Aboulafia Law Firm defeated an insurer’s motion for summary judgment in federal court on behalf of the owners of three neighboring buildings in Union, New Jersey. During Hurricane Ida in 2021, sewer water backed up into the buildings. The policy included a Water Back-Up and Sump Overflow Endorsement covering water that “backs up through or overflows or is otherwise discharged from a sewer,” but the insurer denied the claim. It argued that the hurricane’s rain had overwhelmed the city’s drainage system, and that this amounted to a “flood” excluded under the policy.
The U.S. District Court for the District of New Jersey rejected the insurer’s position and denied its motion. Applying New Jersey law, the Court held that the policy’s flood exclusion, which defined “flood” as “the overflow of surface water, waves, tides, tidal waves, streams, or other bodies of water,” applies only to the overflow of a body of water, such as a river, lake, or stream. Rain falling on city streets and overwhelming the municipal sewers, without any body of water overflowing, is not a “flood.” The Court also predicted that New Jersey’s highest court would read the undefined term “surface water” to mean a body of water on the surface of the land, consistent with the Appellate Division’s decision in Sosa v. Massachusetts Bay Insurance Co., and it reaffirmed that ambiguities in insurance policies are construed in favor of coverage. The decision is an important one for property owners whose buildings suffer sewer backups during severe storms.
Read the decision here:
G.E.M.S. Partners LLC v. AmGUARD Ins. Co., No. 22-1664 (MEF)(JBC), ECF No. 44 (D.N.J. July 29, 2024).