Devastating Waters: Exploring Storm Surge Coverage

Storm surge flooding accounts for some of the heaviest devastation associated with hurricanes.  Recently, Hurricane Harvey slammed into Texas, causing storm surges as high as 12 feet, while Hurricane Irma battered 1,000 miles of coastline, spurring 5-15 foot surges for parts of Florida and its neighboring states. 

Storm surge can affect not only the coastline, but also cause considerable devastation inland.  In 2005, Hurricane Katrina’s storm surge flooding of 25 to 28 feet above normal tide levels caused over 1,500 deaths and catastrophic damage estimated at $75 billion.  In 2008, Hurricane Ike made landfall near Galveston Island, Texas, with storm surges of 15-20 feet above normal tide levels, which reached as far as 30 miles inland.  Though Superstorm Sandy lost its hurricane characteristics before making landfall in 2012, its enormous size drove a devastating storm surge of over 11 feet onto parts of New Jersey and New York, spurring contentious coverage disputes, some of which are still being litigated.

In the wake of Harvey and Irma, the story of storm surge coverage authored by the courts in the last few decades may get a new chapter.  This article explores important storm surge coverage decisions since Hurricanes Katrina and Sandy, and the state of this law in Texas and Florida.    

Storm Surge Defined

The National Hurricane Center defines storm surge as an abnormal rise of water generated by a storm, over and above the predicted astronomical tides.  As one Court described:   “a storm surge is the abnormal rise in sea level accompanying a hurricane or other intense storm, and whose height is the difference between the observed levels of the sea surface and the level that would have occurred in the absence of the cyclone.”  Lord & Taylor, No. 13-CV-3478, 2015 U.S. Dist. LEXIS 75868, *12-13 (S.D.N.Y. 2015).  This rise in water level can cause widespread flooding, particularly when the storm surge coincides with normal high tide.  The National Hurricane Center advises that a storm surge can occur any time before, during, or even after the eye of the storm passes through.

Storm Surge Disputes After Katrina

One of the most hotly contested issues in the wake of Hurricane Katrina was whether flood exclusions bar coverage for loss by storm surge.  More often than not, the courts concluded that the answer was “yes.”  Courts “repeatedly held that the term ‘flood’ includes ‘storm surge,’ in the ordinary meaning of the words.”  Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 436-38 (5th Cir. 2007).  In Leonard, where the policy covered wind damage, but excluded water damage, the Fifth Circuit found that the policy exempted from coverage damage caused by “flood . . . waves, tidal waves, and overflow of body of water . . . whether or not driven by wind.”  Id. at 437.  The Court found that the phrase “storm surge” was little more than a synonym for a “tidal wave,” or wind-driven flood, both of which were excluded perils, and that the omission of the specific term “storm surge” in the exclusion did not create ambiguity.  Id. at 437-438.  See also Northrop Grumman v. Factory Mutual Ins. Co., 563 F.3d 777 (9th Cir. 2009) (rejecting the argument that the flood exclusion did not apply to storm surge, and finding that the plain meaning of “flood” included storm surge). But different policy language can bring different results.  In Pinnacle Entertainment v. Allianz, No. 2:06-CV-00935, 2008 U.S. Dist. LEXIS 108583 (D. Nev. March 26, 2008), it was determined that an exclusion where flood was defined as “a temporary condition of partial or complete inundation of normally dry land . . . from the overflow of inland or tidal waters,” did not clearly, distinctly, and sufficiently communicate an exclusion of storm surge.  Id. at *22.

The Katrina cases challenged courts to make important coverage determinations involving not only flood and storm surge, but named storm and wind provisions as well.  See, e.g., Six Flags v. Westchester Surplus, 565 F.3d 948 (5th Cir. 2009) (finding flood definition ambiguous, and a reasonable interpretation being that loss from flood caused by named storm was not subject to flood sublimit); Seacor Holdings v. Commonwealth Ins. Co., 635 F.3d 675 (5th Cir. 2011) (finding Katrina loss fell within Named Windstorm coverage, and that only one deductible applied.)

Storm Surge Disputes After Sandy

A decade later, the Superstorm Sandy jurisdictions were forced to address some of the same questions.  The issue, however, did not crop up nearly as frequently as it did in the wake of Katrina because policies more frequently make it clear that storm surge is a specific type of flood.  E.g., New Sea Crest Healthcare Ctr., LLC v. Lexington Ins. Co., No. 12 CV 6414, 2014 U.S. Dist. LEXIS 86585, at *7-8 (E.D.N.Y. June 24, 2014) (rejecting claim that flood sublimit does not apply to flood caused by storm surge where flood definition in policy explicitly included the term storm surge); National Railroad Passenger Corp. (“Amtrak”) v. Arch Specialty Insurance Company, et. al., No. 14-CV-7510, 2015 U.S. Dist. LEXIS 104477 (July 31, 2015), affirmed on this issue at No. 15-2358, 2016 U.S. App. LEXIS 16074 (2nd Cir. Aug. 31, 2016) (denying Amtrak’s motion requesting that the court interpret the term “flood” as excluding storm surge where all the policies at issue defined the term “flood” to encompass inundation of normally dry land, triggering the flood sublimits).  But see Public Service Enterprise Group, Inc. v. ACE American Insurance Company, et. al., No. ESX-L-4951-13, 2015 N.J. Super. Unpub. LEXIS 620 (March 23, 2015) (finding that storm surge caused by Sandy did not trigger flood sublimits in light of policy language which includes the term “storm surge” in the definition of “Named Windstorm”); New Jersey Transit Corp. v. Certain Underwriters at Lloyd’s London et al.,¹ No. ESX-L-006977-14, Superior Court of New Jersey (Sept. 5, 2017) (holding that the flood sublimit did not apply to losses caused by Sandy and its ensuing storm surge in light of the policy’s “more specific” Named Windstorm provision).

Mindful of the storm surge litigation that unfolded after Katrina, some insurers include specific flood and storm surge sublimits in their policies, even when the policies define flood to include “storm surge,” seeking to ensure that storm surge losses will not be subject to more coverage than flood losses.  See, e.g., Orient Overseas Assoc. v. XL Ins. Am., Inc., No. 652292-2013, 2016 N.Y. Misc. LEXIS 2048 (N.Y. Sup. Ct. May 11, 2016).  Courts have taken judicial notice of the litigation history that led to these efforts.  Id. at *27-28.        

Storm Surge Cases in Texas and Florida

The extent to which Harvey and Irma losses will trigger coverage disputes involving storm surge remains uncertain.  What is certain, however, is that should they materialize, they will unfold against the backdrop of the existing storm surge decisions referenced above, as well as existing case law in Texas and Florida. 

Texas

In Texas, federal courts have opined on storm surge coverage given the Katrina litigation that unfolded there.  The Fifth Circuit has repeatedly held that storm surge damage is a type of flood damage and thus falls within the flood exclusion, and rejected the argument that water damage occurring concurrently with wind damage brings flooding within the ambit of a policy where wind is covered, but flooding is not.  E.g., Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346, 352-53 (5th Cir. 2007) (rejecting claim that flood sublimit does not apply to flood caused by storm surge), Bilbe v. Belsom, 530 F.3d 314 (5th Cir. 2008) (same); Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 436-38 (5th Cir. 2007) (same); Smith v. Allstate Indemnity Co., 256 Fed. Appx. 694 (5th Cir. 2007); Arctic Slope Regional Corp. v. Affiliated FM Insurance Co., 564 F.3d 707 (2009)(same); Pantanelli v. State Farm Fire & Cas. Co., 304 Fed. Appx. 290 (5th Cir. 2008)(same).   

The Fifth Circuit likewise rejected attempts by insureds to argue that windstorm deductibles create or extend coverage for storm surge damage because a deductible, by definition, only applies to covered perils.  See, e.g., Penthouse Owners Assoc., Inc. v. Certain Underwriters at Lloyds, London, 612 F.3d 383 (5th Cir. 2010). 

Florida

Meanwhile, Florida law may give rise to unique questions relevant to any coverage dispute involving storm surge.  Florida is one of the largest flood-prone markets, and though roughly 35% of all NFIP policies are issued there, it is estimated that over 1 million properties affected by Irma are not covered by National Flood Insurance Program policies as they are not located in areas FEMA designated as having high flood risk.  Moreover, Florida has a Valued Policy Law (“VPL”).²  See Fla. Stat. § 627.702(1).  The statute that requires companies to pay the full value of the insurance to an insured in the event of a total loss rather than the actual value of the insured property.  These two points may make for hotly contested claims involving the precise cause of property damage and the extent of that damage.

Florida has only a handful of published decisions that touch upon storm surge damage, and nearly all of them involve application of the VPL.  See, e.g., Florida Farm Bureau Cas. Co. v. Cox, 967 So.2d 815 (2007) (holding that the insurer was only liable for that part of a covered peril (wind, not storm surge) for which a premium was paid, finding that the plain language of §627.702 did not mandate an insurer to pay for the total loss where a covered peril caused only part of the total loss).  The premise that “the policy controls, not the VPL,” has been repeated in Florida cases, where courts continue to hold that when the total loss is caused by the combination of covered (wind) and non-covered (flood caused by storm surge) peril, the VPL does not apply.  E.g., Citizens Property Ins. Corp. v. Manning, 966 So.2d 486 (Fla. 1st DCA 2007) (holding same where a home was damaged by a combination of wind, wind-driven rain, and storm surge and the policy included a flood exclusion and anti-concurrent cause clause).  Compare Citizens Property Ins. Corp. v. Ashe, 50 So.3d 645 (Fla. 2nd DCA 2010) (finding that nothing in the insurance policy allowed the insurer to pay for actual wind damage in the event of partial loss, but only a pro rata amount of the total wind damage in the event of a total loss; therefore, the lower court erroneously precluded the insured from introducing evidence to prove that the wind caused the total loss to the property before the storm surge arrived, thereby triggering the VPL). 

Conclusion  

Like the decisions involving storm surge that came after Katrina and Sandy, Harvey and Irma are likely to give rise to coverage disputes involving storm surge that will draw upon and perhaps add to the existing coverage narrative on this specific type of flood.  As these cases illustrate time and time again, courts will look at the express language and definitions contained in the policy to determine if storm surge coverage exists, and to what extent.

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¹ This decision was reported in Insurance Law 360 on September 6, 2017, though it is not yet available on Lexis.
² There are only a handful of states that have VPLs.  Texas also contains a VPL, however, it applies only to properties deemed total losses by fire.  See Texas Insurance Code §862.053.