New Jersey Appellate Court Finds Sandy Damage Not Covered Pursuant to Flood and Flowing Substance Exclusion

In a recent Hurricane Sandy coverage case, a New Jersey appellate court affirmed the ruling of the Law Division, which found that property damage sustained during Hurricane Sandy was not covered under the terms of a homeowner policy’s “flood and flowing substance exclusion.” In doing so, the Court rejected the insurer’s argument that the damage resulted from “substance in the water, not a flood.”

The Court ruled that the exclusionary clause in the policy, which precluded coverage for “property loss caused by or consisting of flood damage”, included “damage caused by the toxic substances carried by the flood waters and left behind after that water recedes.” The Court was unconvinced by the insureds’ argument that the terms of the policy were ambiguous, noting that the insureds contended that their damage was caused by substances contained in flood water, while the exclusion “expressly included losses caused by water or any other substances regardless of its source.” Finally, the Court rejected the bad faith claims brought by the insureds, and reasoned that they were precluded because the claim of loss was properly denied by the insurer.

The case is Riccio v. Allstate New Jersey Ins. Co., Docket No. A-4628-13T2 (N.J. Sup. App. Div. October 22, 2015).