Oxford Realty Group Cedar v. Travelers Excess and Surplus Lines Company, ___ N.J. ___ (A-85-15) (077617) (May 25, 2017)

The New Jersey Supreme Court rejected an insurance policyholder’s interpretation of a property insurance policy’s limiting language and its position that “any policyholder not involved in the insurance industry is an unsophisticated policyholder”, and it enforced a $1,000,000 limit of flood coverage.

The policyholder’s claim to its commercial property insurer under its surplus lines policy included more than $1 million in physical property damage plus more than $200,000 for the cost of debris removal. There was no dispute as to a $1 million limit for property damage under the policy’s flood coverage. However, the policyholder claimed it was entitled to more, under the policy’s debris removal coverage, in excess of that limit. The insurer responded that the flood coverage was limited to $1 million, including the debris removal claim, and it paid the $1 million. Policyholder sued for more.

The question was one of policy interpretation. A thicket of policy terms, conditions and declarations, patched together in separate forms and endorsements, set forth the ordinary property coverage, additional flood coverage, and the extra coverage for debris removal. Could they be resolved with each other, and if so, how? Time-honored legal doctrines of contractual interpretation such as “plain meaning”, “reasonable expectations”, and the “contra proferentem” rule have been developed to guide courts in sorting out such problems.

The insurer contended that the policy language was clear enough and set a single limit applying to this claim since it arose out of a single flood occurrence. The policyholder contended that the policy included a separate limit for debris removal, or it appeared to, or at least it should. The issue became whether the policy was ambiguous, in which case the court was obliged to find coverage.

At the trial court level, the insurer prevailed: the policy was not ambiguous and the flood damage limit “nullified” coverage above the limit. A general condition that the policyholder relied upon was subject to a more specific term indicating that the flood limit applied to “‘all losses’ caused by flood”. There was an appeal, and the Appellate Division reversed and remanded for entry of judgment in favor of the policyholder. By its reading of the policy, the different limits applied to different things: buildings, rather than occurrences. This sweet harmonizing of conflicting terms would provide the policy with the additional coverage limit.

The Supreme Court granted certification, and it reversed and reinstated the trial court’s decision. It held that, “[T]he Flood Endorsement controls the extent of flood coverage and it is not modified by the rest of the Policy’s terms.” For the high court, it was just a matter of reading the plain language. It found “a conflicting interpretation suggested by litigants rather than a genuine ambiguity”, and moreover the policyholder was not so unsophisticated that it should benefit from special interpretive doctrines applying against insurers. Courts elsewhere had interpreted similar policies the same way, supporting the high court’s reading.

The New Jersey Supreme Court’s decision in Oxford Realty has significance not just for those policyholders with flood and debris removal coverage under similar policy terms and conditions. For those policyholders, of course, the decision can have a very significant impact upon their total recovery. For example in Oxford Realty, the additional the debris removal limit would have added more than twenty percent to the policyholder’s ultimate recovery. In innumerable other settings, where policy declarations, forms and endorsements pile up a confusing array of terms and conditions, this decision signals that litigants should look first to the plain meaning. Policyholders should not resort immediately to comforting doctrines, as the high court can and may just wash their reliance on those doctrines away, like so much shoreline in a bad storm.