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NJ Electric and Gas Utility Sues AIG, Ace, Allianz Over Sandy Losses

Source: A.M. Best

Posted on 10 Jul 2013 by Neilson

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NJ lawsuit - SandyNew Jersey's largest gas and electric utility has filed suit against 11 insurers over losses related to Hurricane Sandy. The lawsuit names several large international insurance companies as defendants, including subsidiaries of Ace Ltd., Allianz SE and American International Group Inc.

Public Service Enterprise Group Inc., which has 2.2 million customers in New Jersey, suffered damages to its facilities that cost the company approximately $426 million, according to a complaint filed in the Superior Court of Newark, N.J. PSEG argues the damage should be covered under primary policies purchased from the 11 insurers that collectively provide $250 million in coverage. PSEG said it also carries an additional $750 million in excess coverage.

However, PSEG alleges its insurers have improperly limited their coverage liability to $50 million under caps on flood liability. PSEG said the damage was caused by a "named windstorm" and is therefore not subject to the flood liability caps, according to the complaint. "Under the law of New Jersey, when a loss has more than one cause, there is coverage so long as either the first or the last cause is covered by the policy," the complaint said. "The first cause of [PSEG's] Sandy-related losses is wind, which is not subject to the flood limits. Accordingly, no damage caused by wind or wind-driven storm surge is subject to the flood sublimits in the policies as a matter of New Jersey law."

The defendants include Ace American Insurance Co.; Allianz Global Risks U.S. Insurance Co.; American Alternative Insurance Corp.; Associated Electric & Gas Insurance Services Ltd.; Energy Insurance Mutual Ltd.; General Security Indemnity Company of Arizona; Liberty Mutual Holding Co.; National Union Fire Insurance Co. of Pittsburgh, a subsidiary of American International Group Inc.; Swiss Re Ltd.; Torus Insurance Ltd.; and certain underwriters at Lloyd's.

PSEG is being represented by William Frese of Newark. Efforts to reach Frese were not immediately successful. No lawyers have appeared on behalf of the insurers yet, according to court records. Efforts to reach spokesmen for the companies were not immediately successful.

As a result of disagreements between policyholders and their insurers over claims related to Sandy, the New Jersey Department of Banking and Insurance is setting up a mediation program to give consumers the chance to settle insurance disputes without the time and expense of litigation. It is unclear whether PSEG's lawsuit would be eligible for the mediation program. Similar efforts were successfully undertaken in Gulf Coast states after hurricanes Katrina and Rita slammed the region in 2005.

In a recent Best's News Service podcast, Joseph Cunningham from the law firm Cunningham & Associates, P.L.C. in Arlington, Va., addressed the effectiveness of mediation programs and the benefits of a states implementing such a program. Discussion topics also include what an insurance carrier can do to ensure more cases lead to mediation, ways in which insurance companies and law firms can establish better communication, and how relations between carriers and law firms have changed in recent years.