NEW JERSEY TRANSIT CORPORATION , v. LLOYD'S LONDON

Annotate this Case

(NOTE: The status of this decision is Published.)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NOS. A-1026-17T1
A-1027-17T1

NEW JERSEY TRANSIT
CORPORATION,

Plaintiff-Respondent, APPROVED FOR PUBLICATION

November 18, 2019
v.
APPELLATE DIVISION
CERTAIN UNDERWRITERS AT
LLOYD'S LONDON, MAIDEN
SPECIALTY INSURANCE
COMPANY, RSUI INDEMNITY
COMPANY, and WESTPORT
INSURANCE CORPORATION,

Defendants-Appellants,

and

TORUS SPECIALTY INSURANCE
COMPANY,

Defendant-Respondent,

and

HUDSON SPECIALTY
INSURANCE COMPANY and
IRONSHORE SPECIALTY
INSURANCE COMPANY,

Defendants.
____________________________
NEW JERSEY TRANSIT
CORPORATION,

Plaintiff-Respondent,

CERTAIN UNDERWRITERS AT
LLOYD'S LONDON, MAIDEN
SPECIALTY INSURANCE
COMPANY, RSUI INDEMNITY
COMPANY, and WESTPORT
INSURANCE CORPORATION,

Defendants-Respondents,

and

TORUS SPECIALTY INSURANCE
COMPANY,

Defendant-Appellant,

HUDSON SPECIALTY
INSURANCE COMPANY, and
IRONSHORE SPECIALTY
INSURANCE COMPANY,

Defendants.

Argued October 8, 2019 – Decided November 18, 2019

Before Judges Yannotti, Currier and Firko.

On appeal from the Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-6977-14.
Robert W. Fisher (Clyde & Co US LLP) of the
Georgia bar, admitted pro hac vice, argued the cause
for appellants Certain Underwriters at Lloyd's,

A-1026-17T1
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London, Maiden Specialty Insurance Company, RSUI
Indemnity Company, and Westport Insurance
Corporation (Clyde & Co. US, LLP, attorneys; Robert
W. Fisher, Anthony M. Tessitore, and Taylor L. Davis
and James M. Bauer (Clyde & Co US LLP) of the
Georgia bar, admitted pro hac vice, on the briefs).

Shawn L. Kelly and Michael J. Smith argued the cause
for appellant StarStone Specialty Insurance Company
f/k/a Torus Specialty Insurance Company (Dentons
US, LLP, and Stewart Smith, attorneys; Shawn L.
Kelly, Jonathan David Henry, Michael J. Smith, and
Bryan W. Petrilla, of counsel and on the briefs).

Kenneth H. Frenchman and Marc T. Ladd (McKool
Smith, PC) of the New York bar, admitted pro hac
vice, argued the cause for respondent New Jersey
Transit Corp. (McKool Smith, PC, attorneys; Robin L.
Cohen, Kenneth H. Frenchman, Marc T. Ladd, and
Alexander M. Sugzda (McKool Smith, PC) of the New
York bar, admitted pro hac vice, on the brief).

The opinion of the court was delivered by

YANNOTTI, P.J.A.D.

New Jersey Transit Corporation (NJT) brought this action seeking a

declaration regarding the coverage provided under its property insurance

program for water damage that occurred during Superstorm Sandy. The trial

court found that the $100 million flood sublimit in the policies did not apply to

NJT's claim, and NJT was entitled to coverage up to the full $400 million

policy limits for the Sandy-related water damage. The trial court also found

that defendant insurers had not submitted sufficient evidence to support their

A-1026-17T1
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claims for reformation of the policies. Accordingly, the court entered an order

dated September 18, 2017, granting summary judgment in favor of NJT, and

denying the insurers' motions for summary judgment.

In A-1026-17, Certain Underwriters At Lloyd's, London (Lloyd's),

Maiden Specialty Insurance Company (Maiden), RSUI Indemnity Company

(RSUI), Specialty Insurance Company (Specialty), and Westport Insurance

Corporation (Westport) appeal from the September 18, 2017 order. In A-1027-

17, Torus Specialty Insurance Company (Torus) also appeals from the

September 18, 2017 order. We address both appeals in this opinion. 1 For the

reasons that follow, we affirm.

In July 2012, NJT, through its insurance broker, Marsh USA Inc.

(Marsh), secured coverage from eleven insurers in a multi-layered property

insurance policy program for the policy period from July 1, 2012, to July 1,

2013. The policies insured against "all risks" and provided coverage

proportionally in four layers. Lexington Insurance Company (Lexington)

provided coverage in the primary layer and was responsible for the first $50

million of insurance.

1
We refer herein to Lloyd's, Maiden, RSUI, Specialty, and Westport
collectively as "Certain Insurers."

A-1026-17T1
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After the primary layer was exhausted, the policies provided three layers

of excess coverage. The second layer provided coverage up to $100 million,

and the third layer provided an additional $175 million. The fourth layer

provided coverage of $125 million, resulting in a property insurance program

with $400 million of coverage.

Certain Insurers and Torus provided excess coverage in the third or

fourth excess layers, or both. Hudson Specialty Insurance Company (Hudson),

Ironshore Specialty Insurance Company (Ironshore), and Arch Specialty

Insurance Company (Arch) also provided excess coverage. The policies of all

participating insurers included a standard policy form and separate endorsements,

some of which were included in all policies, and some which were unique to

specific insurers.

The policies cover all perils and damage to NJT's property unless

specifically excluded. In addition, section two of the standard policy form,

entitled "limit of liability," sets forth twenty-seven categories of losses for

which coverage is subject to "100% per occurrence ground-up sublimits." The

terms "sublimit" and "ground-up" are not defined in the policies, but these

terms are commonly used in the insurance industry.

"A 'sublimit' is a limit within the aggregate limit for a certain type of

risk . . . ." David Navetta, The New Privacy Insurance Coverage, 3 No. 1.

A-1026-17T1
5 ABA SciTech Law 14, 17, n.3 (2006). When a sublimit applies, the loss is

covered only up to the amount of the sublimit rather than up to the amount of

the aggregate limit. Ibid. Furthermore, in a "ground-up" multi-layered policy

program, "a given layer of coverage is not implicated until the layer beneath it

is completely exhausted." New Hampshire Ins. v. Clearwater Ins., 129 A.D.3d 99, 106 (N.Y. App. Div. 2015) (quoting North River Ins. v. ACE Am.

Reinsurance Co., 361 F.3d 134, 138 n.6 (2d Cir. 2004)).

The flood sublimit in section two of the standard policy form limits

liability for "losses caused by flood" to $100 million "per occurrence." In

Certain Insurers' policies and the Torus policy, "flood" is defined as :

[A] temporary condition of partial or complete
inundation of normally dry land from:

1. The overflow of inland or tidal waters outside the
normal watercourse or natural boundaries[;]

2. The overflow, release, rising, back-up, runoff or
surge of surface water; or

3. The unusual or rapid accumulation or runoff of
surface water from any source.

[S]uch . . . flood shall be deemed to be a single
occurrence within the meaning of this policy.

The policies also state that "[e]ach loss by . . . flood shall constitute a

single loss[,]" if:

A-1026-17T1
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(2) . . . any flood occurs within a period of the
continued rising or overflow of any river(s) or
stream(s) and the substance of same within the banks
of such river(s) or stream(s) or the unusual and rapid
accumulation or runoff of surface waters; or

(3) . . . any flood results from any tsunami, tidal
wave, or seismic sea waves or series thereof caused by
any one disturbance.

The term "occurrence," which appears in section two of the standard

policy form, is defined in the Occurrence Limit of Liability Endorsement

(OLLE). The OLLE states:

The limit of liability of Insurance shown on the
face of this policy, or endorsed on to this policy, is the
total limit of the Company's liability applicable to
each occurrence, as hereafter defined.
Notwithstanding any other terms and conditions of
this policy to the contrary, in no event shall the
liability of the company exceed this limit or amount
irrespective of the number of locations involved.

The term "occurrence" shall mean any one loss,
disaster, casualty or series of losses, disasters, or
casualties, arising out of one event. When the term
applies to loss or losses from the perils of tornado,
cyclone, hurricane, windstorm, hail, flood, earthquake,
volcanic eruption, riot, riot attending a strike, civil
commotion, and vandalism and malicious mischief
one event shall be construed to be all losses arising
during a continuous period of 72 hours. When filing
proof of loss, the insured may elect the moment at
which the 72 hour period shall be deemed to have
commenced, which shall not be earlier than the first
loss to the covered property occurs.

A-1026-17T1
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Section fourteen of Certain Insurers' policies defines the term "[n]amed

windstorm." This provision was added to the policies that were to be in effect

from July 1, 2012, to July 1, 2013. It states:

"Named Windstorm" shall mean wind or wind
driven water, storm surge and flood associated with,
or which occurs in conjunction with, a storm or
weather disturbance which is named by the National
Weather Service or any other recognized
meteorological authority.

Such storm or weather disturbance shall be
considered to be a Named Windstorm until the time
such storm or weather disturbance has been
downgraded, meaning that the storm or weather
condition is no longer considered by the U.S. National
Weather Service or any other recognized
meteorological authority to be a hurricane, typhoon,
tropical storm or cyclone.

Endorsement four of the Torus policy pertains to "named windstorm"

and states:

Named windstorm shall mean direct action of
wind including ensuing storm surge when such
wind/storm surge is associated with, or occurs in
conjunction with a storm or weather disturbance
which is named by the National Oceanic and
Atmospheric Administration's (NOAA) National
Hurricane Center or similar body until sustained wind
speeds drop below the parameter for naming storms.

Storm surge is defined as water driven inland
from coastal waters by high winds and low
atmospheric pressure.

A-1026-17T1
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On October 29, 2012, Superstorm Sandy struck New Jersey, causing

significant damage to NJT's properties. After the storm, NJT promptly

notified Marsh and the insurers of its losses. NJT's employees, Marsh, and

loss adjuster York Risk Services Group, Inc. (York) arranged for the

inspection of the damaged properties and a valuation of the equipment that had

to be repaired or replaced. Thereafter, Marsh sought a determination as to the

amount of coverage provided for the Sandy-related water damage to NJT's

properties.

In April 2013, Terry S. Lubin, Executive General Adjuster for York,

wrote NJT on behalf of Certain Insurers, Torus, and other excess carriers.

Lubin stated that NJT's claimed losses for water damage were limited by the

$100 million flood sublimit in the policies, and the excess carriers would pay

no more than $50 million in addition to the first-layer coverage provided by

Lexington.

Marsh later advised York that NJT disagreed with the excess insurers'

interpretation of the policies. Marsh explained that none of the sublimits in the

policies applied to losses caused by a "named windstorm," which was a

separately defined peril. Marsh asserted that NJT was entitled to the full $400

million in coverage under the program for its Sandy-related property damage.

A-1026-17T1
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Arch, which provided coverage in the second, third, and fourth layers of

the program, informed NJT it would not apply the flood sublimit to NJT's

property damage claim. Arch agreed to pay its proportional share of NJT's

losses above the $100 million flood sublimit.

In October 2014, NJT filed this action against Lloyd's, Maiden, RSUI,

Torus, Westport, Hudson, and Ironshore. NJT sought a judgment declaring

that the $100 million flood sublimit did not apply to its claims for property

damage associated with Superstorm Sandy, and defendants were in

anticipatory breach of their insurance contracts. Certain Insurers and Torus

filed answers asserting that they had no contractual obligation to provide

coverage for any water-related damage caused by "flood" that exceeded $100

million.

Certain Insurers and Torus later amended their answers to assert

counterclaims for reformation of their policies. The trial court stayed

proceedings on NJT's claims against Hudson pending arbitration, pursuant to a

provision in Hudson's policy. In March 2017, the trial court granted NJT's

motion to vacate the stay and confirm the arbitration award.

After the completion of discovery, NJT, Certain Insurers, and Torus

filed motions for summary judgment. On August 24, 2017, the Law Division

judge heard oral argument and placed his decision on the record. The judge

A-1026-17T1
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granted NJT's motion and denied Certain Insurers' and Torus's motions. The

judge memorialized his decision in an order dated September 18, 2017. 2 These

appeals followed.

II.

On appeal, Certain Insurers and Torus argue that the trial court erred by

granting NJT's motion for summary judgment. They contend the water

damage to NJT's properties, which occurred during Superstorm Sandy, were

"losses caused by flood," and therefore are subject to the $100 million flood

sublimit in the policies.

"An appellate court reviews an order granting summary judgment in

accordance with the same standard as the motion judge." Bhagat v. Bhagat,

217 N.J. 22, 38 (2014). Our court rules provide that summary judgment shall

be granted "if the pleadings, depositions, answers to interrogatories and

admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact challenged and that the moving party is

entitled to a judgment or order as a matter of law." R. 4:46-2(c).

"If there exists a single, unavoidable resolution of the alleged disputed

issue of fact, that issue should be considered insufficient to constitute a

2
Although Ironshore sought summary judgment along with Certain Insurers,
it has not appealed from the trial court's September 18, 2017 order.

A-1026-17T1
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'genuine' issue of material fact for purposes of Rule 4:46-2." Brill v. Guardian

Life Ins. Co. of Am., 142 N.J. 520, 540 (1995) (citing Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 250 (1986)). The court "should not hesitate to

grant summary judgment" if "the evidence 'is so one-sided that one party must

prevail as a matter of law.'" Ibid. (quoting Liberty Lobby, 477 U.S. at 252).

Where, as in this case, the issue raised on appeal involves the

interpretation of a contract and the application of case law to the facts of the

case, we review the trial court's decision de novo. Merrill Lynch, Pierce,

Fenner & Smith, Inc. v. Cantone Research, Inc., 427 N.J. Super. 45, 57 (App.

Div. 2012). In doing so, we accord no "special deference" to the trial court's

"interpretation of the law" or its judgment on the "legal consequences that flow

from established facts . . . ." Manalapan Realty, L.P. v. Twp. Comm. of

Manalapan, 140 N.J. 366, 378 (1995).

Here, the trial court found that there was no genuine issue of material

fact that pertains to the interpretation and application of NJT's insurance

policies. The record supports the court's determination. It is undisputed that

during Superstorm Sandy, a surge of water inundated and damaged various

NJT properties. Dr. Philip Orton, NJT's expert, opined that Sandy's record-

setting storm surge caused the flooding of various NJT sites. In addition, Dr.

Lee E. Branscome, the expert for Certain Insurers, opined that the storm surge

A-1026-17T1
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occurred simultaneously with the flooding "and was an inseparable part of the

flood event."

Thus, the question raised on appeal is whether the Sandy-related water

damage to NJT's properties is subject to the $100 million flood sublimit, or

whether the policies provide coverage for such damage up to the $400 million

limit of NJT's insurance program. In addressing this legal issue, we are guided

by the general principle that insurance policies must be analyzed under the

rules of contract law. Cypress Point Condominium Ass'n, Inc. v. Adria

Towers, L.L.C., 226 N.J. 403, 415 (2016) (citing Kampf v. Franklin Life Ins.,

33 N.J. 36, 43 (1960)).

To determine the meaning of a provision in an insurance policy, we first

consider the plain meaning of the language at issue. Chubb Custom Ins. v.

Prudential Ins. Co. of Am., 195 N.J. 231 (2008) (citing Zacarias v. Allstate Ins.,

168 N.J. 590, 594-95 (2001)). We must read the contract as a whole "in a fair

and common sense manner." Cypress Point, 226 N.J. at 415 (quoting Hardy ex

rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 103 (2009)). The court must "give

effect to the whole policy, not just one part of it." Id. at 416 (quoting Arrow Indus.

Carriers, Inc. v. Cont'l Ins. Co. of N.J., 232 N.J. Super. 324, 334 (Law Div. 1989)).

Our goal in interpreting the policies is to "discover the intention of the

parties[,]" by considering "the contractual terms, the surrounding

A-1026-17T1
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circumstances, and the purpose of the contract." Marchak v. Claridge

Commons, Inc., 134 N.J. 275, 282 (1993). Moreover, "if the controlling

language of a policy will support two meanings, one favorable to the insurer and

the other to the insured, the interpretation favoring coverage should be applied."

Cypress Point, 226 N.J. at 416 (quoting Butler v. Bonner & Barnewell, Inc., 56 N.J. 567, 575 (1970)).

III.

Certain Insurers and Torus argue that the Sandy-related inundation of

NJT's properties met two separate definitions of "flood" in the policies. They

assert NJT's properties were damaged by either "[t]he overflow, release, rising,

back-up, runoff or surge of surface water;" or "[t]he unusual or rapid

accumulation or runoff of surface water from any source." Defendants

therefore contend the water damage to NJT's properties were "losses caused by

flood," which are subject to the $100 million flood sublimit in the policies.

We disagree.

Here, the trial court correctly determined that the losses at issue are not

subject to the $100 million flood sublimit. As stated previously, the flood

sublimit in the policies applies to "losses caused by flood." The policies define

"flood" to include the "surge of surface water," as well as "the rapid

accumulation or runoff of surface water from any source."

A-1026-17T1
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However, the Certain Insurers' policies separately define "named

windstorm" to include "wind driven water, storm surge and flood associated with,

or which occurs in conjunction" with a "named windstorm." Similarly, the Torus

policy defines "named windstorm" to mean the "direct action of wind including

storm surge when such wind/storm surge is associated with or occurs in

conjunction with" a named windstorm.

The policies do not define "flood" to include "storm surge" and "wind driven

water" associated with such a "named windstorm." Although the definition of

"flood" includes "surge," the definition of "named windstorm" more specifically

encompasses the wind driven water or storm surge associated with a "named

windstorm." Where, as here, two provisions of an insurance policy address the

same subject, "the more specific provision controls over the more general."

See Homesite Ins. v. Hindman, 413 N.J. Super. 41, 48 (App. Div. 2010).

Furthermore, if the parties had intended that damage from a "storm surge"

would be subject to the flood sublimit, the policies would have stated so in plain

language. Moreover, if the term "flood" already included damage from a "storm

surge" associated with a "named windstorm," as defendants claim, there would

have been no need for the parties to include the "named windstorm" provision in

the policies.

A-1026-17T1
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In support of their arguments on appeal, defendants place great weight

on the flood sublimit, which applies "per occurrence" to all losses "caused by

flood." Defendants contend the OLLE combines all windstorm, flood, and other

perils in a single event or "occurrence" for purposes of applying the flood sublimit.

Although the OLLE provides that "losses" caused by certain perils are to

be considered a single event or "occurrence," the OLLE does not address

whether the Sandy-related damage to NJT's properties was damage "caused by

flood" or damage resulting from a "named windstorm." In addition, the OLLE

does not expressly provide that damage caused by a "flood" and damage from

a "named windstorm" are to be treated as a single event or "occurrence" for

purposes of applying the flood sublimit.

Defendants further argue the flood sublimit applies to NJT's Sandy-

related property damage because there is no provision in the policies that

specifically removes "storm surge" from the definition of "flood," and no

provision that states the flood sublimit does not apply to the inundation of

property associated with a "named windstorm."

In support of this argument, defendants rely upon a provision of the

policies that pertains to "earthquake and flood." This provision states:

Flood, as defined in this policy, that would not have
occurred but for an Earth Movement as described
herein, shall be deemed to be proximately caused by
Earth Movement regardless of any other cause or

A-1026-17T1
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event that contributes concurrently or in any sequence
to such Flood, and consequently shall be considered
Earth Movement.

Defendants contend a similar provision was required in order to remove

water damage resulting from a "named windstorm" from the flood sublimit.

We are convinced, however, that the relevant provisions of the policies are

sufficiently clear and establish that water damage associated with a "named

windstorm" does not come within the definition of "flood" and is not subject to

the flood sublimit.

Certain Insurers also contend the parties never intended that the "named

windstorm" provision would remove water damage associated with a "named

windstorm" from the flood sublimit. They assert the "named windstorm"

provision merely gives "shape to a particular type of event," which is to

emphasize that all losses arising from a "named windstorm" are those that

occur in a single, seventy-two-hour period.

We cannot agree. The plain language of the policies indicates that the

purpose of the "named windstorm" definition was to differentiate between the

inundation caused by a "surge" of water, which may have no relationship to a

storm, and the inundation resulting from a "storm surge," which the policies

define as wind driven water associated with a "named windstorm."

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Accordingly, we are convinced the plain language of the policies

provides that water damage resulting from a "storm surge" associated with a

"named windstorm" does not fall within the definition of "flood." Therefore,

the water damage to NJT's properties that occurred during Superstorm Sandy is

not subject to the $100 million flood sublimit.

IV.

The decision in SEACOR Holdings, Inc. v. Commonwealth Insurance, 635 F.3d 675 (5th Cir. 2011), supports our interpretation of the policies. In SEACOR,

the insured had an all-risk policy, which included deductibles that were based on

the source of the damage. Id. at 677. One of the deductibles applied to a loss

directly caused by the peril of "named windstorm," and another deductible applied

to a loss caused directly by the peril of flood. Id. at 678. The policy provided an

aggregate limit of liability for loss caused by flood. Ibid.

The plaintiff's properties had been damaged significantly during a named

hurricane. Ibid. The insurer applied both deductibles to the plaintiff's claim. Id.

at 680. The Fifth Circuit held that the hurricane was the proximate cause of the

plaintiff's water-related damage, even though there were other contributing factors.

Id. at 682. Therefore, only the deductible for "named windstorm" applied. Id. at

682-83.

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The court stated that the damages were caused by a named windstorm and

therefore did not "trigger" the flood limit of liability. Id. at 683. This was so

"because such losses were not caused by the peril of [f]lood." Ibid. The same

reasoning applies in this case. Because the water damage to NJT's properties

was caused by a "named windstorm" rather than "flood," as those terms are

defined in the policies, the flood sublimit does not apply.

Defendants rely, however, on National Railroad Passenger v. Arch

Specialty Insurance, 124 F. Supp. 3d 264, 273 (S.D.N.Y. 2015) (Amtrak).3 In that

case, Amtrak sought coverage for property damage that arose in the aftermath of

Superstorm Sandy. Id. at 266. Amtrak had all-risk policies issued by various

insurers, which included a $125 million sublimit for flood and earthquake. Id. at

267. Most of the policies defined "flood" as "a rising and overflowing of a body of

water onto normally dry land." Ibid. Other policies defined "flood" to include a

"surge of surface water . . . ." Ibid.

The district court noted that Sandy had generated a "storm surge" that drove

water from the rivers around Manhattan onto the shore and inundated Amtrak's

tunnels under the East River. Ibid. The water damaged Amtrak's equipment. Id.

3
The Court of Appeals affirmed the district court's determination regarding
the application of the flood sublimit in an unpublished opinion. Nat'l R.R.
Passenger Corp. v. Aspen Specialty Ins., No. 15-2358, 2 016 U.S. App. LEXIS 16074, at *13 (2d Cir. Aug. 31, 2016).

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at 268. In addition, after the water was pumped from the tunnels, it left behind a

residue of "chlorides," which caused additional damage. Ibid.

The court held that the definitions of "flood" in the policies unambiguously

encompassed the inundation of normally dry land caused by a storm surge. Id. at

269. The court noted that the parties had agreed a storm surge "pushes water

beyond its usual borders and onto normally dry land." Ibid.

The court rejected Amtrak's contention that a loss from the peril of flood is

different from the inundation caused by a storm surge or wind driven water. Id. at

270-71. The court found that Amtrak's interpretation of the policies "cannot be

reconciled with the plain language of the policies." Id. at 271.

We are convinced defendants' reliance upon the Amtrak decision is

misplaced. In Amtrak, the court distinguished the policies at issue with policies

that include "storm surge" within the definition of "named windstorm." Id. at 272.

The court emphasized that Amtrak's policies did not provide that floods associated

with a "named windstorm" are to be treated differently from other floods. Ibid.

Here, the policies in NJT's program provided a definition of "named

windstorm," which includes "wind or wind driven water, storm surge and flood

associated with" such storms. Therefore, the policies plainly provide that

water damage associated with a "named windstorm" are to be treated

A-1026-17T1
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differently from "losses caused by flood." Therefore, such losses are not

subject to the flood sublimit.

In addition, defendants rely upon Six Flags, Inc. v. Westchester Surplus

Lines Insurance, 565 F.3d 948 (5th Cir. 2009). There, the plaintiff obtained multi-

layered, all-risk, first-party property insurance for its theme parks, with a primary

layer providing coverage of $25 million and other layers providing excess

coverage. Id. at 951. The polices included a flood sublimit that capped liability at

$2.5 million for the first layer of excess coverage, and $27.5 million for the second

layer. Id. at 952.

The policies defined "Weather Cat Occurrence," to mean "[a]ll loss or

damage occurring during a period of [seventy-two] hours which is . . . named by

the National Weather Service or any other recognized meteorological authority."

Id. at 953. The policies also stated that the term "[s]torm or weather disturbance

includes all weather phenomenon associated with or occurring in conjunction with

the storm or weather disturbance, including but not limited to [f]lood, wind, hail,

sleet, tornadoes, hurricane or lightning." Ibid.

The plaintiff's property sustained heavy damage during Hurricane Katrina

and the plaintiff submitted losses totaling $150 million to the insurers. Ibid. The

primary-layer carriers paid the plaintiff $25 million; however, the excess carriers

applied the flood sublimit and capped their liability at $2.5 million. Ibid. The

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court held that the flood sublimit applied because the definition of "occurrence" in

the policies grouped certain losses for adjustment purposes. Id. at 957. The court

found that an "occurrence" is "distinct from the concept of a peril, which is the

cause of the loss." Ibid.

Defendants' reliance upon Six Flags also is misplaced. Here, the definition

of "occurrence" in the policies groups losses pertaining to certain perils. However,

the flood sublimit only applies to "losses caused by flood." Under NJT's policies,

losses caused by a "storm surge" associated with a "named windstorm" are not

"losses caused by flood," and are not subject to the flood sublimit. Thus, Six Flags

does not support defendants' interpretation of the policies.

On appeal, NJT argues that even were we to conclude that NJT's losses were

caused by both a "flood" and a "named windstorm," it would nevertheless be

entitled to coverage under New Jersey's efficient proximate cause doctrine. We

agree.

When there is a conflict as to whether, for coverage purposes, losses

should be considered to be "caused by" an excluded risk or by a covered peril,

the New Jersey courts employ the efficient proximate cause test, which is

sometimes referred to as Appleman's Rule. See generally Search EDP, Inc. v.

Am. Home Assurance Co., 267 N.J. Super. 537, 543-46 (App. Div. 1993)

A-1026-17T1
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(discussing and applying Appleman's Rule). Accord Zurich Am. Ins. v.

Keating Bldg. Corp., 513 F. Supp. 2d 55, 70 (D.N.J. 2007); Flomerfelt v.

Cardiello, 202 N.J. 432, 447 (2010); Auto Lenders Acceptance Co. v. Gentilini

Ford, Inc., 181 N.J. 245, 257-58 (2004).

Under this test, if an exclusion "bars coverage for losses caused by a

particular peril, the exclusion applies only if the excluded peril was the 'efficient

proximate cause' of the loss." Zurich, 513 F. Supp. 2d at 70 (emphasis added)

(quoting Auto Lenders, 181 N.J. at 257). "Where a peril specifically insured

against sets other causes in motion which, in an unbroken sequence and connection

between the act and final loss, produces the result for which recovery is sought, the

insured peril is regarded as the proximate cause of the entire loss . . . ." Auto

Lenders, 181 N.J. at 257 (quoting 5 John Alan Appleman, Insurance Law &

Practice § 3083 at 309-11 (1970)).

Here, the "storm surge" associated with Superstorm Sandy was a "peril

specifically insured against . . . ." Auto Lenders, 181 N.J. at 257. Because

Sandy's "storm surge" caused, "in an unbroken sequence," any losses that might

otherwise not be covered under the flood sublimit, the storm surge is "regarded as

the proximate cause of the entire loss." Ibid.

Defendants argue, however, that the efficient proximate cause doctrine does

not apply here. They advance several reasons for their argument.

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First, Certain Insurers contend the policies excluded application of the

efficient proximate cause doctrine because they include a "single loss" clause. An

anti-concurrent causation or anti-sequential causation clause will "exclude

coverage when a prescribed excluded peril, alongside a covered peril, either

simultaneously or sequentially, causes damage to the insured." Simonetti v.

Selective Ins., 372 N.J. Super. 421, 431 (App. Div. 2004). The single-loss clause

in NJT's policies does not exclude coverage for losses occasioned by a

sequence of causes, some of which are included and some of which are not.

Therefore, it is not an anti-sequential causation clause.

Next, Certain Insurers argue that the efficient proximate cause doctrine does

not apply because the policies were negotiated by a sophisticated insured that used

the services of a professional broker. They assert that "if a rule" of interpretation,

including the efficient proximate cause doctrine, "favors the insured, it cannot

apply where a sophisticated insured like [plaintiff] negotiated the [p]olicies."

In support of this argument, Certain Insurers cite Chubb Custom. In that

case, the Court stated that "the rules tending to favor an insured that has entered

into a contract of adhesion are inapplicable where . . . both parties are sophisticated

commercial entities with equal bargaining power." Chubb Custom, 196 N.J. at 246

(citing Pacifico v. Pacifico, 190 N.J. 258, 267-68 (2007)).

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However, Chubb Custom does not support Certain Insurers' argument. That

case dealt with the application of contra proferentem, which applies when the court

finds contract terms ambiguous. Id. at 238 (citing Pacifico, 190 N.J. at 258, 268).

The court then "generally will adopt the meaning that is most favorable to the non-

drafting party if the contract was the result of negotiations between parties of

unequal bargaining power." Ibid. (citing Pacifico, 190 N.J. at 258, 268).

Chubb Custom does not address the efficient proximate cause doctrine.

Moreover, there is no provision in NJT's policies which expressly precludes

application of the doctrine to losses caused by "flood" and losses resulting from a

"storm surge" associated with a "named windstorm."

In addition, endorsement one in the standard policy states that the parties

understand and agree that New Jersey law would apply to "[a]ny dispute

concerning the interpretation of the terms, conditions, limitations and/or exclusions

. . . ." New Jersey law applies the efficient proximate cause doctrine. Search EDP,

267 N.J. Super. at 543-46.

Certain Insurers and Torus also contend the efficient proximate cause

doctrine does not apply to "all-risk" policies because it is always possible to look

back to a remote event in a chain of causation and find a covered peril. According

to defendants, this would allow the insured to avoid application of the flood

sublimit and defeat the purpose of having exclusions.

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Defendants were free, however, to negotiate the terms of a policy that

specifically precluded the application of the efficient proximate cause doctrine

when damage is caused by "flood" and a "storm surge" associated with a "named

windstorm." They did not do so. As we stated previously, the court cannot make a

new and better contract for defendants than they made for themselves. Cypress

Point, 226 N.J. at 415 (quoting Kampf, 33 N.J. at 43).

Certain Insurers also argue the efficient proximate cause doctrine only

applies "to exclusions, not sublimits." Again, we disagree. The flood sublimit

bars coverage for losses "caused by flood" that exceed $100 million. The

sublimit therefore excludes coverage for certain claims. Moreover, Certain

Insurers has not offered any persuasive reason for treating a sublimit

differently from other exclusions for purposes of applying the efficient

proximate cause doctrine.

Accordingly, we conclude that if NJT's losses are deemed to have been

caused both by "flood" and by a storm surge associated with a "named

windstorm," and the efficient proximate cause doctrine is applied, NJT's

claims for Sandy-related water damage would not be subject to the $100

million flood sublimit in the policies.

VI.

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Although Certain Insurers and Torus argue that relevant policy

provisions are clear, they alternatively argue that certain extrinsic evidence

created a genuine issue of material fact that precluded the grant of summary

judgment to NJT on the coverage issue. They assert the extrinsic evidence

raises a genuine issue as to whether the parties intended that the water damage

from a "storm surge" would be subject to the flood sublimit.

Disputes concerning intent or credibility ordinarily should not be

resolved on summary judgment. McBarron v. Kipling Woods, LLC, 365 N.J.

Super. 114, 117 (App. Div. 2004). However, if "[t]he facts needed to interpret

the contract are not in dispute . . . , under ordinary circumstances the court

should award summary judgment . . . and require specific performance of the

contract." Kilarjian v. Vastola, 379 N.J. Super. 277, 283 (Ch. Div. 2004).

Here, there is no genuine issue of material fact relevant to the

interpretation and application of the flood sublimit. We have determined as a

matter of law that under the plain language of the policies, NJT's losses

resulting from the "storm surge" associated with Superstorm Sandy are not

subject to the sublimit for "losses caused by flood."

We therefore conclude the trial court was not required to consider the

extrinsic evidence proffered by defendants and the court did not err by

granting summary judgment on the coverage issue.

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VII.

In its appeal, Torus argues that if we conclude the flood sublimit does

not apply to NJT's losses, it presented sufficient evidence for reformation of its

policy on the basis of equitable fraud. Torus therefore contends the trial court

erred by granting summary judgment to NJT on its reformation claim.4

"The general rule with respect to the reformation of contracts applies

equally to insurance policies: relief will be granted only where there is mutual

mistake or where a mistake on the part of one party is accompanied by fraud or

other unconscionable conduct of the other party." Heake v. Atl. Cas. Ins., 15 N.J. 475, 481 (1954). Accord Phillips v. Metlife Auto & Home/Metro. Grp.

Prop. & Cas. Ins., 378 N.J. Super. 101, 104 (App. Div. 2005). "Every fraud in

its most general and fundamental conception consists of the obtaining of an

undue advantage by means of some act or omission that is unconscientious or a

violation of good faith." Jewish Ctr. of Sussex Cty. v. Whale, 86 N.J. 619, 624

(1981).

A party claiming equitable fraud need not establish that the perpetrator

knew the falsity of the misrepresentation. Ibid. Instead, the party must

establish, by "clear and convincing evidence," that: (1) a party made a

4
We note that in the trial court, Certain Insurers also sought reformation of
their policies. However, on appeal, these defendants have not challenged the
trial court's grant of summary judgment to NJT on their reformation claims.

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misrepresentation or omission of material fact; (2) knowing the falsity of the

statement; (3) intending that the misrepresentation or omission be relied upon;

(4) resulting in the injured party's reasonable reliance; and (5) damages.

DepoLink Court Reporting & Litig. Support Servs. v. Rochman, 430 N.J.

Super. 325, 336 (App. Div. 2013) (citing Jewish Ctr., 86 N.J. at 624).

Here, Torus alleges that Marsh masked its "intention [of] increas[ing]

coverage limits . . . [with] the named windstorm definition . . . ." Torus claims

Marsh highlighted the changes to the terms of the expiring policy, but failed to

highlight the "named windstorm" section in the new policy that would be in

effect from July 1, 2012, to July 1, 2013. Torus further alleges that Marsh

"falsely stat[ed] that the named windstorm definition was required to be

included . . . solely for 'concurrency' purposes," and that Marsh

"misrepresent[ed]" that the flood sublimit "would remain applicable ."

We are not persuaded by Torus's contention that it presented sufficient

evidence to support its claim for reformation of its policy. Here, Torus claims

Nicholas Trent, a Marsh underwriter, told Torus underwriter Michael

Argenziano that the "named windstorm" definition would be added to the

policies solely for "concurrency" purposes.

Assuming that Trent made that statement, it was not a factual

representation regarding the scope of coverage, and it was not false.

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Moreover, Argenziano stated that he understood "concurrency" to mean "the

same language" in all the policies providing excess coverage. The "named

windstorm" definitions in the policies are, in fact, essentially the same.

Torus further alleges that Trent "misled" Argenziano "to believe that the

named windstorm definition would not affect the [f]lood [s]ublimit at all."

However, Torus has not presented any evidence showing that Trent or any

other Marsh agent made a specific statement, which misrepresented the effect

the "named windstorm" definition would have on the flood sublimit.

Therefore, Torus's reformation claim is not based on any affirmative

misrepresentations. Instead, the claim is based on the allegation that Marsh

failed to disclose material facts about the "named windstorm" definition and

the flood sublimit. See Jewish Ctr., 86 N.J. at 624.

In support of that claim, Torus relies on statements that Argenziano

made to Trent. Torus asserts that Argenziano repeatedly informed Trent he

could not underwrite more than $5 million in flood coverage. Torus claims

Trent "knowingly permitted" Argenziano to proceed with that "false

understanding."

Although "[s]ilence in the face of a duty to disclose may constitute a

fraudulent concealment" in certain circumstances, we have limited the duty to

disclose in the commercial context to "three general classes of transactions

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. . . ." United Jersey Bank v. Kensey, 306 N.J. Super. 540, 551 (App. Div.

1997). "The first involves fiduciary relationships such as principal and agent

or attorney and client." Ibid. The second relates to circumstances in which

either party "expressly reposes . . . a trust and confidence in the other ." Ibid.

The third relates to "contracts or transactions which in their essential nature,

are 'intrinsically fiduciary,' and . . . 'necessarily call[] for perfect good fai th

and full disclosure . . . .'" Ibid. (quoting Berman v. Gurwicz, 189 N.J. Super.
89, 94 (Ch. Div. 1981)).

Here, there is no basis for recognizing a duty on the part of Marsh to

make any specific disclosures regarding the effect the addition of the "named

windstorm" definition would have on the flood sublimit. Marsh and Torus did

not have a principal and agency relationship. Furthermore, Marsh was acting

on behalf of NJT, and was engaged in arms-length negotiations with the

insurers for renewal of NJT's property insurance program.

Moreover, Marsh and Torus did not have a relationship in which either

reposed "trust and confidence" in the other. In addition, the insurance policies

were not contracts of a fiduciary nature, and did not necessarily require

"perfect good faith and full disclosure . . . ." Ibid.

Thus, neither NJT nor Marsh had a duty to explain the significance of

the "named windstorm" definition or any other provision in the policies to

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Torus. Rather, Torus and its underwriters had an obligation to read those

terms before agreeing to participate in the program and provide coverage. See

Aden v. Fortsh, 169 N.J. 64, 86 (2001) (noting that if a contracting party fails

to read the contract before agreeing to its terms, the party cannot later claim

the agreement was different from that which was expressed in writing).

Therefore, viewing the evidence in the light most favorable to Torus, we

are convinced the trial court did not err by granting summary judgment to NJT

on Torus's reformation claim. We conclude the evidence pertaining to this

claim was "so one-sided" that NJT was entitled to prevail as a matter of law.

Brill, 142 N.J. at 540 (quoting Liberty Lobby, 477 U.S. at 252).

Affirmed.

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