Madelaine Chocolate sued and the parties moved for summary judgment.

The motions were referred to Magistrate Judge Gary Brown of the U.S. District Court for the Eastern District of New York. Magistrate Judge Brown issued his report and recommendation, recommending that the court deny Madelaine Chocolate's motion for summary judgment and grant Great Northern's motion for summary judgment.

Magistrate Judge Brown concluded that the Great Northern insurance policy unambiguously excluded the damage floodwaters had caused to Madelaine Chocolate's facility. He found that the facility had been damaged by a so-called storm surge, which his report and recommendation defined as an “abnormal rise of water generated by the storm,” and found that the Great Northern policy did not cover storm surge by virtue of its flood exclusion.

Magistrate Judge Brown also determined that the policy's wind endorsement, which raised the deductible for windstorm-related losses, did not alter the unambiguous language of the policy that excluded damages from flooding.

Madelaine objected to the report and recommendation.

The Great Northern Policy

The Great Northern policy insured against:

direct physical loss or damage to 

the building and personal property of Madelaine Chocolates, as well as business income losses, unless the cause of the loss or damage was expressly excluded by the policy.

The policy also provided:

This insurance does not apply to loss or damage caused by or resulting from:

• waves, tidal water or tidal waves; or

• rising overflowing or breaking of any boundary, of any natural or man-made lakes, reservoirs, ponds, brooks, rivers, streams, harbors, oceans or any other body of water or watercourse, whether driven by wind or not, regardless of any other cause or event that directly or indirectly:

• contributes concurrently to; or

• contributes in any sequence to, the loss or damage, even if such other cause or event would otherwise be covered. 

The district court adopted Magistrate Judge Brown's report and recommendation, denied Madelaine Chocolate's motion for summary judgment, and granted Great Northern's motion for summary judgment.

In its decision, the district court explained that the policy “[u]nambiguously” excluded damages from flooding.

It then found that the definition of flood in the Great Northern policy encompassed a storm surge.

The district court also rejected Madelaine Chocolate's argument that there was coverage for its claim, notwithstanding the flood exclusion, because the wind endorsement attached to the end of the Great Northern policy provided that any damage, such as a storm surge, for which wind was a contributing cause – as in this case, according to Madelaine Chocolate – was covered by the policy.

The district court reasoned that the windstorm endorsement addressed the amount of the deductible and did “not conflict with the flood exclusion or create an apparent ambiguity.” As with other deductible endorsements, the district court said, the endorsement existed “to shift some of the insurer's risk (that is, covered risk) to the insured, which is accomplished by setting a limit on the value of covered losses below which the insurer is not obligated to pay.” It added that the anti-concurrent language in the endorsement was meant to “ensure that an insured cannot escape the applicability of the higher deductible for windstorm and hail damage simply because other weather events (with lower deductibles) contributed to the loss. . . . The deductible endorsement does not create or extend coverage.”

Finally, the district court found that the Great Northern policy was not ambiguous regarding coverage. In its view, the flood exclusion was “unambiguous in its limitation of coverage for waves, tidal water, tidal waves and overflowing water” driven by wind. The district court concluded that because the damage to Madelaine Chocolate's facility was the result of an excluded peril and not the covered peril “windstorm,” the terms of the windstorm endorsement were not applicable.

The case is Madelaine Chocolate Novelties v. Great Northern Ins. Co., No. 15 CV 5830 (RJD) (SMG) (GRB) (E.D.N.Y. Sep. 26, 2017). Attorneys involved include: For Madelaine Chocolate Novelties, Inc., doing business as The Madelaine Chocolate Company, Plaintiff: Edward Michael Joyce, Jason B. Lissy, LEAD ATTORNEYS, Jones Day, New York, NY. For Great Northern Insurance Company, Defendant: Melissa Brill, Thomas McKay, III, LEAD ATTORNEYS, Cozen and O'Connor, New York, NY; Charles J. Jesuit, Richard Mackowsky, Cozen O'Connor, Philadelphia, PA.

FC&S Legal Comment

Other decisions have found that storm surge was a “flood” within the meaning of a flood exclusion. See, e.g., Nat'l R.R. Passenger Corp. v. Aspen Specialty Ins. Co., 661 F. App'x 10 (2d Cir. 2016) (“[t]he inundation of sea water resulting from Sandy's storm surge is a 'flood'”); New Sea Crest Health Care Ctr., LLC v. Lexington Ins. Co., No. 12 CV 6414 RJD RLM (E.D.N.Y. June 24, 2014) (“The policies are unambiguous that a storm surge is a type of flood. . . . A 'storm surge' is little more than a synonym for a 'tidal wave' or wind-driven flood. . . . Thus, the policy definition makes it doubly clear that a storm surge is a type of flood under the policy. . . .”) (citation omitted).