An Angry Sea: The State of Storm Surge Coverage

As hurricane season rages forward, consider that over half of the Nation’s economic productivity is located within coastal zones.  A storm surge of 23 feet has the ability to inundate 67% of interstates, 57% of arterials, almost half of all rail miles, 29 airports, and virtually all ports in the Gulf Coast.  Storm surge can affect not only the coastline, but also cause considerable devastation inland, and accompany not just hurricanes, but tropical storms, as well.  In 2005, Hurricane Katrina’s storm surge exceeded 25 feet, causing over 1,500 deaths and catastrophic damage estimated at $75 billion.  It remains the country’s highest documented storm surge.  In 2008, Hurricane Ike made landfall in Texas as a Category 2 hurricane with storm surges of 15-20 feet above normal tide levels.  The surge reached as far as 30 miles inland.  Even though Superstorm Sandy lost its hurricane characteristics before making landfall in 2012, its enormous size drove a devastating storm surge of over 11 feet onto parts of New Jersey and New York, spurring contentious coverage disputes— some of which are still being fought.

In the wake of Hurricanes Harvey and Irma, the narrative on storm surge coverage generated by the courts in the last few decades may get a new chapter.  This article explores the existing coverage landscape.

In order to understand these decisions, one must appreciate the definition of a storm surge.  According to the National Hurricane Center, it is an abnormal rise of water generated by a storm, over and above the predicted astronomical tides.  One court has described it as: “The abnormal rise in sea level accompanying a hurricane or other intense storm, and whose height is the difference between the observed levels of the sea surface and the level that would have occurred in the absence of the cyclone.”  Lord & Taylor, 2015 U.S. Dist. LEXIS 75868, *12-13 (S.D.N.Y. 2015).  This rise in water level can cause extreme flooding, particularly when the storm surge coincides with normal high tide.  Surges can occur before, during, or after a storm passes, rapidly rising several feet in a matter of minutes.

One of the most hotly contested issues in the wake of Hurricane Katrina was whether flood exclusions bar coverage for loss by storm surge.  More often than not, the courts concluded that they did.  Courts “repeatedly held that the term ‘flood’ includes ‘storm surge,’ in the ordinary meaning of the words.”  Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 436-38 (5th Cir. 2007).  In Leonard, where the policy included wind damage, but excluded water damage, the Fifth Circuit found that the policy exempted from coverage damage caused by “flood . . . waves, tidal waves, and overflow of body of water . . . whether or not driven by wind.”  Id. at 437.  The Court found that the phrase “storm surge” was little more than a synonym for a “tidal wave,” or wind-driven flood, both of which were excluded perils, and that the omission of the specific term “storm surge” in the exclusion did not create ambiguity.  Id. at 437-438.  See also Northrop Grumman v. Factory Mutual Ins. Co., 563 F.3d 777 (9th Cir. 2009) (rejecting the argument that the flood exclusion did not apply to storm surge, and finding that the plain meaning of “flood” included storm surge); Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346, 352-53 (5th Cir. 2007) (rejecting claim that flood sublimit does not apply to flood caused by storm surge); Bilbe v. Belsom, 530 F.3d 314 (5th Cir. 2008) (same).  Compare Pinnacle Entertainment v. Allianz, 2008 U.S. Dist. LEXIS 108583 (D. Nev. March 26, 2008) (finding a flood exclusion, where flood was defined as “a temporary condition of partial or complete inundation of normally dry land . . . from the overflow of inland or tidal waters,” did not clearly, distinctly, and sufficiently communicate an exclusion of storm surge).

A decade later, the Superstorm Sandy jurisdictions were forced to address this same question.  The issue, however, did not crop up nearly as frequently as it did in the wake of Katrina because policies more frequently defined flood to explicitly include storm surge.  E.g., New Sea Crest Healthcare Ctr., LLC v. Lexington Ins. Co., No. 12 CV 6414, 2014 U.S. Dist. LEXIS 86585, at *7-8 (E.D.N.Y. June 24, 2014) (rejecting claim that flood sublimit does not apply to flood caused by storm surge where flood definition in policy explicitly included the term storm surge); National Railroad Passenger Corp. (“Amtrak”) v. Arch Specialty Insurance Company, et. al., No. 14-CV-7510, 2015 U.S. Dist. LEXIS 104477 (July 31, 2015), affirmed on this issue at No. 15-2358, 2016 U.S. App. LEXIS 16074 (2nd Cir. Aug. 31, 2016) (denying Amtrak’s motion requesting that the court interpret the term “flood” to exclude storm surge where all the policies at issue defined the term “flood” to encompass inundation of normally dry land, triggering the flood sublimits).  But see Public Service Enterprise Group, Inc. v. ACE American Insurance Company, et. al., No. ESX-L-4951-13, 2015 N.J. Super. Unpub. LEXIS 620 (March 23, 2015) (finding that storm surge caused by Sandy did not trigger flood sublimits in light of policy language which includes the term “storm surge” in the definition of “Named Windstorm”). 

Mindful of the storm surge litigation that unfolded after Katrina, some insurers now include specific flood and storm surge sublimits in their policies, even when the policies define flood to include “storm surge,” seeking to ensure that storm surge losses will not be subject to more coverage than flood losses.  See, e.g., Orient Overseas Assoc. v. XL Ins. Am., Inc., 2016 N.Y. Misc. LEXIS 2048 (N.Y. Sup. Ct. May 11, 2016).  Courts have taken judicial notice of the litigation history that led to these efforts.  Id. at *27-28.  

Like the decisions involving storm surge that came after Katrina and Sandy, Harvey and Irma are sure to give rise to coverage disputes involving storm surge that will draw upon and add to the existing coverage narrative on this specific type of flood.  The extent to which Harvey and Irma losses will trigger such disputes remains uncertain.  What is certain, however, is that should they materialize, they will unfold against this backdrop of storm surge decisions.  And as these cases illustrate, courts will look at the express language and definitions contained in the policy to determine if storm surge coverage exists, and to what extent.