The United States District Court for the Southern District of New York recently granted an insurer’s motion for summary judgment in a case arising from Superstorm Sandy based on unambiguous policy language providing a significantly lower limit of liability for losses resulting from flood damage. In New York University v. Factory Mutual Insurance Co., 2019 U.S. Dist. LEXIS 45105 (S.D.N.Y. March 19, 2019), the court agreed with Factory Mutual (FM) that the policy’s $250 million and $40 million sublimits for flood damages applied to New York University’s (NYU) claim, rather than the policy’s $1.85 billion overall limit.

Superstorm Sandy inflicted damage to several NYU properties, including certain buildings associated with the university’s hospital and medical school. Those damages resulted in sizeable time element—or, business interruption—losses as well as losses under the policy’s additional coverages. FM and NYU agreed that the policy provided coverage but disagreed over which of its limits and sublimits applied to NYU’s claims. FM read the policy to limit losses attributable to flood damage at NYU’s hospital and medical school to $40 million and capped its payments accordingly. NYU read the policy to apply only its overall $1.85 billion aggregate limit to the school’s claims. NYU ultimately brought an action consisting of five counts for declaratory judgment and one breach of contract count claiming FM wrongfully limited coverage.

The dispute centered on which of three limits of liability applied to time element losses and losses subject to the policy’s additional coverages: a $1.85 billion overall coverage limit, a $250 million subsidiary aggregate limit for losses attributable to flood (flood limit), and a $40 million sublimit for flood damage suffered at NYU’s hospital and medical school (flood sublimit).

Relying on the policy’s unambiguous language, the court “easily dispensed with” NYU’s argument that the $1.85 billion overall limit applied. The policy provided that “limits of liability in an [o]ccurrence apply to the total loss or damage at all [l]ocations and for all coverages involved, including any insured time element loss.” The court found this language “unambiguous in subjecting time element claims to the limit of liability for flood, as well as its sublimit.” Moreover, the policy’s time element coverage section “plainly stat[ed] that recovery for ‘time element loss . . . is subject to the applicable limit of liability that applies to the insured physical loss or damage.’” Accordingly, the court held that NYU’s time element loss claims were subject to the $40 million sublimit specific to NYU’s hospital and medical school.

The court also held that NYU’s claims under the policy’s additional coverages were subject to the flood sublimit based on the same unambiguous policy language. Given that language, the court rejected NYU’s argument that, under the expressio unis canon of construction, the lack of specific references to the sublimits within the policy’s time element and additional coverages sections implied that only the overall $1.85 billion limit should apply to the school’s claims. “Rather,” the court reasoned, “consistent with the general principle [under New York law] that interpretive tools need not be deployed when the contract is unambiguous, expressio unius should not be applied to create ambiguity where none would otherwise exist.”

The decision demonstrates how unambiguous policy language may literally make a billion dollar difference in coverage.