It is hard to believe that nearly five years have passed since Superstorm Sandy wreaked her havoc, causing billions of dollars’ worth of damage nationwide. We can surely recall images of the catastrophic damage she caused—boats unmoored and thrashing around angry waters, docks displaced and floating freely on once-dry land, and houses lifted from their foundations and carried by an unforgiving storm surge until they collided into other structures. Sandy cases are ongoing and remain relevant. Consider the fact that 2016 ushered in the largest number of severe flood events recorded in any year since 1980.1 Insurance companies and their insureds continue to spar over property coverage for Sandy losses, most recently expanding their battle to include the question of whether damage caused by vessels and houses qualify as damage by “water borne material.”
In Spindler v. Great Northern Ins. Co., Sandy caused significant damage to the Spindlers’ home on Shore Drive, abutting the East Bay in New York.2 Neighbors witnessed two boats, driven by the storm, repeatedly strike the Spindlers’ dock, house, and deck. The policy contained a surface water exclusion, which made clear that the policy did not cover “any loss caused by . . . flood, surface water, waves, tidal water, overflow of water from a body of water, or water borne material from any of these . . . .”3 The Spindlers argued that the exclusion was inapplicable to their loss; however, Great Northern argued that the exclusion precluded coverage, asserting that the renegade watercrafts constituted “water borne material.”4
The parties did not provide the court with any cases interpreting the phrase “water borne material” in an analogous cotext, nor could the court locate such authority. Moreover, the policy did not define the term. The court ultimately disagreed with Great Northern that the phrase “necessarily includes renegade seacraft.”5 The court found Great Northern’s argument unpersuasive for many reasons. First, the court found that the usage of the phrase within the policy suggested that it referred to something other than marine conveyances (e.g., “When . . . water borne material enters and backs up or discharges from or overflows . . .”). Second, the court found that the policy had multiple provisions dealing with “watercraft,” a readily available term that the court surmised Great Northern could have used in the exclusion to clearly encompass the vessels.6 Third, the court found that the plain meaning of the phrase in common parlance supported this conclusion.7
Great Northern argued further, however, that even if the “water borne material” language was inapplicable, the damage inflicted by the storm-driven vessels plainly constituted damage from flood and was thus excluded.8 Notably, the evidence showed that the property was undamaged by flood waters both during Sandy and in the past.9 Based on this, the court concluded that the undisputed evidence was that the damage was caused by the physical collision with the watercraft—a peril distinct and separate from flood—and thus not specifically excluded by the surface water exclusion.
Thereafter, the court analyzed the anti-concurrent causation language in the policy, explaining that the policy seemingly excluded any loss “contributed to, made worse by, or in any way resulting from: flood . . . .”10 The court noted that the damage caused by Sandy “unquestionably” contributed to, or in some way resulted from, the flood waters.11 But, the final sentence of the surface water exclusion included an ensuing loss clause that stated: “We do not insure ensuing covered loss unless another exclusion applies.”12 The court concluded that, even interpreting this provision narrowly, it rendered the question of coverage beyond doubt. The court explained: “[T]he undersigned can say with some assurance, as part of the Committee overseeing approximately 1,500 Hurricane Sandy actions filed in this judicial district, that the facts of this case are quite rare, and certainly involve damage beyond that normally expected from the inundation of floodwater.”13 The court, therefore, concluded that the loss was not caused by floodwater, but rather the subsequent and separate peril of physical collision.
A month later, a New Jersey court addressed the same phrase in another interesting Sandy case: Keelen v. QBE Ins. Corp.14 1Months before Sandy made landfall, the Keelens obtained an insurance policy from QBE to cover losses to their dwelling on Ortley Beach, New Jersey.15 The policy did not cover property damage from floods. In addition, the policy included an exclusion for damage arising out of “Water.” “Water” was defined to include “waterborne material carried or otherwise moved by any of the water [from flood, surface water, waves, including tidal waves . . . tidal water, overflow of any body of water . . . all whether or not driven by wind, including storm surge].”16 Furthermore, the policy provided that QBE did not insure for “loss caused directly or indirectly” by any of the excluded causes, and that “such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.”17
Sandy caused substantial damage to the Keelens’ home, and they submitted a claim for wind damage. Thereafter, QBE investigated the claim and determined that wind damage amounted to only about $500 worth of the damage to the dwelling and fell below the Keelens’ deductible.18 QBE concluded that the Keelens’ damage was primarily caused by flood, which was not covered under the policy. Thereafter, the Keelens requested that QBE reconsider its coverage position, refuting QBE’s position that the damage was “water damage.”19 The Keelens asserted, instead, that their home was damaged by the “massive impact of the house next door.”20
QBE reopened its investigation, retaining engineering experts to determine the precise cause of the damage. The experts concluded that the dwelling’s foundation failed because of buoyant forces lifting the house, combined with lateral forces, including hydrodynamic waves and impacts of a displaced neighboring house.21 Thereafter, the Keelens also retained an expert who opined that there was “no question” that the house next door caused significant damage to the Keelens’ dwelling.22 The report, however, did not explain how the neighbor’s residence was caused to impact the Keelens’ home. QBE maintained its coverage denial, explaining that the damage to the property was caused by “flood” and that the exclusion specifically denied coverage for damages attributable to “water-borne material,” which encompassed damage caused by the neighboring structure striking the home.23
The Keelens sued. QBE filed for summary judgment, emphasizing that the policy excluded coverage for damages caused “directly or indirectly” by storm surge, “regardless of any other cause or event contributing concurrently or in any sequence to the loss.”24 In opposing summary judgment, the Keelens neither disputed nor conceded that the damage was caused by storm surge. They argued, rather, that the policy’s exclusion provision was ambiguous. In particular, they argued that it was unclear whether the term “material” in the exclusion for damage caused by “waterborne material” included the “intact entirety of the Keelens’ neighbor’s structure.”25 The court, however, agreed with QBE that the policy barred coverage given the anti-concurrent causation clause, which made it clear that the policy did not cover “loss caused directly or indirectly by storm surge.”26 Such loss was excluded regardless of any other cause or event contributing in any sequence to the loss. The court granted summary judgment to QBE, concluding that the Keelens had not offered “even a scintilla” of evidence showing that the storm surge did not, at least indirectly, cause the losses at issue.27
While both Spindler and Keelen certainly contain unique and, perhaps, rare facts, they stand for the more familiar canon that a court faced with a coverage question will read the policy in its entirety, giving each specific word and provision meaning. And any and all ambiguity will be resolved in favor of the insured. While Sandy coverage disputes continue, and flood events worldwide become increasingly common, it will be interesting to see how future courts give effect to the phrase “water borne material” when it comes to careening watercrafts and rogue houses.
1 https://watchers.news/2017/01/04/united-states-floods-2016/
2 Spindler v. Great Northern Ins. Co., No. CV 13-5237, 2016 U.S. Dist. LEXIS 16532 (E.D.N.Y. Feb. 2, 2016), adopted by 2016 U.S. Dist. LEXIS 30255 (E.D.N.Y. Mar. 9, 2016).
3 Id. at *8.
4 Id.
5 Id. at *16.
6 Id. at *17.
7 Id. at * 18-19.
8 Id. at *21.
9 Id. at *24.
10 Id. at *25.
11 Id. at *26.
12 Id.
13 Id. at *29.
14 Keelen v. QBE Ins. Corp., No. 13-6941, 2016 U.S. Dist. LEXIS 55895 (D.N.J. April 27, 2016).
15 Id. at *2.
16 Id. at *3.
17 Id.
18 Id.
19 Id. at *4
20 Id.
21 Id. at *5.
22 Id.
23 Id. at *6.
24 Id. at *8.
25 Id. at *9.
26 Id. at *9-10.
27 Id. at *12.
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