New Jersey Transit Sues Insurers Over Sandy Losses, Seeks $300M

New Jersey Transit, the nation’s third-largest bus, rail and light rail transportation provider, is suing several excess insurers to recoup additional $300 million for Superstorm Sandy losses.

NJ Transit says its Sandy-related losses fall under the “Named Windstorm” peril in NJ Transit’s comprehensive insurance coverage which provides up to $400 million in damage with no sublimit. But defendants argue NJ Transit’s losses were caused by a flood event, which has a $100 million sublimit, according to the complaint.

NJ Transit filed a civil lawsuit on Oct. 1 at the Superior Court of New Jersey Law Division in Newark, New Jersey. Defendants named in the complaint are: certain underwriters at Lloyd’s of London; Hudson Specialty Insurance Co.; Ironshore Specialty Insurance Co.; Maiden Specialty Insurance Co.; RSUI Indemnity Co.; Torus Specialty Insurance Co.; and Westport Insurance Corp.

NJ Transit is seeking a declaration that the flood sublimit does not apply to cap its Sandy-related losses because the losses were caused by a Named Windstorm, the lawsuit says.

The policies sold by defendants to NJ Transit were part of a $400 million comprehensive insurance program, the lawsuit says. The policies provide coverage in four layers above a per-occurrence deductible of $500,000.

The first layer of coverage is $50 million, the second layer of coverage is also $50 million, the third layer is $175 million, and the fourth layer is $125 million. With the exception of the first layer provided by AIG’s Lexington Insurance Co., which is not a defendant in this lawsuit, multiple insurers including defendants are responsible for the coverage available in each layer, with each company assuming a certain percentage of each layers’ coverage limit.

In wake of Sandy, NJ Transit immediately notified its broker Marsh and all of its carriers, including defendants, of the damage it sustained. And over the next several months, inspections, valuations, and necessary repairs proceeded, with NJ Transit keeping all of the carriers informed as total damage estimates developed, the lawsuit says.

In April 2013, NJ Transit received a letter from defendants that said the insurers believed all Sandy-related water damage fell within their policies’ definition of flood and that they would pay no more than the flood sublimit of $100 million, or $50 million in excess of the first-layer coverage provided by Lexington Insurance Co., according to the complaint.

In December 2013, excess insurers agreed to pay the $50 million in combined policy limits of the second-layer policies, which, when combined with the $50 million that NJ Transit’s primary insurer had previously paid, brought NJ Transit’s total insurance recovery to $100 million — the flood sublimit.

The lawsuit says NJ Transit has not received any further payment of the remaining $300 million in coverage from defendants or any other insurer since then.

NJ Transit argues in the lawsuit that it is entitled to a declaration that the flood sublimit in the policies does not apply to the losses caused by Sandy and its ensuing storm surge. NJ Transit says defendants must pay for the full amount of NJ Transit’s losses from Sandy, up to the policies’ overall limit.

NJ Transit operates over 2,000 buses, 700 trains, and 45 light rail vehicles, and provides nearly 223 million passenger trips per year. It has facilities throughout New Jersey, with over 250 bus, rail, and light rail stations and maintenance facilities, as well as over 500 miles of track, thousands of signals, and over 500 bridges.

The case is New Jersey Transit Corporation v. Certain Underwriters at Lloyd’s; Hudson Specialty Insurance Co.; Ironshore Specialty Insurance Co.; Maiden Specialty Insurance Co.; RSUI Indemnity Co.; Torus Specialty Insurance Co.; and Westport Insurance Corp. Superior Court of New Jersey Law Division, Essex County, Oct. 1, 2014.