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New Jersey Court Holds “Named Storm” Deductible Applied to Superstrom Sandy Claim

Blogs, Insurance Coverage

A New Jersey trial court recently held that an insured’s Superstorm Sandy claims were subject to a $22 million “Named Storm” deductible equal to 2% of the total insurable values at risk. Wakefern Food Corp., et al. v. Lexington Ins. Co., Case No. L-6483-13 (N.J.Super.Ct., Middlesex Cty., Oct. 29, 2014). 

The insurance dispute arose from damage to numerous Shoprite and PriceRite supermarkets sustained during Superstorm Sandy in 2012. Wakefern (“Wakefern”), a cooperative of owners/operators of Shoprite and PriceRite supermarkets, claimed over $50 million in losses under a commercial general liability policy issued by Lexington Insurance Company (“Lexington”). Lexington paid approximately $22 million under the policy, contending that the damages were subject to the policy’s “Named Storm” deductible. The Policy provided that “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.” 

On cross-motions for partial summary judgment, Wakefern argued that the “Named Storm” deductible did not apply as the storm hit New Jersey at 8:00 p.m., one hour after it was downgraded to a “post tropical cyclone” by the National Hurricane Center. 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 claims were being made.

In granting Lexington’s motion, the Court held that although the eye of Superstorm Sandy came ashore on New Jersey 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. The Court also noted that Governor Chris Christie’s Executive Order No. 107 precluding insurers from applying hurricane deductibles to Superstorm Sandy claims, applied only to homeowners’ insurance claims and was “inapplicable to the instant commercial matter.” As a result, the Court held that the pre-7:00 p.m. damage while Superstorm 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.