February 11, 2019 A few weeks ago the US Court of Appeals for the Second Circuit delivered a decision that suggested that there is insurance coverage for an insured's loss caused by a storm surge due to Superstorm Sandy. The case is Madelaine Chocolate Novelties, Inc. v. Great N. Ins. Co., No. 17-3396-cv, 2018 U.S. App. LEXIS 29821 (2d Cir. Oct. 21, 2018).

When Superstorm Sandy hit the eastern United States in October of 2012, hundreds of thousands of businesses suffered significant damage to their premises due to the storm surges. Madelaine Chocolate Novelties Inc. (Madelaine Chocolate) was one of those businesses. Madelaine Chocolate held an “all-risks” policy from Great Northern Insurance Company (Great Northern). Madelaine Chocolate filed timely proof of loss for property damage that amounted to approximately $40 million, plus business income losses and extra operational expenses of $13.5 million. Using the flood exclusion in the policy as its reasoning, Great Northern refused to pay the majority of the amount that Madelaine Chocolates claimed. The policy in place provided that “windstorm” is a covered peril, and the windstorm endorsement had an anti-causation concurrent clause which provided that “windstorm means: wind. . . regardless of any other cause or event that directly or indirectly: contributes concurrently to; or contributed in any sequence to, the loss or damage. . .

Madelaine Chocolate argued that the anti-concurrent causation clause in the policy's windstorm endorsement should be interpreted to encompass losses caused by a storm surge, which is classified as a wind peril.