N.J. Court Seeking Ways to Expedite Sandy Flood Litigation

A New Jersey federal court is seeking ways to expedite the litigation process for hundreds of flood insurance coverage-related cases that have been filed in wake of Superstorm Sandy.

The court said it has received more than 600 lawsuits that target various insurers in the National Flood Insurance Program’s Write-Your-Own (WYO) Program and that more cases are expected to be filed.

“The U.S. District Court for the District of New Jersey has received over 600 cases seeking recovery on flood insurance policies for damages arising from Super Storm Sandy, and many additional cases are likely to be filed,” according to the court’s Feb. 14 announcement, “Notice of Public Meeting – Super Storm Sandy Flood Litigation.”

The hearing was scheduled to be held on March 6 at the Clarkson S. Fisher Federal Courthouse in Trenton, N.J., after the print edition of Insurance Journal went to press.

The court said it is soliciting input from members of the New Jersey State Bar Association for help in implementing “the most efficient means of case management.” The court will conduct a public meeting to discuss management of such lawsuits and to consider any comments that were submitted.

Jeffrey Schulman, a New York-based partner at law firm Dickstein Shapiro LLP who specializes in insurance coverage, said there are hundreds of such pending cases in New Jersey and New York. The U.S. District Court for the Eastern District of New York, which has some 800 Sandy flood and wind coverage cases pending, has set up a docket for such lawsuits and is working to streamline the litigation process.

“The District Courts are trying to come up with a way to efficiently streamline the litigation of these cases if possible,” Schulman said. “I know that in the Eastern District of New York, for example, dozens and dozens of lawyers showed up and counsels for both the insurers’ side and the insureds’ side all seem to be saying that this is not something that is possible. But the courts are attempting to do so.”

Schulman said that in the flood coverage dispute cases, as with any property damage claim, there are a whole host of reasons why insurers may deny claims either in whole or in part. And these Write-Your-Own insurers are taking the position that they are an agent of the federal government and that they are following federal guidelines whether they pay or don’t pay. The Write-Your-Own policies state that any dispute arising out of the policy has to be brought in federal court, he noted.

But he said there are certain circumstances in which the Write-Your-Own insurer may be responsible for its own wrongful conduct. And to the extent that the policyholder sustained damages as a result of the insurer’s own wrongful conduct, that insurer would answer and pay those damages out of its own pocket. “And those funds do not come from the federal Treasury,” he said. “There are instances where insurers would be liable for their own wrongful conduct and those damages will not be paid from the federal Treasury.”

The number of cases also does not tell the whole story, Schulman noted. “In the Eastern District of New York, there are approximately 800 cases so far, and they expect more,” he said. But there are a number of cases that are called mass joinder cases, where counsel joined large groups of property owners in one complaint where, for example, the only common factor was that every plaintiff in that suit had a policy from the same insurance company, he said. So there could potentially be far more actual insureds involved in these suits than the number of cases might indicate.

Typically, how fast a lawsuit proceeds largely depends on the judge and how short a time frame the court gives to parties to conduct discovery. “So that’s largely going to depend on the diligence of the parties and how each individual judge manages her own docket,” Schulman said.

“But I think there is going to be an effort in New Jersey, as there has been in New York, to streamline the discovery and mandate some initial disclosures, and try to get parties to work towards mediation or other alternative dispute resolution so that the courts are not faced with hundreds of trials a year or two from now.”

Still, it’s likely that there will continue to be Sandy-related lawsuit proceedings years from now, he forecast.

“There are still litigations going on over Hurricane Katrina. That’s not necessarily the majority of the cases. I venture to say that the majority of the Katrina cases have been resolved. But there are still Katrina litigations,” Schulman said. “So there will likely be Sandy-related litigations still ongoing years from now.” He also observed that there are some out-of-state law firms representing various parties in these Sandy cases, some of which are touting experience representing homeowners following other storms like Katrina.