The Second Circuit recently held that competing “anti-concurrent cause” provisions in a commercial property policy present a potential ambiguity that could result in favor of coverage for losses sustained by Madelaine Chocolate after storm surge from Hurricane Sandy combined to cause substantial damage to Madelaine’s property and a resulting loss of income.

Madelaine was insured under an all-risk insurance policy issued by Chubb subsidiary Great Northern Insurance Company. By endorsement, Madelaine’s policy added “windstorm” as a covered peril and defined “windstorm” as “wind… regardless of any other cause or event that directly or indirectly contributes concurrently to, or contributed in any sequence to, the loss or damage.” The policy also included a common flood exclusion that removed coverage for loss or damage caused by or resulting from waves, tidal water, or tidal waves, or the rising, overflowing, or breaking of any natural harbors, oceans, or any other body of water, whether driven by wind or not. Like the windstorm endorsement, the flood exclusion contained concurrency language that broadened the exclusion to any loss to which flood contributed, regardless of any other cause or event that directly or indirectly contributed to the loss.

Madelaine filed a proof of loss for property damage, lost business income, and extra expenses. After Great Northern refused to cover most of the claimed amount, Madelaine filed suit. On summary judgment, the district court ruled in Great Northern’s favor, holding that the policy unambiguously excluded coverage because the loss was caused by flood, which includes storm surge.

On appeal, the Second Circuit vacated the district court’s judgment and remanded for further proceedings, noting that the windstorm endorsement to the Great Northern policy rendered this case distinguishable from those cases relied upon by the district court, none of which contained a similar windstorm endorsement. Indeed, the Great Northern policy’s windstorm endorsement adds coverage where the loss is caused in whole or in part by the specified peril—windstorm. This is in contrast to the typical use of the same concurrency language in exclusionary provisions, such as the flood exclusion contained in the Great Northern policy, where the language operates to exclude a loss caused in whole or in part by the specified peril. In the case of the Great Northern policy, which contained the concurrency language in both the windstorm endorsement and the flood exclusion, the concurrency language of the added windstorm coverage conflicted with the concurrency language of the flood exclusion, since the loss at issue was apparently the result of storm surge which, essentially, is a flood caused by wind. Thus, according to the Second Circuit, the conflict between the currency language in the windstorm endorsement and the flood exclusion could potentially give rise to an ambiguity.

Madelaine is a win for policyholders and illustrates that concurrency provisions may operate to broaden coverage as well as narrow coverage, depending on where they appear in the insurance policy. The decision also serves as an important reminder that policyholders review their entire policy to determine whether purported exclusions may be in conflict with specific grants of coverage. Indeed, as Madelaine demonstrates, coverage may nevertheless be available for a loss despite a broadly worded exclusion where concurrency language in the insuring agreement or elsewhere in the policy operates to negate or contradict a purported exclusion.

You can read the Second Circuit’s decision here.