Great Northern paid just under $4 million and claimed that the remaining losses were not covered as a result of the policy's flood exclusion. Madelaine sued for breach of contract. Madelaine claimed that the loss and damage it sustained as a result of Superstorm Sandy had to be covered under its all-risks insurance policy with Great Northern because it was caused by a windstorm – a “peril” covered by the policy, regardless of any other concurrent or contributing cause.

Great Northern, on the other hand, argued that the policy's flood exclusion unambiguously precluded coverage.

The district court granted summary judgment in favor of Great Northern. (See Flood Exclusion Precluded Coverage for Damage Caused by Superstorm Sandy Storm Surge, N.Y. Federal Court Rules.)

On appeal, the U.S. Court of Appeals for the Second Circuit, referencing the windstorm endorsement to the Great Northern policy, noted that it was “undisputed that, for purposes of the [p]olicy, a 'windstorm' is a covered peril.” The Second Circuit directed the district court on remand (i) to assess whether the windstorm endorsement's anti-concurrent causation (“ACC”) clause conflicted with or otherwise created an ambiguity vis-à-vis the policy's flood exclusion, and (ii) to the extent the district court concluded that an ambiguity existed, to consider “interpretive materials” relating to the windstorm endorsement and its relationship with the policy's coverage provisions.” (See Second Circuit Signals Coverage for Storm Surge Loss in Superstorm Sandy Case.)

Back in district court, the parties moved for summary judgment.

Madelaine argued that applying the windstorm endorsement's ACC clause to the entire policy created an ambiguity that could not be resolved in Great Northern's favor because (i) the windstorm endorsement's ACC clause superseded the flood exclusion's ACC clause as an “added or attached” change to the “basic insurance contract,” and (ii) the record was otherwise devoid of any relevant extrinsic evidence supporting an interpretation that would foreclose coverage.

As a result, Madelaine argued, the doctrine of contra proferentem compelled the district court to resolve the policy's ambiguity in favor of Madelaine, the insured.

For its part, Great Northern argued that (i) the flood exclusion unambiguously precluded coverage because applying the definition of “windstorm” throughout the policy had “no impact on the scope of coverage” afforded under the policy, and (ii) even if the windstorm endorsement created an ambiguity vis-a-vis the flood exclusion, extrinsic evidence favored Great Northern because it revealed that Madelaine had no reasonable expectation of receiving flood coverage, under any circumstances, when it purchased its Great Northern insurance policy.

The District Court's Decision

In its decision, the district court explained that the issue to be decided was whether the Great Northern policy covered loss and damage caused by a windstorm regardless of any other concurrent or contributing cause, or whether the flood exclusion precluded coverage entirely. The district court then denied the parties' motions for summary judgment, finding that (i) the policy's coverage grant was ambiguous, and (ii) the extrinsic evidence revealed a triable issue of fact, inappropriate for summary judgment.

The district court found that the policy (i) generally covered loss or damage caused by a windstorm, and (ii) required that a windstorm be the operative cause where there was more than one covered cause for purposes of calculating a deductible or waiting period, but (iii) nevertheless excluded coverage where loss or damage was caused by a flood, even when a windstorm was a concurrent or contributing cause.

However, the district court continued, applying the windstorm endorsement's ACC clause to the policy as a whole created an ambiguity vis-à-vis the flood exclusion.

The district court decided that the ambiguity could not be resolved as a matter of law and, therefore, required further proceedings to resolve the parties' dispute.

The case is Madelaine Chocolate Novelties, Inc. v. Great Northern Ins. Co., No. 15 CV 5830 (RJD)(SMG) (E.D.N.Y. July 19, 2019). 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.