Natural catastrophes have wide-ranging consequences and obtaining insurance coverage for alleged damages arising from natural catastrophes takes time. There are still Katrina cases percolating through the legal system. In this case, decided by the Second Circuit on the last day of August 2016, nearly four years after Sandy, issues concerning flood sublimits, ensuing loss exceptions and additional coverage for demolition and increased cost of destruction have been resolved; in part.
In Nat’l Railroad Passenger Corp. v. Aspen Specialty Ins. Co., No. 15-2358-cv, 2016 U.S. App. LEXIS 16074 (2d Cir. Aug. 31, 2016) (Summary Order), the Second Circuit affirmed the District Court’s grant of summary judgment to Amtrak’s insurers on the applicability of the definition of flood and the policies’ flood sublimit and that corrosion damages incurred by Amtrak was not an ensuing loss and was also subject to the flood sublimit. But the court reversed summary judgment and remanded the case back to the District Court on the issue of whether Amtrak has coverage under the Demolition and Increased Cost of Construction clause in its insurance policies.
On the flood issue, there were three different flood definitions across the various policies, but the court found that there was no ambiguity and that the definitions were sufficiently broad to include an inundation of seawater driven by storm surge or windstorm. Even though this case has no precedential value, given that the case involved three definitions of flood and the court found all applied, this case may be relevant in future claims for damages arising out of seawater inundation.
As to the ensuing loss, the court found that because the corrosion of Amtrak’s metal equipment could not be separated from water damage in any meaningful way or be attributed to a distinct covered peril, it still fell within the flood sublimit. Separating the causes of loss and linking them to covered perils is one of the most difficult aspects of addressing claims after natural disasters like Sandy. When it is not possible, as in this case, the flood sublimit is likely going to win out.
The court did find for Amtrak on its Demolition and Increased Cost of Construction clause argument, but that victory might be short lived. The clause applies when a loss causes the enforcement of any law, ordinance, governmental directive or standard regulating construction, repair, use or occupancy of property. Here, there has yet to be any enforcement by a governmental directive, but as Amtrak successfully argued, the Federal Railroad Administration and the Americans with Disability Act may require Amtrak to make changes to undamaged portions of its property and mandate certain repairs that might be covered under the clause. Notably, there is no time limit, according to the court, by which Amtrak has to submit a claim under this clause. Because there might be a claim in the future, summary judgment was not appropriate. Yet the court made it clear that as of now, Amtrak was not entitled to coverage under this provision and whether it will apply in the future and how it will be applied (e.g., can it be stacked on top of the flood sublimit) will have to be decided by the District Court.