of all insured values – including real and personal property and business income – specified in the Statement of Values (SOV) provided by Wakefern for the locations for which claim was being made.
Last Wednesday, Judge Travis L. Francis issued a decision granting Lexington’s motion. With respect to whether Sandy was a “named storm,” Wakefern had argued that Sandy hit New Jersey at 8:00 p.m. EDT, one hour after it was downgraded to a “post tropical cyclone” by the National Hurricane Center. The policyholder also directed the court’s attention to New Jersey Governor Chris Christie’s Executive Order No. 107 precluding insurers from applying hurricane deductibles to Sandy claims. Judge Francis held, however, that “[a]pplication of the Named Storm deductible for damage caused by Sandy [was] consistent with the clear and unambiguous language of the Policy.” His decision noted: (1) that while the eye came ashore at 8:00 p.m., it was undisputed the damage had begun to occur at some Wakefern locations well before 7:00 p.m., with power outages being reported as early as 4:30 in the afternoon; (2) that “the phrase ‘arising out of’ . . . should be treated liberally;” and (3) that Executive Order No. 107 applied only to homeowners’ insurance claims and was “inapplicable to the instant commercial matter.” As a result, Judge Francis found “that the Pre-7:00 p.m. damage while Sandy was still a hurricane created a substantial nexus between the storm and Wakefern’s total losses” and justified application of the “named storm” deductible.
With respect to the TIV issue, Wakefern had argued that the phrase should be construed in its favor because it was “vague, ambiguous, subject to two reasonable meanings,” and confusing to the average policyholder. Judge Francis was not convinced. As his decision explained:
TIV is a commonly-used phrase in the insurance industry referring to the sum of the full value of the insured’s covered property, business income values, and other covered property interests. . . . TIV refers to everything insured under a policy, including but not limited to the structure’s value, contents, materials, business income, and equipment, and is calculated using a policy’s Statement of Values.
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[T]he Policy language includes the phrase “involved in the loss” which further defines the applicable deductible. . . . [T]his Court has no trouble interpreting the phrase. The Named storm deductible should be 2% of the aggregate Statement of Values at the stores for which Plaintiff submitted a claim. Those stores constitute the properties “involved in the loss.”