New Sea Crest Healthcare Ctr., LLC v. Lexington Ins. Co.
| Decision Date | 24 June 2014 |
| Docket Number | 12 CV 6414 (RJD) (RLM) |
| Parties | NEW SEA CREST HEALTHCARE CENTER, LLC, and SHORE VIEW NURSING HOME Plaintiffs, v. LEXINGTON INSURANCE COMPANY Defendant. |
| Court | U.S. District Court — Eastern District of New York |
This case arises out of insurance claims that plaintiffs New Sea Crest Healthcare Center and Shore View Nursing Home submitted to defendant Lexington Insurance Company for losses they sustained during Hurricane Sandy. Shore View's policy provided coverage for one nursing home in Brooklyn, and Sea Crest's policy provided coverage for two locations: a nursing home in Brooklyn, and an administrative office in Great Neck that was not damaged. Sea Crest's nursing home is located in a Special Flood Hazard Area ("SFHA"), which is an area of one hundred-year flooding as defined by the Federal Emergency Management Agency. The policies limit flood coverage to $1 million per year and do not cover properties located in an SFHA for flood damage. Much of the damage plaintiffs incurred resulted from "storm surge"—a wind-driven inundation of water, which Lexington deemed flood damage. As a result, Lexington denied New Sea Crest coverage and only paid Shore View $ 1 million, citing the flood sublimit.
To resolve this dispute, we are asked to decide whether damage caused by "storm surge" is damage caused by "flood" and therefore subject to the flood sublimit under plaintiffs' policies. Although the policies' definition of flood explicitly includes the term storm surge, plaintiffs argue that they are separate perils because the policies list flood and storm surge separately inanother provision—the "named storm" sublimit. As such, plaintiffs argue that Lexington improperly denied them coverage and assert claims for breach of contract, breach of the covenant of good faith and fair dealing, and negligent misrepresentation. Lexington seeks summary judgment. The Court finds that a storm surge is a type of flood under the policies and grants the motion.
Viewed in the light most favorable to plaintiffs, the record reveals the following facts, which are undisputed except as otherwise noted.
Plaintiffs' insurance policies are "all risk,"1 but contain various sublimits of liability that restrict the coverage for certain types of damage. The two relevant sublimits are for "flood" and "named storm." The flood sublimit limits an insured's coverage for flood damage to $1 million a year for properties outside an SFHA and does not provide flood coverage for properties inside an SFHA. See Wilson Decl. Ex. 2, at SC 906. The named storm provision limits an insured's coverage for damage resulting from a named storm, such as Hurricane Sandy, to $36,650,000 per year. The policies state that the named storm sublimit applies "Regardless of the number of Coverages, Locations or Perils involved including, but not limited to, all Flood, (however caused) wind, wind gusts, storm surges, tornados, cyclones, hail, or rain." Id. at 906-07. However, it also provides that any damage by flood during a named storm is still limited to the flood sublimit. That is, insureds can only recover up to $1 million (or are not covered if theirproperty is in an SFHA) for flood damage even if they incur that damage in the context of a named storm. The policies define "flood" as:
[W]hether natural or manmade, Flood waters, surface water, waves, tide or tidal water, overflow or rupture of a dam, levy, dike, or other surface containment structure, storm surge, the rising, overflowing or breaking of boundaries of natural or manmade bodies of water, or the spray from any of the foregoing, all whether driven by wind or not. A tsunami shall not be considered a Flood.
Id. at SC 929.
After Hurricane Sandy, plaintiffs met with their insurance broker and consultant Mr. Scott Primiano to discuss their coverage for the property damage. Mr. Primiano told plaintiffs that Lexington would cover them to the full extent of the policies and instructed them to hire vendors to begin repairs. Plaintiffs did so on October 31, 2012. On November 13, Mr. F. Kevin Foster, Lexington's outside independent adjuster, investigated the damage. He also told plaintiffs that Lexington would cover the damage up to the policies' full limits.2 Pls.' 56.1 Statement ¶ 26.
However, on November 16, Lexington sent a Reservation of Rights letter to each plaintiff, stating that its preliminary investigation showed they sustained losses due to flood. The letters directed plaintiffs' attention to the flood sublimit in the policies and asked them to forward any information that would alter Lexington's coverage position. Wilson Decl. Exs. 21, 22. On November 27 and 30, Lexington sent plaintiffs additional letters stating that their coverage would be limited to the flood sublimit, which was $1 million for Shore View and $0 for Sea Crest given its location in an SFHA. However, the letters also stated that Lexington wouldreview any "detailed submission" regarding loss or damage plaintiffs believed was not subject to the flood sublimit.3 Id. Exs. 23, 24.
Plaintiffs did not send any further submissions. Instead, they instituted the instant action, asserting that Lexington could not limit their coverage to the flood sublimit. Their main argument is that the policy is ambiguous as to whether a storm surge is a type of flood, so they are entitled to coverage up to the named storm sublimit. Lexington seeks summary judgment.
Summary judgment is appropriate if there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party must show that there is no issue of material fact, and the Court must "view the evidence in the light most favorable to" the non-moving party in determining whether the moving party has met this burden. Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 124 (2d Cir. 2013). However, the non-moving party must tender evidence demonstrating a genuine issue for trial, Salahuddin v. Goord, 467 F.3d 263, 272-73 (2d Cir. 2006), and must offer more than "conclusory allegations or unsubstantiated speculation" to defeat summary judgment, DeFabio v. E. Hampton Union Free Sch. Dist., 623 F.3d 71, 81 (2d Cir. 2010) (quoting Jeffreys v. City of New York, 426 F.3d 549, 554 (2d Cir. 2005)).
In resolving a dispute over insurance coverage, the court first looks to the policy language. See Morgan Stanley Grp. Inc. v. New Eng. Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000). Under New York Law, the initial interpretation of a policy is a question of law, and the court must give effect to a policy's unambiguous language. See id. A policy is ambiguous if it "couldsuggest more than one meaning when viewed objectively by a reasonably intelligent person." Id. (internal quotation marks omitted). In a coverage dispute, any ambiguity regarding an exclusion of coverage is resolved in favor of the insured. Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 383 (2003).
Plaintiffs concede that that the flood sublimit trumps the named storm sublimit for damage caused by flood. However, they argue that the policies' language is ambiguous as to whether a storm surge is a type of flood or a separate peril because storm surge and flood are listed separately in the named storm sublimit. They further assert that they can recover for their losses under additional provisions in the policies and that Lexington should have covered them for pure wind and sand losses, which are not subject to the flood sublimit.
The policies are unambiguous that a storm surge is a type of flood. The policies warn insurers on the first page that bold terms have technical definitions.4 Although the named storm sublimit lists flood and storm surge separately,5 because flood is in bold the insurer is alerted that the term has a technical definition that applies in the named storm context. That definition expressly includes the term "storm surge" as a type of flood and further states that a flood includes water driven by wind. A '"storm surge' is little more than a synonym for a 'tidal wave' or wind-driven flood." Bilbe v. Belsom, 530 F.3d 314, 317 (5th Cir. 2008). Thus, the policy definition makes it doubly clear that a storm surge is a type of flood under the policy—it contains that precise word and describes the physical characteristics of a storm surge.
Moreover, whether a storm surge is a separate peril from a flood was hotly contested in the wake of Hurricane Katrina, and the Fifth Circuit "repeatedly held that the term 'flood' includes storm surges" in the ordinary meaning of the words. Id. at 316; see Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 436-38 (5th Cir. 2007). Although these cases were decided in the context of water-damage exclusions in homeowner insurance policies, the policy definitions of water-damage at issue are similar to Lexington's definition of flood in that they include wind-driven water. If anything, Lexington's definition is clearer that a storm surge is a type of flood than the policies in Leonard and Bilbe because it includes the very term in its definition. The fact that Lexington's policies also list storm surge and flood separately in the named storm sublimit—a provision that limits coverage—does not make the policies ambiguous as to whether a storm surge is a type of flood.
The policies are also unambiguous that all loss or damage due to a flood is subject to the flood sublimit. As such, plaintiffs cannot recover beyond the flood sublimit for storm surge losses under the policies' additional provisions, which include debris removal, civil or military authority, demolition, ingress/egress, ordinary payroll, equipment breakdown, and service interruption. The policies provide that the "Sublimits of Liabilities are . . . per Occurrence unless otherwise indicated." Wilson Decl. Ex. 2, at 906. The...
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