Superstorm Sandy was a complicated loss because of its unique nature and the controversy over when it was a hurricane and whether damage caused by it was while it was a hurricane. Many property policies have sublimits and deductibles specific to hurricanes or “named storms” or for flood losses. How these sublimits or deductibles apply to Superstorm Sandy depends on the specific language of each policy and has been the subject of numerous coverage actions. One of those actions reached a New York intermediate appellate court, which affirmed the denial of discovery into the insurance carriers’ handling of Superstorm Sandy losses for other insureds.
In Knickerbocker Village, Inc. v. Lexington Insurance Co., No. 10637 (N.Y. App. Div. 1st Dep’t Dec. 26, 2019), a multi-building apartment complex in New York City was insured by two commercial property policies with an overall limit of $100 million. Among other provisions, each policy had a Named Storm and Special Flood Hazard Areas (“SFHA”) deductibles, along with a more generic flood deductible. The complex suffered a loss after Superstorm Sandy and the insurance companies acknowledged coverage. The dispute arose, however, when the insurance companies calculated the insurance recovery using the Named Storm deductible, which resulted in a substantially smaller payment than the policyholder expected. The policyholder then brought a declaratory judgment and breach of contract action seeking a much more substantial insurance payment with the generic flood deductible applied rather than the Named Storm or SFHA deductibles. The complaint also sought payment for additional damages that allegedly were not paid by the insurance companies.
During the course of the litigation a discovery dispute arose concerning information sought by the policyholder about the handling of Superstorm Sandy claims by the insurance companies for other insureds under similar insurance policies and from a former underwriter for the insurance companies, who at the time of his deposition worked for an unrelated third-party insurance company. The motion court denied the policyholder’s request for this expanded discovery and the policyholder appealed.
The appellate decision is quite limited and contains no expansive reasoning for its decision to affirm the order denying the discovery. The court merely stated that the policyholder’s request to compel disclosure of information about defendants’ handling of its other insureds’ losses resulting from Superstorm Sandy was not material and necessary to the prosecution of the claims in the action. The upshot of the affirmance is that the policyholder’s arguments will have to be grounded in evidence concerning the insurance companies’ handling of the policyholder’s Superstorm Sandy claims under the specific policies at issue in the case.
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